ISLAMABAD, Oct 8: An estimated amount of $4 billion are routed through the “hundi” system in the country every year, senior finance ministry officials told Dawn.
“Though it is anyone’s guess how much money changes hand through hundi but according to estimates it is as much as $4 billion annually,” an official said.
Investigations revealed that more than one-third of money sent by expatriate workers to families back home come through hundi system.
An ancient system of money transfers developed long before the formal banking codes for transactions evolved, hundi is called by different names in different countries. What is called as hundi in Pakistan is known by the name of hawala in India, Fei Qian in China and as flying money in other parts of the world. By any name, it is an ancient system for transferring money that is hard to trace for those trying to follow the money trail.
Interviews with a few dealers in the hundi system revealed that a money changer on the streets of a particular country takes cash from walk-in clients and promises to deliver the equivalent in another currency to a designated recipient in a foreign city, often within a day. The changer doesn’t actually send money, but rather tells a contact in the recipient’s city to deliver the proceeds. To retrieve the cash, the recipient needs only a number or a receipt or a code word mailed by the remitter.
These intermediaries, sometimes working out of stalls in small towns, charge a small fee, offering a preferential exchange rate as well as a low-maintenance, tax-free alternative to the bureaucracy of above-board banking.
According to sources, the money trail of hundi is under investigation by US and its allies for the suspicion that it is one of the conduits of cash flows to terrorist organizations.
Interviews revealed that secrecy and security are the attractions of the hundi network. There are no forms to fill out. Depending on the money changer, the limit to a transaction is usually how much cash you are willing to carry in your pocket. The hundi network remains the preferred way overseas Pakistanis send money back home.
“Failure to fulfil commitments under hundi can end up in paying with life by a party,” a banker said.
An employee of the ostensibly legitimate money changer business said that it would be easy to send money to affiliate offices in New York, Toronto, London, Dubai or anywhere without a record.
According to Pakistani officials, the government is focussing on the hundi transactions and preparing for a major crackdown. However, an official conceded: “But to be honest, tracking down such transactions is extremely difficult.
Much of the focus for international investigations to track down hundi transactions will be on Dubai in the United Arab Emirates. The Emirate functions as the most important centre for the funds of money changers from across the Muslim world. But the trail is likely to extend far beyond the Arab world to banks in Hong Kong, Malaysia and Indonesia.
Banking officials said that hundi got a big international push in the 1970s and 1980s with an exodus of millions of Pakistanis to better-paying jobs abroad. The system found its largest echo in the Bank of Credit & Commerce International. A number of Western countries used BCCI through the 1980s to channel billions of dollars in covert aid to Afghan rebels fighting Soviet occupation. BCCI collapsed in 1991.
In the past, the government has generally paid lip service to going after hundi operators. But money changers say police have recently become more active after the central bank asked banks to find and freeze the assets of terrorist groups identified by the US.
A senior government official says local financial authorities have been tightly monitoring the foreign exchange markets in an effort to prevent money laundering.
“We have asked exchange houses to ensure that these funds are legitimate workers’ money,” a central-bank official says.
Manager of a money exchange house in Islamabad, when asked if such measures will have any real impact on the culture of hundi, said: “This is a very powerful and popular alternative even for many in the government.”
