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Cablegate: More Hawala Closings; License Applications Up

VZCZCXRO1255
PP RUEHDBU RUEHIK RUEHPW RUEHYG
DE RUEHBUL #1931/01 1620943
ZNR UUUUU ZZH
P 110943Z JUN 07
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 8642
INFO RUEATRS/DEPT OF TREASURY WASH DC PRIORITY
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNDT/USMISSION USUN NEW YORK 4156

UNCLAS SECTION 01 OF 02 KABUL 001931

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR SCA/FO, SCA/RA, AND SCA/A
DEPT FOR EB/ESC/TFS:LCANNON, S/CT:PHILL, AND IO/PSC:JSANDAGE
NSC FOR AHARRIMAN
CENTCOM FOR CG CFC-A
TREASURY PASS TO LMCDONALD, ABAUKOL, BDAHL, AND JDUVIVIER
OSD FOR SHIVERS

E.O. 12958 N/A
TAGS: EFIN ETTC PTER SNAR KCRM ECON AF
SUBJECT: MORE HAWALA CLOSINGS; LICENSE APPLICATIONS UP

(U) This cable contains SENSITIVE BUT UNCLASSIFIED information.
Please protect accordingly.

1.(SBU) SUMMARY: The newly formed Central Bank enforcement team
recently closed five money service provider (MSP) shops in Kabul's
main hawaladar market. Pressure from the Hawala Association caused
two of the five to be released immediately. The enforcement team
seized the books of the three that were not released, but the books
were not held long enough for detailed investigations. However, the
Central Bank received 70 applications for MSP licenses after the
enforcement actions. If approved, the number of licensed MSP
operations in Kabul's main hawaladar market will approach 100 out of
an estimated 305. This is a strong and positive signal that the
Central Bank is taking seriously its obligations to license and
monitor hawaladar activity.
END SUMMARY.


2. (SBU) During the week of May 21, the Central Bank enforcement
team initiated its first campaign against unlicensed hawaladars.
The team consists of one representative from the Attorney General's
Office, two from the Ministry of Interior (MOI), one from the
Central Bank's Supervision Department, and an intermittent observer
from the Financial Intelligence Unit (FIU). (NOTE: The Central
Bank Governor has authorized the FIU to hire a law enforcement
liaison, perhaps on detail from the MOI, who would provide more
support in this area. END NOTE.) Inspections in the hawaladar
market revealed two currency exchangers who were also providing
MSP/hawaladar services. Both were closed. However, a delegation
led by the Hawala Association President successfully pressured the
Central Bank First Deputy Governor Ibrahimi to re-open the shops
that same day.

3. (SBU) Angry over the quick re-openings, representatives of the
FIU, the Supervision Department and the enforcement team met with
Ibrahimi to discuss a tougher strategy. In the meeting, the
enforcement team complained that because they had "lost face" in the
market they could not go back to the market. A chastened Ibrahimi
promised to be tougher, and in the following round of inspections
during the week of May 28, three shops were closed by the inspection
team, again for not reporting MSP activities. In addition, their
books were seized on the recommendation of the FIU. So far, they
have remained closed, despite a repeat visit by the hawala
delegation.

4. (SBU) In addition to closing three shops, the FIU attempted to
fine them, an action that the First Deputy supported.
Unfortunately, the Central Bank General Counsel advised that the
Central Bank did not have the authority to levy a fine in this case.
The best that could be done, he stated, was to send a strongly
worded letter of reprimand, which all agreed was insufficient.
Ibrahimi and the General Counsel agreed to draft a regulation that
would authorize the Central Bank to levy fines against hawaladars
that violate the licensing regulations. The draft would be
submitted to the Central Bank's Supreme Council, but it should not
be expected to be implemented until the end of the summer.

5. (SBU) During the inspections, the enforcement team counted 305
"storefronts" in the main hawala market. The team suspects that
almost all are providing MSP/hawaladar services, so the inspection
and licensing process will need to continue. The FIU has also
issued an internal opinion that a "storefront" (service provider)
that does not initiate transactions, but only receives them, must
still be considered to be an MSP/hawaladar. The Director General of
the FIU and the Head of the Licensing Department are working on a
strategy to extend the inspections to MSP/hawalas in other sections
of Kabul and eventually to other cities such as Mazar-e-Sharif,
Kunduz and Herat.

6. (SBU) Immediately after the closings, the Central Bank received a
total of 70 new MSP/hawala license applications. An application is
only counted if the paperwork is completed and the 15,000 Afghani

KABUL 00001931 002 OF 002


(approximately USD 300) fee has been paid. Prior to the enforcement
actions, the Central Bank had issued a total of 28 MSP/hawala
licenses to service providers in the main Kabul market.

7. (SBU) COMMENT: In the past six months, the Central Bank has made
substantial progress in registering hawaladars. Assuming all 70
pending applications are approved, approximately one-third of the
hawaladars in Kabul's main market will be registered, no mean
achievement given the hawaladars' predilection to avoid government
at all costs. The Bank's initial enforcement efforts must be
applauded for stimulating the appropriate response in the market.
However, the enforcement process does appear to have a "catch and
release" problem. Seized books have been returned to hawaladars
after being held for only two days, an insufficient amount of time
for the FIU to analyze them for possible additional law enforcement
actions. Nonetheless, the Central Bank has demonstrated that it can
and will confiscate hawala records, an important signal to the
hawaladar community that the government is more serious.

WOOD

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