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October 8, 2001
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On the terrorists' undocumented money trail

Cracking down on the finances of terrorists and tracking them through the money trail is bound to lead to the murky waters of the age-old tradition of hundi, or hawala, in the Indian subcontinent and Afghanistan.

Away from the hi-tech electronically driven financial sector of the Western world, the business of hundi dominates financial transactions.

Western bankers would describe the system as money laundering or illegal transfer of money. But in this region, paperless and undocumented financial transactions are the norm.

The US and European regulators are now investigating how Saudi-born Osama bin Laden, prime suspect in last month's terror attacks in the US, may have transferred funds to his operatives in different countries. But the task is daunting.

The current crackdown may curtail the hundi trade, but would never result in its termination worldwide, analysts here say. The heaviest transactions, however, are between the Gulf states and the Indian subcontinent as well as Afghanistan.

The system mostly works without any documentation. Faith and trust rule this mode of transfer of payment from one country to another. A moneychanger in Karachi, who operates in the hundi sector, explains that money could be transferred through drafts and wire services too.

The procedure is simple. The person seeking to send money purchases foreign currency at the prevailing market rates.

The money-changer levies his charges ranging from Rs 1,000 to Rs 5,000 per transaction or a percentage of the amount to be transferred to another country, and 24 hours later the recipient receives a phone call asking whether the money is needed in the local denomination or foreign currency.

The same transaction through regular international banking procedures could take up to a month, especially if the recipient lives in a remote area.

A computer programmer in Karachi says he works for a foreign company and receives cheques for his work. It takes one month for the money to be transferred into his account.

A hundi transaction would have taken him a day, he says, but the company he works for was reluctant to use this mode of payment.

Expatriate Pakistanis, Indians, Afghans and other Asians who work in the oil-rich Gulf States of the United Arab Emirates and Saudi Arabia, predominantly use the hundi system. Many are labourers or those who hold menial jobs, with families scattered in villages across South Asia and Afghanistan.

Pakistani expatriates sent nearly $1 billion through the regular banking channel in 2000-2001 after major efforts to woo expatriates into using the formal banking sector so Pakistan's forex reserves could show a healthy trend.

Remittances from expatriate Pakistanis to their families had dropped to around $800 million in 1999-2000 after Pakistan froze all foreign currency accounts in the country, fearing flight of capital after conducting the 1998 nuclear tests. The move backfired miserably.

Before the freezing of foreign currency accounts, the average remittances received by banks in Pakistan amounted to $1.4 billion. But the hundi trade has always remained a huge component of money transfers in the region.

Another moneychanger explains that as much as $5 billion is remitted through the grey channel or the hundi system.

"If you are travelling to India and you need money -- just pay the difference. Say you need 10,000 Indian rupees. You have to pay about 13,000 Pak rupees in Pakistan. The dealer will give you an address and the money will be available when you reach there," he says.

The entire transaction is scribbled on bits of cheap paper and easily thrown away.

"Once a dealer had no paper on him, so he picked up a discarded, empty packet of cigarettes from the pavement, wrote down the name and address of the company from whom the traveller had to collect the money and the transaction was done," says a money changer.

The US and European regulators are now faced with the seemingly insurmountable task of investigating whether bin Laden and his Al Qaeda network used the 'informal' mode of conducting financial transactions in the region.

The trail may well never be fully established.

Indo-Asian News Service

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