VZCZCXRO3029
OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0698/01 2460944
ZNR UUUUU ZZH
O 020944Z SEP 08
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8116
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBY/AMEMBASSY CANBERRA 1487
RUEHBJ/AMEMBASSY BEIJING 2015
RUEHKA/AMEMBASSY DHAKA 4967
RUEHNE/AMEMBASSY NEW DELHI 4978
RUEHUL/AMEMBASSY SEOUL 8569
RUEHKO/AMEMBASSY TOKYO 6138
RUEHCN/AMCONSUL CHENGDU 1561
RUEHCHI/AMCONSUL CHIANG MAI 1808
RUEHCI/AMCONSUL KOLKATA 0412
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/DIA WASHDC
RUEHGV/USMISSION GENEVA 4001
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 1964
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 03 RANGOON 000698 
 
SIPDIS 
 
STATE FOR EAP/MLS, INR/EAP, EEB/TFS 
DEPT PASS TO USAID/ANE 
PACOM FOR FPA 
TREASURY FOR OASIA, OFAC, FINCEN, TFFC 
BANGKOK FOR USAID/OFDA - BILL BERGER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL PGOV BM
SUBJECT: BURMA: USING THE HUNDI SYSTEM TO TRANSFER MONEY 
 
REF: A. RANGOON 197 
     ¶B. RANGOON 663 
 
RANGOON 00000698  001.2 OF 003 
 
 
¶1.  (SBU)  Summary.  Prompted by government restrictions on 
foreign currency holdings and U.S. financial sanctions, many 
Burmese opt to transfer U.S. dollars in and out of Burma 
through informal channels, known colloquially as the "hundi 
system."  The system links Burmese money changers and 
businesses with counterparts elsewhere in the region, often 
in Bangkok or Singapore, allowing cheap and efficient money 
transfers based on personal relationships and trust.  The 
hundi system enables Burmese to conduct transactions in U.S. 
dollars outside the reach of GOB authorities, eliminating the 
need to withdraw Foreign Exchange Currency (FEC) and the 
associated exchange rate loss.  It also bypasses U.S. 
prohibitions - affecting both businesses unconnected to the 
regime and crony companies - on dollar-denominated 
transactions into Burma and among Burmese nationals outside 
the country.  End Summary. 
 
Burma's Backstreet Bankers 
-------------------------- 
 
¶2.  (SBU)  The Burmese Central Bank heavily regulates the 
banking sector, favoring the four state-owned banks - Myanmar 
Foreign Trade Bank (MFTB), Myanmar Economic Bank (MEB), 
Myanmar Agricultural Bank (MAB), and Myanmar Investment and 
Commercial Bank (MICB) - while limiting the operations of the 
few private banks that are allowed to function.  The GOB 
restricts who can open bank accounts and limits the number 
and value of financial transactions.  Both state-owned and 
private banks charge high fees and take up to two weeks to 
complete transactions, such as wire transfers or letters of 
credit.  Only state-owned banks can hold foreign exchange, so 
companies and individuals licensed to conduct business in 
dollars must open an account at MFTB (Ref A).  Bank account 
holders must pay a 10 percent tax on any foreign currency 
deposits.  Consequently, the majority of Burmese do not have 
private or business bank accounts, choosing instead to horde 
cash in their homes or offices.  Most Burmese financial 
transactions are conducted in cash. 
 
¶3.  (SBU)  Most Burmese prefer informal banking methods to 
move money in and out of the country.  Some Burmese choose 
the risky and illegal practice of hand-carrying bags of cash 
while traveling overseas.  A far larger number opt to use the 
"hundi system," a method of remitting money through informal 
networks both inside and outside of Burma.  (Note: "hundi" is 
derived from a Sanskrit word and means "to collect."  The 
Hundi system is comparable to the "hawala" system used in the 
Middle East.  End Note.) 
 
¶4.  (SBU)  Businessmen describe the hundi system as 
trust-based.  For example, to move money to Ms. X in Burma, 
Mr. Y provides dollars to a hundi dealer - which can be a 
money changer, local businessman, or even a student - located 
outside the country.  The dealer, using his business or 
personal connections, contacts either a business partner or 
other individual living in Burma, who then provides the 
money, either in dollars or kyat, to Ms. X.  In a less common 
example, Mr. Y might pay for an overseas expense for Ms. X -- 
e.g. her daughter's college tuition -- in exchange for Ms. X 
paying off one of his obligations in Burma in local currency. 
 Funds can also be moved from Burma to recipients abroad, as 
well as from place to place within Burma.  Transactions are 
usually completed within 1-2 days.  None of our contacts have 
reported losing money through the hundi system.  "You don't 
 
RANGOON 00000698  002.2 OF 003 
 
 
trust, you don't send," one merchant told us. 
 
¶5.  (SBU)  According to our business contacts, most hundi 
dealers charge a small commission, usually 1-2 percent of the 
total amount.  Some dealers forgo commission if the 
transaction amount is more than USD 50,000, since they can 
earn money on exchange rate differentials.  Business contacts 
report that Hundi dealers with financial ties to Burma can be 
found in most large Asian cities, although the majority of 
transactions originate from Bangkok and Singapore.  Several 
business contacts confirmed that they have sent money from 
the United States to Burma using informal hundi networks. 
 
Who Uses the Hundi System? 
-------------------------- 
 
¶6.  (SBU)  Despite the informality of the hundi system, its 
users range from individuals who work overseas (especially 
crewmen) to Burmese businessmen with international business 
ties.  Investors, and even some international organizations 
and NGOs, also use the system to remit money.  Businessmen 
emphasize that the benefits of the hundi system outweigh the 
associated risks: 
 
--  Hundi transactions are often completed more quickly than 
domestic and international banking transactions; 
--  Dealer commission fees are lower than bank transaction 
fees; 
--  The risks of theft or detection are lower than carrying 
in bags of cash; 
--  Recipients often receive a better rate of exchange; and 
--  Recipients in Burma do not have to pay taxes on incoming 
foreign currency. 
 
¶7.  (SBU)  Furthermore, businessmen note that the hundi 
system allows them to conduct transactions in dollars, which 
is prohibited under U.S. financial sanctions that ban the 
transfer of dollars into Burma for commercial purposes.  As a 
result of these restrictions, imposed in 2003, Burmese 
companies that engage in international or cross-border 
commerce - whether crony companies affiliated with the regime 
or private enterprises operating under the GOB's radar - have 
been compelled to find alternate means of moving dollars in 
and out of the country.  Individuals remitting funds from the 
United States also prefer hundi transactions because U.S. 
sanctions exemptions limit personal remittances to $1,200 per 
annum.  By sending money through informal channels, 
individuals can remit more while recipients avoid the 10 
percent tax.  NGO contacts pointed out that transferring in 
dollars eliminated the need for FEC, which has depreciated 25 
percent against the kyat vs. the dollar in the past three 
months (Ref B).  Sever 
al NGOs and international organizations have used the hundi 
system to move money in order to reduce financial losses 
associated with exchange rate differences. 
 
¶8.  (SBU)  Several Embassy contacts also confirmed their use 
of the hundi system within Burma's borders.  Since Burma is a 
cash-based society, one must carry around large amounts of 
kyat when traveling.  The domestic hundi system enables 
people to transfer kyat so that it is waiting for them at 
their destination, reducing the risk of theft. 
 
Who are Hundi Dealers? 
---------------------- 
 
¶9.  (SBU)  While our contacts would not disclose the names of 
 
RANGOON 00000698  003.2 OF 003 
 
 
their hundi dealers, they noted that many of them were 
Burmese living overseas or Asian businessmen with ties to 
Burma.  They reported that individuals often became dealers 
because their own business operations required the transfer 
of money into and out of Burma, and they were eager to avoid 
the formal banking sector's transaction costs.  In some 
cases, trading partners or dealers settle outstanding 
accounts informally through the hundi system.  Instead of 
paying cash directly to their trading partner overseas, 
dealers can settle their partner's debts locally.  Trading 
partners can maintain their balance of payments informally 
while using the hundi system to make additional profits by 
transferring funds for others. 
 
Comment 
------- 
 
¶10.  (SBU)  The hundi system provides an opportunity for 
individuals to transfer funds inexpensively and relatively 
securely while avoiding Burma's weak and restrictive banking 
system and onerous foreign currency restrictions.  It also 
allows legitimate businesses, which are unable to conduct 
dollar transactions due to U.S. financial sanctions, to 
transfer dollars in and out of Burma; this, in turn, allows 
Burmese to engage in financial transactions outside the 
government's writ and promotes the development private 
enterprise.  At the same time, however, the hundi system also 
allows regime leaders and crony businessmen to circumvent 
U.S. targeted sanctions, and these informal financial 
linkages should be considered as we seek to cut off the 
finances of regime officials and cronies designated under 
U.S. targeted sanctions. 
VAJDA