KARACHI, July 25: The State Bank Governor Dr Ishrat Husain has summoned heads of all foreign exchange companies on Friday to tell them bluntly that their wrong-doings have reached levels that the central bank would not tolerate and they will have to face music.

Executives of exchange companies say no agenda of the meeting has been set but Dr. Husain is likely to warn them in the strongest possible language to desist from currency smuggling and illegal transfer of foreign exchange abroad.

Industry sources say that some leading exchange companies are involved in currency smuggling and illegal transfer of foreign exchange. Some central bankers also say that these companies are operating in connivance with those who transfer foreign exchange of overseas Pakistanis back home through illegal modes of hundi and havala. Senior bankers estimate that the overseas Pakistanis still send no less than two billion dollars per year through havala. Their remittances through banks and other official channels including the record remittances handled by the exchange companies themselves come to about four billion dollars per year.

According to a report prepared by the State Bank, Pakistanis living abroad sent back home only $235 million through foreign exchange companies in 2004. The amount was around six per cent of the total remittances of $3.944 billion from expatriate Pakistanis in the last calendar year.

Insiders say the reason why these companies attracted such a small amount of remittances from overseas Pakistanis is that some leading exchange companies are themselves involved in havala or illegal transfer of foreign exchange from abroad to Pakistan. “How can these companies show on books the foreign exchange they buy from overseas Pakistanis as home remittances when they themselves are havala operators?” asked a senior banker.

“They bring back home the bulk of the foreign exchange bought abroad through havala and show only a friction of it as official remittances.”

In the past the State Bank has punished several foreign exchange companies for violating rules and for their involvement in currency smuggling and understatement of their foreign exchange transactions.

It has not specifically charged any company for being involved in havala but central bankers dealing with these companies say privately they know that some of them remain constantly involved in havala business.

It is against this background that the central bank chief is going to meet heads of foreign exchange companies on Friday. Sources in exchange companies say that the SBP governor is meeting them at a time when the air is filled with reports of alleged involvement of a top exchange company in havala business.

The representatives of the Karachi-based company were held up briefly on the charge of attempting to smuggle currency out of Pakistan but the matter was hushed up. In the past also, representatives of several exchange companies have been found involved in currency smuggling and actions were taken against them but to no avail. In fact, the business of one of these companies still remains suspended.

The central bank has lately launched a crackdown against erring foreign exchange companies as the policy makers believe that the inflow of remittances from overseas Pakistanis can be increased to at least six billion dollars if loop-holes are plugged. That has become all the more necessary in the backdrop of a widening trade deficit that is going to turn Pakistan’s overall balance of payments negative.