Daily Times

The recent Federal Investigation Agency (FIA) on the currency dealers of Peshawar’s famous Sarafa Bazar triggered afresh the debate on the issue of money laundering and the associated menace of terrorism financing and the rough ride Pakistan is experiencing with the Financial Action Task Force (FATF). Sarafa Bazar, though mainly known as the gold jewellery market of Peshawar, has also evolved to become a hub of the non-banking channel of money exchange, commonly known as hawala and hundi. According to an estimate, about 250 dealers are attached to this lucrative business. The business received an impetus with the migration of Afghans to Pakistan in the wake of the conflict that engulfed Afghanistan in 1970s.

The nonbanking money transfer business proved unstoppable as it grew to cater to the demands of Pakistani workers living abroad, who wanted an easy and inexpensive system for sending remittances. When a facility is unregulated, it soon attracts criminal gangs as well. The hawala system was no exception, and it soon became a conduit for illicit money, especially drug money. I can recall a kidnapping case which I had to deal with in 1987 when I got posted as ASP in Peshawar. A local college student was kidnapped which was found to be a result of failure of the father of a money exchanger to deliver money earned through the drug trade to a person in Dara Adam Khel. The dispute was ultimately settled through a Jirga of elders of the Mohmand and Afridi tribes.

Successive governments had considered disrupting the hawala business, but the business kept flourishing. It also proved to be a very helpful and efficient conduit for funnelling money to the Afghan groups in the Zia era. Commanders of the Afghan Jihad got heavily involved in the hawala system, making it a big business. During my career, I saw a member of the Hazar Buz tribe making billions in this money exchange business and soon he became the blue-eyed boy of all important sections of the power structure in Pakistan. He not only obtained a Pakistani citizenship, but also owns big businesses and factories on both sides of the border.

During my career, I saw a member of the Hazar Buz tribe making billions in this money exchange business and soon he became the blue-eyed boy of all important sections of the power structure in Pakistan

The unregulated money exchange business caught the attention of leaders of developed countries following9/11, emerging as an important international issue. Ungoverned spaces and the movement of money became central to the strategic policies of the US and its allies. While initiating direct military action, choking the financing of terrorism also became a focal objective. The urgency to tackle the problem of money laundering and related terror financing found its way in the more proactive role of the FATF in enforcing its recommendations upon countries that have unregulated money exchange mechanisms.

There is no denying the fact that many Pakistanis associated with traveling agencies and hoteling in countries like UAE and the UK often indulge in the hawala based money exchange business. But when the FATF called for strict implementation of its recommendations, those countries clamped against such transactions effectively. Unfortunately, Pakistan remained lukewarm in complying with the standards set by the FATF. Pakistan, along with other eight countries, has been unable to make much headway. Stories of raids by FIA on money exchangers’ premises are flashed in the media and then business resumes as usual. For instance, recently as a kneejerk reaction to international pressure, instead of registering cases under relevant sections of money laundering legislation and Anti-Terrorism Act, the FIA sleuths detained currency dealers under the Maintenance of Public Ordinance. The dealers therefore challenged the action in a writ petition and the High Court set them free.

Pakistan is not deficient as far as relevant legislation is concerned. The weakness lies in the area of implementation. Capacity building of investigative agencies and the judiciary is needed as the old system is ill equipped to deal with white collar crimes. The problem of money laundering will remain if the country has safe havens and tax black holes. It’s not just the economy in general which is undocumented, we have areas like the Malakand Division, old FATA and the B-Areas of Balochistan where our tax laws do not operate. Such exempted areas and agricultural professions provide a cover for tax evasion and promote the black economy. According to a World Bank report, the stealth economy of tribal areas (old FATA) alone was around $30 billion. To make matters worse, in its mini-budget the government has allowed the non-filers of income tax to buy property and vehicles, thus further regularising tax evasion and the shadow economy.

Another grey area is the regulation of charitable and non-governmental originations among which many are on UN and American blacklists, as these are allegedly involved in channelling money for terrorism. Anti-money laundering efforts also suffer from the fact that corruption is rampant at the lower levels of investigative agencies. The agencies usually tasked in investigating money gained through drugs are the Anti-Narcotics Force, Police, Customs, and Provincial Excise Departments while cases of violation of currency laws are dealt by FIA, the State Bank and commercial banks. Experience has taught me that most of the officers of these organisations are not even aware of the relevant sections of laws from wherein they derive their legal authority. Thus, the capacity building of law enforcement organisations needs to be a top priority of anti-money laundering regime is to be effectively enforced in Pakistan.

The author is a former Inspector General of Police and former Home Secretary (KP), and Chairman Good Governance Forum. He can be reached at aashah7@yahoo.com

Published in Daily Times, September 29^th 2018.