- The Washington Times - Wednesday, October 1, 2003

In a nod to the recent visit by Treasury Secretary John Snow, Pakistan is taking measures to shore up its bank regulations to prevent terrorist financing. The development is good news for the anti-terror effort not only in Pakistan, but also in Afghanistan and India, given porous physical and financial borders in the region. It also demonstrates that Mr. Snow’s nuts-and-bolts diplomacy can yield results as concrete as loftier foreign policy initiatives.

Last month, Mr. Snow was on the heels of the terrorist money trail, traveling to countries that have been raising concern, such as Pakistan and Saudi Arabia. While in Pakistan, Mr. Snow pushed for new laws to prevent terrorist financing. Pakistani officials reportedly said they would respond.

A few days ago, Pakistan’s central bank asked the government to introduce new laws that would, in part, require banks to ask their depositors for more personal information. These laws, if passed, would dramatically improve the transparency of Pakistan’s banks, which have roughly 28 million accounts, in a country of 2.2 million taxpayers. Banks in remote rural areas, which have especially weak regulatory controls, have been a gateway for illegally earned money to enter the formal financial system with no scrutiny by the central bank or tax authorities. Often, depositors keep accounts under false names. The new laws would apply to banks nationwide.

Also, Pakistan’s Central Bank said it is planning to sign agreements with monetary authorities in other countries to exchange information on the flow of money into and out of Pakistan. This initiative could be particularly effective given a law Pakistan passed last year to rein in hawalas, in response to U.S. pressure.

The hawala is a centuries-old, underground system of transmitting funds all over the globe. It is often used in South Asia and the Middle East by individuals who don’t want to pay bank fees, or to move ill-begotten money without a paper trail. Often, money doesn’t cross borders, since hawala dealers in different countries work on an IOU basis, then settle up at a later date.

In an effort to formalize hawalas, Pakistan has required dealers to register and document their transactions. Pakistan has closed dozens of hawalas and banned a number of charities that the United States believes were funding terrorists.

The United States is giving Pakistan $3 billion in development aid. It is heartening to see Pakistan taking steps in its own, and America’s, interest. Blocking terrorists’ access to money will bolster stability and save lives in Pakistan and beyond. Chalk up a noteworthy success for President Bush’s anti-terrorism efforts.

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