Identifier
Created
Classification
Origin
08ISLAMABAD3546
2008-11-10 12:32:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Islamabad
Cable title:
MONEYCHANGERS ARRESTED TO PRESERVE FOREIGN EXCHANGE
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UNCLAS ISLAMABAD 003546
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL PGOV PK
SUBJECT: MONEYCHANGERS ARRESTED TO PRESERVE FOREIGN EXCHANGE
UNCLAS ISLAMABAD 003546
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL PGOV PK
SUBJECT: MONEYCHANGERS ARRESTED TO PRESERVE FOREIGN EXCHANGE
1. (U) Summary. At least four money changers, including a CEO of a
leading foreign exchange company, were arrested on November 8 by
Pakistan's Federal Investigation Agency (FIA) for smuggling and
illegal cross border transfer of foreign exchange. The FIA is
closely watching other exchange companies to curb further
cross-border smuggling of dollars. According to FIA sources, the
case has been registered under the Foreign Exchange Regulations Act,
which does not specify severe penalties for such crimes. FIA
sources estimate that foreign exchange sent out of country could be
in the millions of dollars. The rupee appreciated from 81 to 80
rupees per USD after the arrests. Portfolio investment flight has
put downward pressure on the rupee, especially net outflows of USD
253.52 million from the stock market since July 2008. End summary.
2. (U) The FIA arrested four members of Khanani and Kalia
International (KKI, a leading exchange company headquartered in
Karachi) in Lahore, Karachi, and Gujranwala last week for illegally
transferring foreign currency abroad. The most prominent are Javed
Khanani, CEO of Khanani and Kalia International and General
Secretary of Exchange Companies Association of Pakistan, and Munaf
Kalia, Director of Khanani and Kalia International. For the last
three weeks the State Bank of Pakistan (SBP) has been reviewing
exchange companies to ascertain the causes of recent rupee
depreciation and requested the government to clamp down on exchange
companies suspected of involvement in illegal transfer of dollars.
After the arrests the rupee appreciated from 81 to 80 rupees per
USD.
3. (U) The Director of Interpol at FIA, Syed Asif Akhtar, said that
the case has been registered under the Foreign Exchange Regulations
Act of 1947 (FERA) for capital flight, which does not require severe
penalties for such crimes. FIA alleges that KKI was involved in
physical transfer of foreign currency from Pakistan and ran a Hawala
or Hundi business. Hundi and Hawala systems are explicitly banned
under section 4 of FERA. However, since they conduct undocumented
business it is difficult to identify or monitor them. Akhtar also
said that they are still not sure how much foreign exchange has been
transferred as the investigation is still underway but their
estimates are in the range of millions of dollars.
4. (U) On November 6, an FIA team raided a franchise of KKI in
Gujranwala and arrested two employees, with evidence of illegal
currency transfer. FIA then raided the head office of KKI late
November 7. FIA took all records, computers, hard disks and data of
foreign currency transactions and sealed the office. Two forensic
experts are analyzing the seized computer records. Future raids and
arrests will be made in the light of information retrieved.
5. (U) A delegation of exchange companies met FIA officials in
Karachi to petition for the release of the KKI employees. The
request was denied. These arrests have caused concern among money
changers in Lahore, as FIA continues to monitor money changers for
illegal transfers. Some money changers who normally did business on
Sundays remained closed on November 9, for fear of FIA raids.
According to one of their representatives, their business will
remain closed on Monday as well.
6. (SBU) In addition to flight of capital through illegal means the
equity markets of Pakistan have also witnessed the capital outflows.
The net outflow from the Convertible Rupee accounts during November
1 to November 7 has been USD 1.497 million while the net outflow
from July 1 to November 7th has been USD 253.52 million. Together
these have put a pressure on rupee.
7. (SBU) Comment. The arrests are symptomatic of a deteriorating
liquidity crisis in Pakistan, as foreign exchange reserves have been
depleted to less than one month's imports and external financing
fails to materialize. The enforcement measures may encourage
transmission of more remittances from expatriates through the formal
banking sector, which could improve banks' foreign exchange balance
sheets. Unfortunately, they could also feed speculation and promote
capital flight. End Comment.
PATTERSON
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL PGOV PK
SUBJECT: MONEYCHANGERS ARRESTED TO PRESERVE FOREIGN EXCHANGE
1. (U) Summary. At least four money changers, including a CEO of a
leading foreign exchange company, were arrested on November 8 by
Pakistan's Federal Investigation Agency (FIA) for smuggling and
illegal cross border transfer of foreign exchange. The FIA is
closely watching other exchange companies to curb further
cross-border smuggling of dollars. According to FIA sources, the
case has been registered under the Foreign Exchange Regulations Act,
which does not specify severe penalties for such crimes. FIA
sources estimate that foreign exchange sent out of country could be
in the millions of dollars. The rupee appreciated from 81 to 80
rupees per USD after the arrests. Portfolio investment flight has
put downward pressure on the rupee, especially net outflows of USD
253.52 million from the stock market since July 2008. End summary.
2. (U) The FIA arrested four members of Khanani and Kalia
International (KKI, a leading exchange company headquartered in
Karachi) in Lahore, Karachi, and Gujranwala last week for illegally
transferring foreign currency abroad. The most prominent are Javed
Khanani, CEO of Khanani and Kalia International and General
Secretary of Exchange Companies Association of Pakistan, and Munaf
Kalia, Director of Khanani and Kalia International. For the last
three weeks the State Bank of Pakistan (SBP) has been reviewing
exchange companies to ascertain the causes of recent rupee
depreciation and requested the government to clamp down on exchange
companies suspected of involvement in illegal transfer of dollars.
After the arrests the rupee appreciated from 81 to 80 rupees per
USD.
3. (U) The Director of Interpol at FIA, Syed Asif Akhtar, said that
the case has been registered under the Foreign Exchange Regulations
Act of 1947 (FERA) for capital flight, which does not require severe
penalties for such crimes. FIA alleges that KKI was involved in
physical transfer of foreign currency from Pakistan and ran a Hawala
or Hundi business. Hundi and Hawala systems are explicitly banned
under section 4 of FERA. However, since they conduct undocumented
business it is difficult to identify or monitor them. Akhtar also
said that they are still not sure how much foreign exchange has been
transferred as the investigation is still underway but their
estimates are in the range of millions of dollars.
4. (U) On November 6, an FIA team raided a franchise of KKI in
Gujranwala and arrested two employees, with evidence of illegal
currency transfer. FIA then raided the head office of KKI late
November 7. FIA took all records, computers, hard disks and data of
foreign currency transactions and sealed the office. Two forensic
experts are analyzing the seized computer records. Future raids and
arrests will be made in the light of information retrieved.
5. (U) A delegation of exchange companies met FIA officials in
Karachi to petition for the release of the KKI employees. The
request was denied. These arrests have caused concern among money
changers in Lahore, as FIA continues to monitor money changers for
illegal transfers. Some money changers who normally did business on
Sundays remained closed on November 9, for fear of FIA raids.
According to one of their representatives, their business will
remain closed on Monday as well.
6. (SBU) In addition to flight of capital through illegal means the
equity markets of Pakistan have also witnessed the capital outflows.
The net outflow from the Convertible Rupee accounts during November
1 to November 7 has been USD 1.497 million while the net outflow
from July 1 to November 7th has been USD 253.52 million. Together
these have put a pressure on rupee.
7. (SBU) Comment. The arrests are symptomatic of a deteriorating
liquidity crisis in Pakistan, as foreign exchange reserves have been
depleted to less than one month's imports and external financing
fails to materialize. The enforcement measures may encourage
transmission of more remittances from expatriates through the formal
banking sector, which could improve banks' foreign exchange balance
sheets. Unfortunately, they could also feed speculation and promote
capital flight. End Comment.
PATTERSON