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Tuesday, January 13, 2009

Money laundering or fiscal terrorism - 1
by Ismat SabirThe State Bank of Pakistan has frozen almost 90 to 100 accounts of the directors of Khanani and Kalia and closed relatives of owners. Another report shows that details of about 18,000 accounts were also found in the 20 computers seized from the offices and franchises of the company. Presently, the top brass of Khanani and Kalia are under the remand of FIA on illegally remitting the money outside the Pakistan.But the notable point is that the actual culprits, i.e., the persons who have given the money to the money changers to transfer it abroad are yet to be identified. While the seized computers have complete addresses and whereabouts of the clients who used services of the company, so it would not be difficult to find out the actual responsible personalities.Officials say Javed Kalia has named influential people whose money has been sent abroad but the problem is that these people are very influential, therefore, advisor to PM, Rehman Malik, had to state in the Senate that no lists was prepared that included names of certain politicians, businessmen or bureaucrats involved in the scandal neither any name had been put on the exit control list.Instead of appreciating government's efforts, several opposition senators asked under which law, action was taken by FIA against the accused and why were they manhandled. A joint meeting of Forex Association of Pakistan (FAP) and Exchange Companies Association of Pakistan (ECAP) criticised the FIA's Lahore Circle for presenting some of the KKI directors handcuffed in Lahore Sessions Court.Director FIA Crime Circle also had to assure that in future FIA would take the exchange companies' association into confidence before taking action against any exchange company and would be raided in the presence of SBP officials. Earlier the advisor stated that those indulged in this criminal activity are too powerful and influential, however, a green signal was given and action proceeded against them. He said the investigation was being carried out against seven money changing firms, but yet no action has taken against any other company.The advisor also explained that the action was taken under Foreign Exchange Regulations Act 1947, as the accused had committed criminal acts and they could seek bail. It is to be noted that earlier certain powers transferred to the NAB, had been again given to FIA a week back, which was given a signal to its cyber crime wing to go after certain elements who were indulging the illegal activity.According to the details, Lahore FIA officials prepared a special report about the flight of dollars from the country in April 2008, fearing that a forex crisis would hit the country in the near future. The report also recommended strong and instant action against persons involved in the Hundi and Havala business.Lahore, Gujranwala, Karachi and Peshawar are the main cities where a majority of money changers were running the Hundi and Havala business and anyone could send any amounts any where in the world without any check.A special team of the FIA's Crime Circle was constituted to take action. The agency has been ordered to collect more intelligence and that the crackdown against the Hundi and Havala business. This malpractice in foreign exchange dealing was going on for the last 5 to 6 years. The Government blamed that the money changers have developed a parallel internet banking system. Actually money changers never transferred the dollars or other currencies expatriate Pakistanis deposited with them.Officials of the SBP and the government were expressing apprehension for quite some time about involvement of some money changers in the smuggling of dollars. It was estimated that money exchangers have transferred around $10 billion during the last five years from the country. On an average, they were transferring about $10 million every day through the Havala and Hundi system.The accused also accepted that this smuggling had caused the slump in the shares business at local bourses. Since April 2008, the Karachi Stock Exchange has witnessed a 41 percent fall in its 100-Index. Moreover, the value of rupee against dollar was continuously going down, due to dollarization and open smuggling of dollars.The money was being smuggled in big quantity, for instance, a Rs10 million bag was being sold for Rs1.10 million in Afghanistan in October. A probe was launched, which led to interception of $32 million at Lahore Airport. Such detections were also carried out in Peshawar and Karachi too.The main currency market of Peshawar is at Chowk Yadgar where hundreds of Afghan refugees have also joined the activity with the locals. Any person, having cash amount of even Rs5, 000 to Rs 10,000 were also purchasing dollar to earn a little amount.Currency dealers having agents in Jalalabad, Afghanistan, fixed price of the currency. Millions of dollars were being smuggled to Afghanistan daily, as there is no check on the movement of the currency from and into Pakistan. Rupee against dollar was sold at Rs90 in Peshawar on 28th October 2008.The Afghan refugees traveling across the border at Torkham are the main source of currency smuggling that was not checked by any official agency. Neither the government took timely action for arresting depreciation of rupee.On May 9, 2008, the SBP issued a warning to cancel exchange companies' licenses that fail to bring remittances into the country and also will disallow the export of currency notes. They totally ignored all these warnings and rupee further weakened from Rs66.88 to Rs67.50/67.70 to a dollar on the same day. For a long time SBP kept the PKR-dollar parity stable at $1 to PKR 60 to 62 and the cash transactions were normally within 30 to 40 paisas band.On the other hand, the market players said the government is responsible for the slide down. They feel that SBP/government, after the April meeting with the IMF, in Washington, might agreed to weaken the rupee in order to control the widening trade and current account deficit by at least equal to the inflation differential. Therefore, the SBP allowed the rupee to slide by 30 to 40 paisa on a daily basis. This has encouraged the trend of polarization. The investors have shifted their focus from equities to the currency trade. Even the small savers and housewives jumped on this bandwagon.The money changers made Rs4 billion annually through this illegal trade while the forex reserves are depleting rapidly. Authorities have identified a cartel whose illegal transaction of foreign currencies is aggravating the devaluation of the rupee against dollar. At one time, one US dollar reached Rs84 in the open market while bank rate was Rs81. Later, dollar was sold for Rs88 in the open market while bank rate was Rs84. There were also rumours that the government and the State Bank have agreed with the foreign agencies to drop the value of rupee to the level of Rs100 per dollar.The unstable rupee has also causing problems for importers as their imported goods were lying at ports and banks were not releasing them dollars, therefore, they have to purchase it from the open market where dollar price rates was increasing every day.In November 2004, when SBP was trying not to let the forex reserves go down below $10 billion on orders of then Prime Minister, Shaukat Aziz, similar threats and various administrative measures such as exporting currency only through NBP exchange company to plug leakages taken by the SBP did not work. In spite of several warnings exchange companies bring in less than one billion dollars in home remittances while the currency export was over $4 to $5 billion a year.The SBP told money changers that unlike the exchange companies need a minimum paid-up capital of Rs100 million they can start operating as mini exchange companies with a minimum capital of Rs25 million only. The Bank also said if less than 80 percent of them do not opt for establishing 'B' category exchange it would cancel the very scheme that gives them this option.Representatives of exchange companies were not happy at these instructions they said they will have to undergo a loss since the rupee has weakened more than the agreed rate with SBP.There are 378 licensed money changers across Pakistan 109 of them operating in Karachi. The SBP had set June 30, 2004 deadline for them to stop operating as money changers, they were given the option to transform their business into new exchange companies or get franchise from the existing ones. But money changers were a bit averse to this idea and wanted to keep their own identity.So the central bank finally allowed them to form mini exchange companies instead of becoming a part of the existing exchange companies or establishing new ones.It also told them that at least five money changers should join hands to form one mini exchange company. Central bank said that the purpose of this requirement was to ensure that the majority of licensed money changers transform their businesses into exchange companies.(To be continued)
Money laundering or fiscal terrorism — II
by Ismat SabirThe SBP has admitted that exchange companies have made transaction of over $ 5 billion from January to September 2008, including the sale of $ 1 billion to banks and some $1.423 billion inward remittances and $ 1.675 billion remittances sent abroad and $ 1.754 billion brought back through the export of ‘Kutchra’. The SBP said it was continuously monitoring exchange companies and it has also taken some specific actions against companies on account of violations of foreign exchange rules and regulations during the last two years.Prime Minister’s Advisor on Interior Rehman Malik said, “We got information that a huge sum of money was sent to Afghanistan four weeks ago. A probe was launched, which led to the interception of $ 32 million at the Lahore airport. Such detections were also made in Peshawar and Karachi. We want to take action but the State Bank governor stopped us as she contented that the forex dealers were having the license for transacting the business in any amount. After a thorough deliberation, the government had to scramble its cyber crimes wing to lay hand on this business that was ruining the economy and taking the precious foreign exchange away from the country away.Clarifying its position, the SBP said that with the transformation of Authorised Money Changers (AMCs) into formal exchange companies, a large number of undocumented transactions have come under the fold of formal framework, which require proper documentation, record keeping and adherence to internationally accepted Know Your Customer Norms. It also enabled the SBP to narrow the gap between inter bank and kerb market rates, which plays an important role in improving the flow of home remittances.The SBP said that at present there are certain contradictory provisions in the legislations relating to foreign exchange transactions. For instance, Foreign Exchange Regulation Act (FERA), 1947 is the main legislation which provides regulatory powers to the SBP for making rules and regulations to govern the foreign exchange and remittance business. At the same time, Protection of Economic Reforms Act (PERA), 1992 provides complete freedom to individuals to bring, hold, sell, transfer and take out foreign exchange within or outside Pakistan. Though the freedom was curtailed to a certain extent by making an amendment in 1999, still an ample freedom is available in terms of Pera 1992. It has a clause which categorically states that PERA 1992 has an overriding effect over FERA 1947. Therefore, the same limits the effectiveness of the Central Bank to effectively monitor and supervise foreign exchange activities, the central bank explained.Similarly, since FERA 1947 is lacking in empowering SBP to directly impose monetary penalties on violation of foreign exchange rules and regulations. The SBP has, however, been constantly flagging the issue and proposed related amendments in FERA, 1947 and PERA, 1992 to enable the SBP to effectively and promptly deal with the violations and illegal foreign exchange activities. The SBP also stated that only 10 exchange companies were issued explanation letters on the findings of Special Inspection/Routine Inspection on the violations of Foreign Exchange Rules & Regulations during last two years. The licenses of two exchange companies of ‘B’ category were suspended on violations, besides permission for export of FCY to a company was suspended.In order to improve documentation of foreign currency flows and introduce necessary checks on export of foreign currency notes other than dollars by the exchange companies, a joint booth of the SBP and Customs was established at Karachi and Lahore airports.It further said since the SBP is not a law enforcement agency, in order to curb illegal operators it has to request the concerned agencies for initiation of action. Accordingly, the SBP has been initiating a special campaign and took necessary steps, which include identification of such operators through its field offices and enhanced coordination with LEAs. A number of cases were referred to law enforcement agencies for requisite actions. According to officials figures, there are 24 full-fledged exchange companies with 162 branches/booths and 570 arrangements with third parties. Similarly, there are 30 exchange companies of ‘B’ category with 237 branches forming a total network of 969 business locations in the country for over the counter exchange and remittance business.The Money Changers’ Association said it has 365 members of them only five companies had established offices. The members of the racket of the currency black market pay Rs 1,000 per month to the local office of the federal intelligence agency, who informed the dealers beforehand about the possible raid. Lahore FIA arrested Javed Khanani and two employees on November 5. However, the FIR has many weak points. Later on a case was also registered in Karachi. Khanani and Kalia carried out about 40 percent of all money exchange transactions in the country. It has 24 branches and nine franchises across the country.In search for evidence to prove the exchange company guilty, it was found in one computer data that an illegal transaction of Rs 39 billion took place. The FIA has found that some of the accused had transferred at least $ 500 million abroad from their personal accounts during the last 10 months. The franchise of Khanani and Kalia International, Duniya Enterprise, in Gujranwala has been involved in ‘physical’ transfer of foreign currency from Pakistan, besides running ‘hawala or hundi business’ illegally. The confiscated Gujranwala office computers have a website through which data was deleted, but the cyber crime wing of the FIA managed to retrieve it.The FIA also conducted raids in different districts of the NWFP, arresting four people. It also raided the Haripur franchise of Bismillah Money Changers and arrested two persons. Bismillah Money Changers was operating despite cancellation of their license by the State Bank. FIA had been monitoring KK for two months where its franchise in Gujranwala had a special counter for hawala transfers.KKI offices in the Karachi Stock Exchange, and New Challi were raided and arrested Munaf Kalia, a director of the firm, lodged FIR on the directives of higher authorities, also arrested many employees. The government has sealed offices of the company all over the country and posted the FIA staff outside them. Malik Bostan, representative of the Forex Association of Pakistan, said the association would turn in anyone found involved in illegal transfers. The FAP collects $7 billion foreign exchange annually and gives it to the government, of which the share of KK is about $ 4 billion. He warned, “If we are targeted and harassed, this money will not be received”.Malik Bostan said a similar crackdown was initiated in 1998 by the Nawaz government. However, it was stopped on the request of the FAP and the dollar was brought down from Rs 67 to Rs 50. He said if any complaint will be received against any money changer, the association will itself hand over such a person to the FIA.Rehman Malik revealed that the money changers involved in establishing a parallel banking system for transacting money had links with the drug money since bad money and black business do have commonalities among themselves. Actually this is ‘fiscal terrorism. He dispelled the impression that the action has created a wedge in the ties of the Muttahida Qaumi Movement (MQM) and the ruling Pakistan People’s Party (PPP).Munaf Kalia, in police custody, said that FIA did not have the right to seal the office or property of any money changer. According to rules FIA should report to the State Bank and, SBP could serve show cause notice on which money changer could be investigated. The SBP is the authority to serve notice and on finding evidence it is the State Bank that has the right of sealing the money changer company. The FIA team has also arrested eight officials of Nadra who are accused of issuing fake CNICs on which the illegal transfer of dollars was made.Moreover, the FIA arrested four men at the Karachi Airport who were carrying dollars, pounds and travellers cheques worth about $ 1 million. Both the KK directors are being interrogated to extract important information and names of politicians, bureaucrats, as to how bureaucrats, politicians, businessmen and other influential people transferred money to their children for education and as installments for expensive property abroad.The Financial Monitoring Unit (FMU) of the State Bank of Pakistan established under Anti-Money Laundering Ordinance 2007 has unearthed its first-ever case of suspicious business transactions worth Rs 50 million and asked the National Accountability Bureau (NAB) to initiate investigation against two companies. These companies are suspected of involvement in Rs 50 million fraud, as they obtained rebates on the cheques issued from the government treasury and deposited in their accounts. The NAB was given green signal to launch inquiry against three foreign exchange companies into allegations regarding illegal business, transfer of dollar and money laundering and approved investigation against A. R. Enterprises, Ahsan Enterprises and Tianshi International Pakistan.Rehman Malik advised the people not to transfer money through ‘hawala’ or ‘hundi’, for transaction use banking system. Such activity abroad is known as money-laundering. Turkey’s second major source of income is foreign exchange business; but not the way, it is being done in Pakistan. However, this system might not end because it is more convenient to the immigrants to send their money through money changer companies as they deliver money to their doorstep within 24 hours. As against this banks take seven to 15 days to transfer money.(Concluded)The writer is a senior journalist and researcherSource: The Post
The writer is a senior journalist and researcher

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