Pakistan seeks to eliminate hundi system's abuses

KARACHI -- Pakistani bankers and officials are calling for an end to the ancient money transfer systems of hundi and hawala so that they can cut off the flow of money to terrorists.

The systems, which involve the transfer of cash across borders through trusted middlemen, are deeply rooted in history and popular among those who dislike banks for various reasons. Their users value convenience, secrecy, speed and the somewhat more favourable exchange rate those systems offer.

However, with their lack of official oversight and their avoidance of taxation, they concern officials who want to choke off terror financing.

Some reports hold that pro-extremist seminaries are involved in illegal fund transfers from foreign countries to Pakistan.

Hundi and hawala "account for about $20 billion [Rs. 2.1 trillion] a year in remittances to Pakistan from other countries", Irtiza Kazmi, chief of the Global Home Remittance Department at the National Bank of Pakistan (NBP), told Pakistan Forward.

In fact, remittances through hundi and hawala are about equal to those that Pakistanis receive through banking channels, Kazmi said. If all those remittances went through banks, terrorists in Pakistan would find a vital source of funds eliminated.

Funding militants

"Hundi and hawala are the major source of income for [Pakistani] militants," Imtiaz Gul, executive director of the Islamabad-based Centre for Research and Security Studies think tank, told Pakistan Forward.

The NBP intends to educate the Pakistani diaspora to send remittances through legitimate banking channels, not through hundi and hawala, he said.

"In Islam the use of illegal channels to transfer halal money makes that money haram," Kazmi said. "We will share this Islamic perspective with expatriates."

The NBP plans to improve "technology and the online banking system to promote quick remittances", he added.

Karachi-based security analyst Col. (ret.) Mukhtar Ahmed Butt agreed with Kazmi's grim assessment of the dangers of hundi and hawala.

"Hundi has come under fire for suspected al-Qaeda links and for certain NGOs' involvement in laundering money for terrorism and extremism," Butt told Pakistan Forward.

The stakes are large, financial observers say: remittances are Pakistan's second largest source of foreign exchange, only after exports.

Authorities take action

For years, Pakistani authorities recognised the problem, but did not take vigourous action against the traditional practices.

Things changed after the December 2014 terrorist massacre of more than 140 children at Army Public School in Peshawar. Days later, the federal government ordered the implementation of the counter-terrorism National Action Plan (NAP).

"Since [the NAP] we have conducted hundreds of raids across [Khyber Pakhtunkhwa]," Federal Investigation Agency (FIA) deputy director for commercial banking in Peshawar, who requested anonymity, told Pakistan Forward. "We have arrested more than 250 people."

On June 24, Muneer Azam, secretary of the KP Home Department, chaired a meeting comprising FIA and other law enforcement and security officials in Peshawar. Intelligence officers gave a detailed presentation on money laundering in KP.

Azam ordered the FIA to begin raiding the businesses and homes of all money launderers in KP.

The truly hard work of extinguishing terrorism still awaits, said Mushtaq Ghani, a senior advisor to the KP chief minister, referring to tasks like eliminating illegal remittances.

"The security forces, especially the army, did a tremendous job since launching Operation Zarb-e-Azb [in June 2014]," he told Pakistan Forward. "But the difficult phase has just begun."

A global challenge

The web of terror financing has great geographical reach, the FIA official in Peshawar said.

"Jalalabad, Dubai, Sharjah and other regions are the largest markets for sending or receiving money," he said, adding that money is also transferred between Pakistani cities, not just to and from foreign countries.

"The FIA has recovered more than Rs. 350m [US $3.3m] from money launderers in KP [since the advent of the NAP]," the official added. "It could have been billions, but we lack resources and staff ... The FIA is doing a remarkable job with its resources."

For his part, Ghani said, "The provincial government will assist the FIA if it needs any resources or manpower."

Ghani urged political reform to make the Federally Administered Tribal Areas (FATA) more amenable to the fight against illegal remittances, as the police have no jurisdiction there.

"We presently cannot take action against money launderers hiding out in FATA," he said, referring to FATA's amorphous legal status. "Either make it a new province or fold it into KP."