SPECIAL REPORT 1 BY MATTHEW GREEN KANDAHAR, AFGHANISTAN, DECEMBER 23, 2012 Stalking the Taliban’s banker Washington is trying to starve the insurgency of funds before handing over to Afghan forces in 2014 AFGHANISTAN MONEY H aji Khairullah Barakzai is the ultimate Afghan success story: il- literate village boy makes a fortune thanks to a lifetime of hard work, unerring street smarts and God’s favour. But to the U.S. Treasury Department, he is one of the biggest bankers to the Taliban, the architect of an underground network that converts opium grown in the poppy fields of his native southern Afghanistan into cash. FOLLOW THE MONEY: The U.S. Treasury Department has been investigating the role of Afghanistan’s traditional money markets, such as this one in Kandahar city, in funding the Taliban insurgency. REUTERS/AHMAD NADEEM
Transcript
SPECIAL REPORT 1
By MATThEw GREEnKAnDAhAR, AfGhAnISTAn, DECEMBER 23, 2012
Stalking the Taliban’s banker
washington is trying to starve the insurgency of funds before handing over to Afghan forces in 2014
AfGhAnISTAn MOnEy
Haji Khairullah Barakzai is the ultimate Afghan success story: il-literate village boy makes a fortune thanks to a lifetime of hard work, unerring street smarts and God’s favour.
But to the U.S. Treasury Department, he is one of the biggest bankers to the Taliban, the architect of an underground network that converts opium grown in the poppy fields of his native southern Afghanistan into cash.
fOLLOw ThE MOnEy: The U.S. Treasury Department has been investigating the role of Afghanistan’s traditional money markets, such as this one in
Kandahar city, in funding the Taliban insurgency. REUTERS/AhmAd NAdEEm
SPECIAL REPORT 2
AFGHANISTAN MONEY STALKING THE TALIBAN’S BANKER
On June 29, the United States and United Nations slapped “terror finance” sanctions on Khairullah and his 25-year-old currency-exchange business, freezing his assets and imposing a travel ban. The move marked a new phase in an escalating but little known campaign to starve the in-surgency of drug money ahead of a hando-ver to Afghan forces in 2014.
A Treasury statement accused Khairullah of “donating money and providing financial services to the Taliban”, which used his cash transfer service “in support of the Taliban’s narcotics and terrorist operations”.
Treasury’s evidence is classified, but Afghan sources and Western officials fa-miliar with Khairullah painted a portrait of a man with long-standing ties to the Taliban and the drug trade alongside sig-nificant legitimate businesses.
Khairullah’s friends and associates describe an entirely different figure, a
patriarchal pillar of the community who in the murky world of Afghan currency trad-ing cannot always be expected to know the true identity of his customers.
“I am a businessman, and a business-man is like a ram. Anyone in authority can come and grab it by its neck and slaughter it,” Khairullah told Reuters, in his first in-terview since the sanctions were imposed.
“My life has become hell. I have lost my credibility and reputation. I have been de-clared guilty without any verdict from a judge,” he said. He was speaking by telephone from Quetta, the city in southwest Pakistan where he sought sanctuary after Washington named him as a key Taliban financier.
The showdown between Khairullah and his pursuers opens a rare window into an-other kind of war, where financial intelli-gence trumps firepower, and captured terri-tory is measured in frozen accounts.
It is a war the West has not been win-ning. Milking money from the heroin trade, donors in the Gulf and extortion rackets on NATO contractors, the Taliban increased its income to $400 million in the last Afghan calendar year, according to U.N. estimates.
About a quarter came from narcotics.Since sanctioning Khairullah and his
business partner Haji Abdul Sattar Barakzai, the U.S. government has stepped up its campaign to disrupt the insurgents’ revenue streams. Washington has hit militant groups, guerrilla commanders and other currency dealers with a slew of similar measures.
U.S. officials acknowledge it is hard to rank the significance of any one of a core group of suspected Taliban money men with precision, but they believe Khairullah is in-tegral to the movement’s funding structure.
Proponents say squeezing the cash pipe-lines that pay for fighters and weapons is a smart way to pressure the Taliban while the vast majority of foreign combat troops is being withdrawn.
The approach could also be used to exert leverage over Taliban hardliners, if halting attempts to foster peace talks gain momen-tum. Tentative contacts between the United States and the Taliban suffered a setback in March when the two sides could not agree on a proposed prisoner swap. But the White House remains keen to pursue dialogue.
The hunt for Khairullah’s presumed
NOTE: Hawaladar = hawala operatorSource: Interpol
The hawala network is an ancient trust-based financial system for transferring money used in much of the Islamic world.
The sender finds Hawaladar A to send $XX to a recipient in Country B. The sender hands over the cash and gets a number code.
The recipient gives the number code to Hawaladar B, who gives him cash from his reserves. The $XX debt is between the two hawaladars and will be settled by future transactions or a reciprocal remittance.
STEP 3In Country B...
STEP 2By phone, email or messaging...
STEP 1In Country A...
Hawaladar A relays the code and the remittance amount to his counterpart in Country B. The sender also relays the number code to the recipient in Country B. Hawaladars are often linked by family ties in communities across the world.
Sender Hawaladar A Hawaladar BHawaladar A RecipientHawaladar B
Trust funds
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millions points to the sheer difficulty of choking Taliban funding channels.
Investigators who venture into the re-gion’s forbidding ecosystem of illicit com-merce find that lines between legitimate trade and criminality often blur, hand-written ledgers are barely decipherable, and deceptively nondescript offices move mountains of cash.
“Everything is done on a phone call and a handshake,” said one U.S. official. “The record system or the paper trail that allow you to connect the dots is not as clear as the Western system.”
In Kandahar’s seven-storey money mar-ket, where turbaned dealers haggle over bricks of well-worn notes, Khairullah’s col-leagues leapt to the defence of a respected member of their age-old fraternity.
“When we went to his office, we only saw people changing money or drinking tea or eating sweets,” said Haji Qandi Agha, a regal-looking trader who is the market’s president. “There was no talk of the Taliban or heroin.”
Agha gestured to a man with a close-cropped beard and embroidered skull cap who had just approached his counter.
“For example, this man is sending money,” he said, after the customer produced a sheaf of grubby bills from his waistcoat. “What if the government or America captures him and says he’s Taliban? Is it my crime?”
The man, counting with deft thumbs, did not look up.
CANDY SELLER TO CURRENCY KINGKhairullah was born into a modest family in Afghanistan’s southern Helmand province, where he revealed his entrepreneurial streak as a boy by selling sweets from a handcart, according to two politicians who knew him.
Khairullah, now about 50, said he built his empire from humble beginnings, starting out by trading goods within Afghanistan and the region. Later, he invested in properties whose value soared exponentially after the Taliban was overthrown in 2001. He diversified into scrap metal and rice exporting in Pakistan
and owns a freight company in Dubai.In Kandahar, the birthplace of the
Taliban, Khairullah’s reputation as a shrewd currency trader is leavened by his image as a philanthropist. Colleagues praised him for mobilising relief for Pakistani earthquake survivors or Afghan villagers tormented by frostbite during harsh winters.
Above all, Khairullah is a king of the ha-wala trade. U.S. officials believe his network of more than a dozen currency counters spans Afghanistan, Pakistan, Dubai and Iran.
The hawala trust-based money transfer sys-tem, which pre-dates the time of the Prophet
Mohammed, is the banking system of choice in Afghanistan’s cash-based economy.
Customers tend to be far happier en-trusting their money to established hawala agents like Khairullah than a new crop of Western-style banks. A $900 million fraud at Kabul Bank, emblematic of the lack of ethics or controls in much of the formal sector, sharpened suspicions of the new Afghan financial elite.
“It is true that 35 to 40 years ago I had nothing,” Khairullah said. “Maybe I couldn’t even have raised 100,000 rupees ($1,000) back then. But God bestowed me with two eyes to see and a mind to think.”
Current and former officials ascribe Khairullah’s wealth to a different source: Afghanistan’s burgeoning heroin trade.
“He is one of the biggest fish in the re-gion,” said General Khodaidad (who goes by one name), Afghanistan’s counter-nar-cotics minister from 2007 to 2010.
A source in Pakistan’s Anti-Narcotics Force also said Khairullah was suspected
POPPy PIPELInE: Some of the estimated $400 million that the Taliban raised last year comes from a
cut of the opium harvests in Afghanistan. REUTERS/PARwiz
$700 millionThe estimated farm-gate value of opium in Afghanistan in 2012
Source:The United nations
SPECIAL REPORT 4
AFGHANISTAN MONEY STALKING THE TALIBAN’S BANKER
of involvement in trafficking. “He is rich and resourceful, therefore no one can touch him,” he said.
In 2012, the farm-gate value of opium - the actual cut farmers receive from the trade - accounted for 4 percent of Afghan gross domestic product, or about $700 million, ac-cording to U.N. data. Afghanistan provides 90 percent of the global supply of heroin and other illegal opiates, which has an estimated annual street value of $68 billion.
The accusations against Khairullah date back to the austere era of Taliban rule in the late 1990s. Then, he mingled with a coterie of heroin exporters who thrived under the patronage of Mullah Mohammed Omar, the movement’s enigmatic leader, accord-ing to two people from Kandahar familiar with the trade.
“He became close to the Taliban,” said one of the sources. “He bought drugs and sold them and made lots of money.”
The source added he had seen Khairullah visit Mullah Omar’s compound in Kandahar city perhaps 20 times before the Taliban was toppled, forcing many of its commanders to flee to Quetta, where Khairullah maintains an office.
In the summer of 2000, the year before his ouster, Mullah Omar banned poppy, causing opium prices to skyrocket. That made fortunes for Khairullah and others who had amassed stockpiles, according to a member of Kandahar’s provincial council.
Khairullah, who denies ever meeting Mullah Omar, said reports he was con-nected with the drug trade were concocted by his business rivals.
“I will be here five years from now, 10 years from now or 15 years from now,” he said. “If they can prove their allegations against me with concrete evidence, then
they can and should hang me for it.”For much of the West’s 11-year cam-
paign, the art of tracking sources of insur-gent funding was a neglected discipline at the Kabul headquarters of ISAF, the NATO-led force in Afghanistan.
The U.S. military, stretched in Iraq, resist-ed calls to pursue Afghan drug lords, fearing that “mission creep” into counter-narcotics would be a further drain on resources.
The role smuggling plays in sustaining the insurgency began to receive more at-tention in 2009 as part of a wider shake-up of the war effort under U.S. President Barack Obama, who tripled the number of American troops in Afghanistan.
Investigators suspect Khairullah stands at the centre of an “iron triangle” locking ha-wala dealers, heroin kingpins and militants
into an increasingly profitable symbiosis.Taliban commanders would collect
opium from poppy growers, then hand it over at his shops in farming communities in return for instant payments, a Western official said.
“He would take opium and give you cash,” he said.
Khairullah would then gather bulk quantities of opium in hidden storehouses to sell to traffickers for a lucrative margin, the official alleged.
U.S. officials say his hawala shops also served insurgents like a conventional bank, allowing Taliban leaders to make monthly payments to fighters, including their top commander in Helmand, a suspected major player in the heroin trade.
“As of 2010, Khairullah was a hawaladar, or hawala operator, for Taliban senior lead-ership and provided financial assistance to the Taliban,” the Treasury statement said.
Khairullah denies the allegations. “I am an illiterate man,” he said. “I have never been part of a political organisation either in Afghanistan or in Pakistan. My sole con-cern has been my business.”
Like other hawaladars, he said he could not be expected to always know who his clients were. “It is not written on some-one’s forehead that he is a member of the Taliban,” he said.
Esmatullah Helmand, a Khairullah rela-tive who runs his Kabul branch, said far from being in cahoots with the insurgents, his boss had feared being attacked for mov-ing money on behalf of trucking companies supplying ISAF.
“When we saw this thing on the news – that we were blacklisted – we were shocked,” Esmatullah said.
Any hope Khairullah may have had of keeping the sanctions quiet was shattered when Afghan television broadcast reports of his designation on the U.S. Treasury and U.N. websites.
Like Western banks, hawala dealers run highly leveraged businesses with paper
Drug money
NOTE: *2012 = Jan to Sept only.Source: U.N. Office on Drugs and Crime
High opium prices are likely to benefit the Taliban, who raise millions of dollars each year from trafficking opiates. This year’s crop in Afghanistan is worth an estimated $700 million.
0
100
200
300
400
500
'12*'10'08'06'04'02
AFGHANISTAN OPIUM PRICESAvg weighted farm-gate price at harvest
assets many times larger than the cash they hold. Shocks can tip them into bankruptcy.
Khairullah had faced an earlier crunch in 2010 after several of his partners in-curred huge losses. The sanctions triggered a new crisis as hundreds of his remaining customers scrambled to retrieve their funds.
“People who would deposit their money with me for years are now standing outside my door,” Khairullah said.
Within days of his designation by the U.S. Treasury, Khairullah had driven 200 kilometres (124 miles) from Kandahar to Quetta, an ISAF official said, dodging a U.N. travel ban that should have barred him from entering Pakistan.
At the same time, he began working his phones. Haji Najeebullah Akhtary, presi-dent of Kabul’s Sarai Shahzada currency market, was among the first to receive a call.
“Immediately, he called me and said he was going to meet President Karzai,” Akhtary said.
Approaching the president would have
been a natural step. Karzai’s family hails from Kandahar, and the president has tended to sympathise with community leaders nursing grievances against ISAF.
Shah Wali Karzai, one of the president’s brothers and a prominent Kandahari, said he had hosted Khairullah’s partner Sattar at a meeting aimed at settling a land dispute in February, before the pair were sanctioned.
Khairullah’s hopes of winning a similar audience with the president came to nothing. Instead, Karzai ordered security chiefs to in-vestigate him, a presidential spokesman said.
Undeterred, Khairullah sent another relative to Kabul to lobby Afghanistan’s National Directorate of Security, the
intelligence agency, an NDS official said.The NDS offered to work with the fam-
ily to investigate the U.S. claims and inform Washington if they were unfounded, but the relative declined, the official added.
Mullah Sayed Mohammed Akhund, a lawmaker from Kandahar, also fielded fran-tic calls from his long-time friend.
“I guarantee that he hasn’t paid even one penny to the Taliban,” Akhund said. “He has lost his way and he doesn’t know what to do.”
TIP-OFFAs Khairullah called his contacts, the Afghan financial intelligence unit, FinTRACA, moved to freeze his assets.
Although hawala dealers can shift large sums purely by cooperating with fellow ha-waladars, big players also rely on the formal banking system to help reconcile elaborate cross-border transactions that can involve millions of dollars.
When the blocking orders arrived at Afghanistan’s commercial banks, the lend-ers told FinTRACA that Khairullah’s ac-counts only held the equivalent of $20,000 - a fraction of the sums he is believed to have been moving.
FinTRACA did not provide the names of the banks.
“A couple of months prior to the sanc-tions, he had stopped transferring money via these accounts,” said Mohammad Mustafa Massoudi, FinTRACA director-general. “He must have had some tip-off, some knowledge that it was coming.”
Nevertheless, Khairullah said the sanc-tions had forced him to auction property to raise cash. A real estate agent in Kandahar said an agitated-looking Khairullah had visited him in August to try to cut a quick deal to sell 24 plots in a new development on the edge of the city for $360,000.
“His face told me he was very worried,” the agent said.
As Afghan officials pondered the whereabouts of Khairullah’s elusive hoard, Luke Bronin, the U.S. deputy assistant
TACKLInG ThE TALIBAn: the United States is turning over the battle against the Taliban insurgency
to Afghan forces as it focuses on shutting down the source of its funding. REUTERS/GoRAN TomASEvic
he must have had some tip-off,some knowledge that it was coming.
secretary for terrorist financing, boarded a plane for the Pakistani commercial capital of Karachi in early September.
U.S. officials say they consulted close-ly with Pakistan before sanctioning Khairullah, Sattar and HKHS, their ha-wala company, mindful of long-standing Pakistani resentment of pressure to crack down on the Taliban.
Bronin hammered home the importance of putting the two men out of business in two days of meetings with financial and security officials in Karachi and Islamabad.
“They have been designated not only by the U.S. but also by the United Nations,” Bronin told Reuters. “So we have every ex-pectation that Pakistan will take the neces-sary steps to shut them down.”
Pakistan’s central bank said it routinely implements U.N. freeze orders, but does not divulge details.
In Quetta, Khairullah appears to oper-ate unimpeded, working from an unmarked first-floor office guarded by a metal door opposite a motorbike repair shop. Western officials marvel at his continued ability to raise six-figure dollar sums in cash.
Fuming at his adversaries from his Quetta headquarters, Khairullah seems anxious as well as angry. A fellow hawala merchant, Haji Mohammed Qasim, was arrested by Afghan and U.S. forces in Kandahar in mid-September.
The U.S. Treasury has since accused Qasim of transferring millions of dollars on behalf of the Taliban and hit him with sanc-tions. Perturbed dealers in Kandahar say they do not even know where he is being held.
Haji Agha Jan, another currency trader, said his business had collapsed after ISAF detained him for 25 days last year to inter-rogate him over his client list. “People are afraid that the Americans will arrest me again,” he said, chewing green tobacco in his empty shop.
Resentment of the U.S. sanctions in
Kandahar’s money bazaar is echoed by the wider business community In Kabul.
The Afghanistan Chamber of Commerce and Industries, the country’s leading business lobby, has been sharply critical of U.S. authorities for publicly nam-ing suspected Taliban supporters without submitting evidence to Afghan courts.
“They are destroying the image of indi-viduals and businesses,” said Mohammad Qurban Haqjo, the Chamber president. “In other countries, nobody is allowed to do that.”
On a recent afternoon in the city’s cur-rency market, no customers called at shop 237, Khairullah’s counter. A storefront sign emblazoned with his name had been effaced with blue paint. Only a Koranic inscription above the door had been left untouched. It
read: “And God is the Best of Providers.”“The Americans and the United Nations
have persecuted me,” Khairullah said. “They will have to compensate me for my losses.”
Additional reporting by Mirwais Harooni, Hamid Shalizi, Jessica Donati and Abdel Aziz Ibrahimi in KABUL, Mahmoud Habboush in DUBAI and Jibran Ahmad in PESHAWAR
ThE LOnGEST wAR: The United States will withdraw the vast majority of its forces from Afghanistan
by the end of 2014, winding down its longest war. REUTERS/dANiSh SiddiqUi
