Age-Old Way of Moving Cash Leaves Little Trail

ISLAMABAD, Pakistan â€”  There is something about the Al Rashid Trust office, located on the second floor of a trading building in a posh neighborhood here in Pakistan’s capital, that makes one think this is not an ordinary charitable organization.

Maybe it is the Islamic sword painted on a huge billboard outside, beneath the slogan “The Blow of the Pious.� Or maybe it is the tea server--a gray-bearded ex-army captain who carries a pump-action shotgun when he greets visitors at the door.

The Al Rashid Trust is one of Pakistan’s most visible philanthropic groups, soliciting funds for widows, orphans and the disabled. It also has been named by the U.S. government as part of a shadowy financial empire that keeps money flowing to terrorism suspect Osama bin Laden and his associates.

President Bush on Monday launched an effort to dry up the flow of money from Al Rashid and similar groups that might be used for terrorist purposes. But tracking the cash in this region is extremely difficult because it often flows along an ancient and nearly invisible route known as hawala in the Arab world, or hundi in Pakistan.

Hawala is a credit system for transferring funds over long distances, and it is centuries older than Western banking. It was born of a time when traders were more confident in their skills as bookkeepers than in their chances of not being robbed on the caravan trail.

Money Laundering May Take Ancient Form

Now ancient necessity has become a convenient way to launder money, evade taxes or--in the case of Bin Laden’s militant Al Qaeda network, financial experts believe--move millions of dollars around the world to fund a holy war.

The city of Peshawar, near Pakistan’s northwestern border with Afghanistan, is a place where Bin Laden has old roots and strong support, where people are suspicious of outsiders and accustomed to having things their way.

A leading money-changer, who works on the edge of Chowk Yadgar square in a shop the size of a walk-in closet, summed up America’s chances of cutting the terrorists’ secret cash lifeline here: “Impossible.�

Colleagues reclining on the floor nodded in agreement.

“If you arrest one person, or keep watch on another in the market, someone will just replace him. There are a lot of people involved in this [hawala] business. Everyone needs money. Everyone needs hard currency. So how can you stop this?�

Hawala banking, which is illegal in Pakistan, relies on something older than money itself: a person’s word. Nothing could be more discreet. There is no need to smuggle large amounts of cash from one country to another or to fill out bank forms that can draw unwanted attention. No need, in fact, for detailed bank records.

A person simply hands over cash at one end and it is paid out at the other, leaving virtually no paper trail to follow.

Here’s how it works: The hawala banker who takes a deposit writes down the phone number or address of the payer’s representative in the receiving country. Then he instructs his partner--a money trader or group of traders in that country--to pay out the required sum. Generally the contact is made by telephone or e-mail. A code word, or a recognized face or voice, is all that is required to complete the transaction.

No cash is moved through legal banking channels. The hawala money trader and his partner simply keep straight between themselves who owes what to whom and settle their own debts--in cash, gold or other commodities--when convenient.

The Trail Can Get Muddy, a Banker Says

There are many permutations that muddy the trail of anyone trying to follow the money, said a banker in Islamabad familiar with the system. For instance, when multimillion-dollar sums are needed, groups of money traders will split the transaction among themselves to make the payment. They also may turn to friendly offshore banks to issue cashier’s checks.

It would be difficult to audit the money-changers, said the Islamabad banker, who insisted that he not be identified for security reasons. The groups in Pakistan keep on hand only as much cash as they need. Any excess is regularly carried by plane to such locations as Singapore or the United Arab Emirates and deposited in joint accounts. Only the traders among themselves know who owns what in those pooled accounts.

Asked what happens if someone tries to cheat, the banker frowned. “These are very bad people,� he said. “In this business, you don’t cheat.�

Most hawala transactions are in the hundreds of dollars--such as remittances that Pakistani workers in Persian Gulf states send to their families back home. But the only limit on a hawala transfer is the amount of cash you bring to the counter, said the Peshawar money-changers, all members of the executive board of the Money Changers’ Assn. of Peshawar, who spoke on condition that they not be named because they fear more visits from the police.

Hawala persists in Pakistan because it serves an important function. The Islamabad banker said it plays a huge part in the nation’s black market economy, which could total billions of dollars.

During the former Soviet Union’s occupation of Afghanistan in the 1980s, billions of dollars in U.S. and other Western military aid were secretly channeled to Afghan moujahedeen fighters, who included Bin Laden, through the Bank of Credit & Commerce International.

The bank had Pakistani managers and wealthy Arab backers from the Gulf states and was the preferred banker for intelligence agencies, drug traffickers and money launderers of various sorts until it collapsed on July 5, 1991.

That is when the financial acumen and personal wealth of Bin Laden, the scion of a wealthy Saudi family, made him so important to the radical Islamist movement he would soon come to lead, according to investigators.

Hawala bankers, sympathetic governments, wealthy Arab benefactors and the heroin trade all played a part in developing the intricate Al Qaeda financial network that Washington is now trying to tear apart in its war against terrorism.

Pakistan’s government has been trying for several years to put hawala bankers out of business but has only succeeded in driving them underground, the money-changers said.

The crackdown began after 1998 tests of nuclear weapons by Pakistan and India. The government in Islamabad knew that it would be slapped with U.S. economic sanctions as punishment and ordered police raids to stop people from moving huge sums of U.S. dollars and other hard currency offshore, the money-changers said.

But hawala bankers still operate secretly in Peshawar’s money bazaar, and more openly in a region of Pakistan’s North-West Frontier province known as the “tribal areas,� where gun markets also flourish and ethnic Pushtuns are more likely to obey their own traditions than national laws.

Like the hawala system, the Islamic charitable funds that the Bush administration believes are a source of the money for Bin Laden’s group are based on cash and trust and, therefore, are largely free any independent scrutiny.

Though many have ties to militant Koranic schools or to mullahs known for extremist views, the funds have proved adept at attracting money from the rich and poor by promising to use it for laudable causes.

During a reporter’s visit to the Al Rashid Trust on Tuesday, an old man came in with about $20 that he wished to give as a zakat--a gift to the needy that under Islam is required of all Muslims who can afford it.

Ghyass Uddin, the bookkeeper on duty, took the cash and put it aside, recorded the gift in a ledger and handed the man a glossy receipt that looked something like a check. It was filled in with the man’s name, the date, the amount of money given and the purpose--in this case simply “Afghanistan.�

A Denial Concerning Any Criminal Purposes

Uddin, whose office is across the street from Islamabad’s American Center and only a short distance from the Supreme Court, denied that such money could ever be put to criminal purposes. “All our money and its uses are documented,� he said.

But asked how anyone could be sure where the money went, he said with a benign look, “You trust the Trust.� There is no independent oversight, he said.

Al Rashid Trust, headquartered in Karachi, has branches all over Pakistan and, according to Uddin, takes in a steady stream of funds. The group’s literature denounces the United States for its policies toward Israel, Iraq and Saudi Arabia and praises Islamic fighters. Yet Al Rashid says it spends its money only on social causes such as aiding needy Muslims, providing disaster relief and spreading knowledge about the faith.

At least some of its goals, however, hint at a more political agenda, such as aiding “illegally jailed� prisoners, cleansing the media of pornography and creating books “to promote in the people and the elite the fear of the Last [Judgment] Day.�

And even a cursory glance at its publications hints at links between Al Rashid and Afghanistan’s Taliban movement. A recent edition of The Blow of the Pious newspaper included on its front page a decree by Taliban leader Mullah Mohammed Omar threatening any Muslim country that sides with the United States. At the bottom was a poem praising Omar as “a savior unto mankind.� And most of the first four pages is filled with articles, photos and graphics about the attacks on New York and the Pentagon, insinuating that Jews were responsible.

Despite all that, Uddin offered tea to an American guest and said he was surprised that Bush would try to freeze the assets of groups like Al Rashid.

“What proof do they have?� the young man said calmly, sitting on the floor behind a desk with his ledger book. “How can he do it, if there is no proof?�

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Daniszewski reported from Islamabad, Watson from Peshawar.