February 28, 2003	Friday	Zul Hijjah 26, 1423

KARACHI, Feb 27: The two foreign exchange companies that have so far become operational are unable to attract home remittances.

The reason: they are not allowed to issue a key certificate to those receiving home remittances in Pakistan. The result: hundi/ hawala operators continue to operate — under the cover of money changers or otherwise. They only have to compete with banks — the traditional rivals.

H&H Exchange Company started operations on February 6 and NBP Exchange Company — a subsidiary of National Bank — on February 18. But so far they have not started handling home remittances i.e. the money sent back home by overseas Pakistanis.

“The reason is exchange companies cannot PRC or issue proceed realisation certificates,” said a senior official of one of the two companies. This certificate is issued by the banks handling home remittances to the beneficiaries or the people who receive these remittances here in Pakistan. The issuance of a PRC means the money sent back home is to be treated as white money by tax authorities here. If someone in Pakistan receives say a thousand dollars from abroad through an exchange company and he does not have a PRC it is almost equal to the money sent back home through an illegal channel.

“That is why we cannot tell people abroad to send money back home through our company,” lamented top official of an exchange company. “Nobody is going to take the risk,” he said explaining that in the absence of a PRC tax authorities here can question the whereabouts of the money one sends back to Pakistan through an exchange company.

Officials of the two exchange companies say they have raised this issue with the State Bank. They say either the exchange companies should be allowed to issue PRCs on their own or some banks be authorized to do this on their behalf.

A basic purpose for creating exchange companies was to block money laundering and ensure inflow of larger home remittances through official channels. So if the exchange companies fail to attract inward remittances this purpose would be defeated badly.

Inflow of home remittances through official channels has been on the rise after 9/11 but this does not mean that hawala/ hundi operators have ceased to operate. It is common knowledge that hundi operators are still in business — some under the guise of money changers and others quite independently.

“They have the guts to challenge the system,” said a leading money changer who refused to be identified. “I know of a man who handles illegal transfer of money from abroad. A shabby-looking man he sits in his old Suzuki carry carrying a mobile phone in his hand and delivers the money transferred through him within hours to anywhere in Karachi.” Shocked? “More shocking is the fact that some people have privately started advertising in the bankers and money changers community that those transferring money from abroad through their offices would also get PRCs.”

Normally such people claim they own a company which has struck a deal with ABC bank in Pakistan and it is under this agreement that they collect foreign currencies from people abroad and send back to Pakistan through these banks. Naturally the banks would also issue PRCs. But people have brought to the notice of Dawn many cases in which the claims made by such people proved wrong.

“My brother who is in London was approached by one such man who convinced him to send X amount of money through his account claiming that the beneficiary in Pakistan would get a PRC from a certain bank,” disclosed a young man Syed Tahir Hussain from North Nazimabad. “I did get the amount here but no PRC,” he said.

An official of State Bank confirmed to Dawn that the exchange companies are currently not allowed to issue PRCs. He would not say when they would get this permission but hastened to add that the issue is under consideration at the SBP.

“It is a pity that the two exchange companies operating with Rs300 million paidup capital each are unable to mobilize home remittances,” lamented an exchange company official. When asked how the exchange companies would mobilize home remittances from abroad in the absence of their outlets there he made no comments.

One possibility is that the exchange companies might enter into agreements with commercial banks abroad.