PESHAWAR, Aug 17: Use of illegal channels to transfer money is on the rise in the city with the majority of traders preferring hawala or hundi to the legal banking system for their cross-border commercial transactions.

Official and business sources say a large number of foreign exchange operators and businessmen, including Afghans, bypass the legal channels of money transfers and use hawala or hundi system.

“Transactions worth eight to10 million dollars are recorded on daily basis in the Chowk Yaadgaar business centre alone,” an official said, adding that many businessmen use hawala channel to evade tax, documentation, scrutiny and complicated bank procedures.

Karkhano market, lying between Peshawar and tribal area of Jamrud, and Chowk Yaadgaar in the heart of the city are the hubs of hawala business owners, said an official of the Federal Investigation Agency (FIA).

The agency, in a recent raid to curb the illegal business activities in Chowk Yaadgaar, arrested the incumbent president of Sarafa (money-changers) Association, who is an Afghan national, official sources said.

The business activity is high, but the businessmen prefer hawala to legal financial transactions through banks, said the sources.

In its ongoing crackdown, the FIA had apprehended about 200 people carrying out hawala for financial transactions and filed FIRs against 59 of them since 2001. In most of the cases, such people were found carrying Pakistani and Afghani passports and several chequebooks, which proved their illegal activity.

An FIA official said that in one case they arrested a trader with 26 chequebooks and his 12 bank accounts were frozen immediately. Some of the banks, which issue him the chequebooks, are also going to be investigated in this case, he said.

He said that strict laws were needed to curb this illegal activity. He said that the FIA was also investigating cases where hawala had been used for money-laundering as proceeds from smuggling and financial corruption were also routed through illegal financial channels.

A large number of businessmen, industrialists and importers are using hawala system without transferring money to other countries. The sources said that many Afghan businessmen were importing goods through Pak-Afghan Transit Trade by only paying transit fee evading taxes and duties and then the same goods were sold in the Karkhano market of Peshawar.

They said that the industrialists relied on hawala system when paying for the goods or some machinery they were importing and in some cases even proceeds from export items like vegetables and meat to Afghanistan were received through hawala channels.

“We use hawala system because it is based on trust. Businessmen have no trust in government or the banking system, which have complicated rules that change frequently,” says a trader on condition of anonymity.

Another businessman from Karkhano market said that hawala system was cost-effective and efficient, while banks needed documents and had complicated and time-consuming procedures. Businessmen can borrow millions of rupees as credit beforehand from hawala operators whereas the process to take loan from banks is complicated, says another businessman.

“Government procedures are cumbersome and lengthy whereas time is everything for a businessman,” said Hakim Shinwari, former president of Tribal Chamber of Commerce and Industries.