Tuesday, June 29, 2010

Cash and Carry, the Mid East way

Afghan Aid on Hold as Corruption Is Probed (WSJ)
The chairwoman of the House subcommittee responsible for foreign aid said she was stripping from pending legislation $3.9 billion in funding for Afghanistan following revelations that billions of dollars, including large amounts of U.S. aid funds, were flowing out of the country through Kabul's main airport.

"I do not intend to appropriate one more dime for assistance to Afghanistan until I have confidence that U.S. taxpayer money is not being abused to line the pockets of corrupt Afghan government officials, drug lords, and terrorists," Ms. Lowey said.

At least $3.18 billion in cash has been flown out of Afghanistan since 2007 after being legally declared to customs officers, according to documents reported Monday in The Wall Street Journal.

U.S. officials say they believe at least some of the cash is siphoned from Western aid projects and U.S., European and North Atlantic Treaty Organization contracts to provide security, supplies and reconstruction work for coalition forces in Afghanistan. NATO spent $14 billion in Afghanistan last year.

Profits reaped from the opium trade are also a part of the money flow, as is cash earned by the Taliban from drugs and extortion, officials say. Almost all the money is sent to Dubai, where wealthy Afghans have long parked their lawfully and unlawfully earned money.

The money is being shipped through private money-transfer networks known as "hawalas," which have been used for centuries across the Muslim world as a fast, cheap and legitimate way to transfer funds.

U.S. State Department spokesman P.J. Crowley said while some of the money leaving through the Kabul airport was likely from Afghanistan's illicit drug trade, the State Department believed most was the product of Afghanistan's growing economy and the need to move funds to a country with a better-functioning banking system, such as Dubai.

"I don't think we have any evidence at this point that the money flowing out of Afghanistan is U.S. money," Mr. Crowley said. "We think for the most part it's the result of legitimate commerce."

And this is from the story that kicked off this brouhaha: Corruption Suspected in Airlift of Billions in Cash From Kabul
The amount declared as it leaves the airport is vast in a nation where the gross domestic product last year totaled $13.5 billion. More declared cash flies out of Kabul each year than the Afghan government collects in tax and customs revenue nationwide. "It's not like they grow money on trees here," said a U.S. official investigating corruption and Taliban financing. "A lot of this looks like our tax dollars being stolen. And opium, of course."

The cash—packed into suitcases, piled onto pallets and loaded into airplanes—is declared and legal to move.

The formal banking system here is in its infancy, and hawalas form the backbone of the financial sector. The State Department says that 80% to 90% of all financial transactions in Afghanistan run through hawalas.

Hawala networks run on what is effectively an honor system and much of the business they do is legitimate.

At their simplest, a customer drops off money at one dealer and is given a numeric code or password, which is then used by the money's recipient when the cash is picked up elsewhere.

The hawala operators then settle up among themselves.

Hawala fees are far cheaper than standard banks, often as little as $150 to move $100,000, and transfers can be done in minutes or hours as opposed to days.

The officials believe hawala customers who have sent millions of dollars of their money abroad include high-ranking officials and their associates in President Hamid Karzai's administration, including Vice President Mohammed Fahim, and one of the president's brothers, Mahmood Karzai, an influential businessmen.

Vice President Fahim, responded through his brother, A.H. Fahim, a businessman, who denied the allegations. "My brother? He doesn't know anything about money," Mr. Fahim said.

Mahmood Karzai, an American citizen, blamed the allegations that he was transferring illicitly earned cash from Afghanistan on political opponents.

"Yes, millions of dollars are leaving this country but it is all taken by politicians. Bribes, corruption, all of it," he said. "But let's find out who is taking it. Let's not go on rumors. I've said this to the Americans."

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