VZCZCXRO7842
RR RUEHLH RUEHPW
DE RUEHIL #1992/01 2330514
ZNR UUUUU ZZH
R 210514Z AUG 09
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 4492
INFO RUEHBUL/AMEMBASSY KABUL 0782
RUEHLO/AMEMBASSY LONDON 1171
RUEHML/AMEMBASSY MANILA 3206
RUEHNE/AMEMBASSY NEW DELHI 5389
RUEHAD/AMEMBASSY ABU DHABI 3567
RUEHLH/AMCONSUL LAHORE 7767
RUEHKP/AMCONSUL KARACHI 2161
RUEHPW/AMCONSUL PESHAWAR 6764
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEAIIA/CIA WASHDC
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 02 ISLAMABAD 001992 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD KCOR PGOV PREL PK
SUBJECT: REMITTANCES LIKELY TO REMAIN HIGH, BUT MAY TRAVEL LESS 
OFTEN VIA HAWALA 
 
¶1. (SBU) Summary: In a series of meetings in Karachi and Islamabad 
in early August, the Treasury Attach, Consulate EconOff, and 
EconOff, spoke to several Pakistani government and private sector 
officials to discuss Pakistan's steadily growing remittance levels. 
The State Bank of Pakistan reported that measured remittance levels 
for July 2009 reached a record $747 million, continuing the positive 
trend of the past several months.  State Bank of Pakistan (SBP) 
officials largely attribute this increase to a diversion of 
remittances away from hawalas into SBP -licensed banks and money 
service businesses.  For several months, the Federal Investigation 
Agency (FIA), in close coordination with the SBP, has been shutting 
down illegal exchange companies.  End Summary. 
 
The Countercyclical Affect of Remittances 
------------------------------------------ 
 
¶2. (SBU) In an August 4 meeting in Karachi, the CEOs of two of the 
largest licensed money service businesses in Pakistan, Haji Haroon 
of the H&H Exchange Company, and Ramzan Ali, of the Wall Street 
Exchange Company stated that despite a global economic downturn, 
both men expected to see remittances remain robust.  They explained 
that individuals overseas will often send more money back to family 
members in Pakistan when the economy is doing badly.  They described 
those remittances as a "social welfare mechanism" to compensate for 
lost jobs or slow economy.  If Pakistan's economy continues to 
remain sluggish in the months ahead, both men expected to see more, 
not fewer remittances.  However, when it came to doing wire 
transfers with Afghanistan, both men asserted they steer their 
clients away from money service businesses in Afghanistan due to 
perceived compliance risks.  Furthermore, there was little faith in 
the regulatory regime in Afghanistan, and they did not know which 
Afghan money service businesses were legitimate or illegitimate in 
the eyes of the SBP. 
 
Work with the Banks to Find Solutions 
------------------------------------- 
 
¶3. (SBU) In an August 3 meeting in Karachi, SBP Governor Salim Raza 
confessed that high remittance levels are off setting falling 
exports and slumping foreign direct investment (FDI) in the current 
account.  In subsequent August 5 meeting, Deputy SBP Governor Yaseen 
Anwar explained that despite a global economic downturn, measured 
remittance levels have increased approximately 23% between 
January-June 2009 from the same period last year because of the 
SBP's ability to capture previously unreported remittances. 
 
¶4. (SBU) Anwar cited two major reasons for this phenomenon.  First, 
the SBP began a public awareness campaign to encourage overseas 
workers to use overseas branches of Pakistani banks to send their 
remittances.  As part of this program, the banks promised to reduce 
both the time to clear a transaction and the high costs to process 
the transaction.  Appreciating the continued attraction for small 
money service businesses among overseas workers, Anwar explained 
that the SBP also plans to develop a pilot program to bundle 
remittances from legitimate overseas money service businesses into 
real time gross settlements (RTGS) to banks in Pakistan.  (Note: 
RTGS is a system for large-value interbank funds transfers, that 
allows the continuous settlement of payments on an individual order 
basis without netting debits with credits across the books of a 
central bank.) 
 
Law Enforcement Action Pushes Remittances UP 
-------------------------------------------- 
 
¶5. (SBU) However, the main reason according to Anwar and Governor 
Salim Raza for the increase in measured remittances was a Federal 
Investigation Agency (FIA) campaign begun several months ago to shut 
down hawalas throughout Pakistan (Note: In Pakistan, the term 
"hawala" is used exclusively to mean illegally operating money 
service businesses.  End Note).  The FIA seems to be building upon 
the success of this campaign.  When transferring large sums of money 
from outside Pakistan, hawalas are often better than couriers since 
the former can more easily handle larger sums of cash and in a 
timelier manner.  In early-August, the FIA shut down the 
Lahore-based Zarco Company Exchange, and arrested its chief 
executive officer.  According to media reports, the Zarco Company 
 
ISLAMABAD 00001992  002 OF 002 
 
 
conducted over $303 million in unreported transactions in 2008. 
 
¶6. (SBU) In an August 11 meeting in Islamabad, FIA Director General 
Tariq Khosa detailed a plan for FIA's Economic Crime Wing to 
establish a joint task force with the SBP to conduct further 
investigations of money service businesses.  In addition to not 
reporting all transactions to the SBP, the FIA and SBP have 
discovered from past investigations that some registered money 
service businesses are illegally doing business with hawalas inside 
and outside of Pakistan. 
 
Mobile Banking - a Possible Trend? 
---------------------------------- 
 
¶7. (SBU) In press reports, Pakistan's Minister for Overseas 
Pakistanis Farooq Sattar said before a Senate Committee that the GOP 
intends to launch a process that will ultimately have overseas 
workers send remittances via mobile phone.  In an August 6 meeting, 
the President of the National Bank of Pakistan told Treasury Attach 
and Consulate EconOff that to capture overseas remittances via 
mobile banking could be very promising. (Note:  most mobile payment 
services use a phone as an access device to initiate and 
authenticate transactions from an existing bank account or payment 
card.  End Comment) 
 
¶8. (SBU) Comment: In addition to the SBP and FIA, Finance Minister 
Shaukat Tarin is a major proponent of the hawala crackdown since the 
increase in measured remittance inflows are helping the current 
account.  Tarin told Treasury Attache in mid-June in Islamabad that 
these enforcement actions by the SBP and FIA were his "insurance" 
against declines in the external sector of the economy.  In addition 
to the macroeconomic benefits, hawala crackdowns contribute 
significantly to improving Pakistan's anti-money laundering and 
countering the finance of terrorism (AML/CFT) regime.  Furthermore, 
this plan by the government seems to address a delicate 
recommendation from the World Bank and Asia Pacific Group: close 
illegal money service businesses in Pakistan while at the same time 
paying more attention to the incentives structures of these 
businesses, so as to properly balance the need for formalization 
with the risk of overregulation. 
 
PATTERSON