Monthly Archives: August 2012

Killing Civilians: the Crazyhorse

On July 12 2007 a US apache helicopter shot several Iraqi civilians in an incident that shocked the world when footage of the event was published by whistleblower website, Wikileaks.  The footage, taken from the helicopter, shows people fleeing for the safety of buildings being pursued, then the buildings they run to blown up. The attack resulted in 12 dead civilians, including a Reuters’ journalist and cameraman.

In ‘Permission to engage’, Al Jazeera tracks down families of the victims and a former US soldier to tell the story behind the Wikileaks ‘Collateral murder’ film.  But the footage leaked to Wikileaks is just one incident of several involving a unit relating to the call sign ‘Crazyhorse’. The particular incident filmed involved Crazyhorse 18. Through cables leaked to Wikileaks as part of its Iraq war logs cache of documents, the Al Jazeera documentary traces several other incidents involving the call sign. Many of these attacks also resulted in civilian deaths, or collateral damage as they are referred to by US army personnel.

Just 4 days after the death of the two Reuters’ journalists, in a neighbouring area of Baghdad, another incident occurred in which 14 civilians were fatally wounded in an operation involving two helicopter gunships responding to call signs ‘Crazyhorse 20’ and ‘Crazyhorse 21.’  In February 2007, two Iraqi insurgents were killed after attempting to surrender to a helicopter gunship. Soldiers aboard ‘Crazyhorse 18’ were given legal advice from a nearby military base: ‘Lawyer states they can not surrender to aircraft and are still valid targets’. The men fled to a nearby shack after Hellfire missiles were fired at their truck. The men were killed minutes later when the shack was destroyed by further missiles.

The pseudonym ‘Crazyhorse’ has its roots in US Army history. An ‘operation crazyhorse’ took place in Vietnam in 1966, after North Vietnamese plans to ambush a US Army foot patrol were intercepted. About 250 US soldiers from two airborne battalions, defeated and killed 500 NVA soldiers in a fierce firefight.  The commander of one of these battalions, Captain Mozey, instructed his men to put ‘Death from above’ cards on every enemy they killed. ‘Death from above’ and ‘crazyhorse’ were both referred to and made famous by the reckless Lieutenant Colonel Bill Kilgore in ‘Apocalypse now.’The Al Jazeera documentary talks to people directly affected by the reckless, gung-ho nature of the helicopter pilots of the ‘crazyhorse’ battalion, to produce a moving and personal account of the footage.

Excerpt, Permission to Engage: WikiLeaks collateral murder footage examined, Bureau of Investigative Journalism, Aug. 30, 2012

Speculation and Anarchy Go Hand in Hand: Oil, Somalia and the final frontier

Canadian oil and gas exploration company Horn Petroleum said  it had encountered only water in a well it drilled in Somalia’s semi-autonomous Puntland region earlier this year, the first to be sunk in the country since civil war erupted two decades ago.  The well, Shabeel North-1, reached a total depth of 3,945 metres and is now being plugged, Horn said.  Because there were no shows of oil and gas, Horn Petroleum determined a second well it drilled earlier in the year, Shabeel-1, also was dry and said the company would not test it further for hydrocarbon potential.

“While we were disappointed that we were not able to flow oil from the first two exploration wells in our Puntland (Somalia) drilling campaign, we remain highly encouraged that all of the critical elements exist for oil accumulations, namely a working petroleum system,” Horn’s chairman Keith Hill said in a statement.  While there has been speculation about finding oil in the anarchic Horn of Africa country for decades, it has no proven hydrocarbon reserves. The prospect of oil beneath Dharoor’s sandy, arid plains has elicited excitement among officials of the impoverished region. The companies estimated there could be as much as 300 million barrels of recoverable oil in the northern part of Somalia.  Somalia, mired in conflict since warlords in the early 1990s and then Islamist militants reduced the government to impotence, represents one of the final frontiers in Africa to be explored.

Horn Petroleum’s Somali wells come up dry, Reuters, Aug. 28, 2012

Who is Selling Weapons to Developing Countries? The United States dominance and motivations

Recently, from 2008 to 2011, the United States and Russia have dominated the arms market in the developing world, with both nations either ranking first or second for each of these four years in the value of arms transfer agreements. From 2008 to 2011, the United States made nearly $113 billion in such agreements, 54.5% of all these agreements (expressed in current dollars). Russia made $31.1 billion, 15% of these agreements. During this same period, collectively, the United States and Russia made 69.5% of all arms transfer agreements with developing nations, ($207.3 billion in current dollars) during this four-year period.

In 2011, the United States ranked first in arms transfer agreements with developing nations with over $56.3 billion or 78.7% of these agreements, an extraordinary increase in market share from 2010, when the United States held a 43.6% market share. In second place was Russia with $4.1 billion or 5.7% of such agreements.

In 2011, the United States ranked first in the value of arms deliveries to developing nations at $10.5 billion, or 37.6% of all such deliveries. Russia ranked second in these deliveries at $7.5 billion or 26.8%.

In worldwide arms transfer agreements in 2011—to both developed and developing nations—the United States dominated, ranking first with $66.3 billion in such agreements or 77.7% of all such agreements. This is the highest single year agreements total in the history of the U.S. arms export program. Russia ranked second in worldwide arms transfer agreements in 2011with $4.8 billion in such global agreements or 5.6%. …..

In 2011, Saudi Arabia ranked first in the value of arms transfer agreements among all developing nations weapons purchasers, concluding $33.7 billion in such agreements. The Saudis concluded $33.4 billion of these agreements with the United States (99%). India ranked second with $6.9 billion in such agreements. The United Arab Emirates (U.A.E) ranked third with $4.5 billion…..

Whereas the principal motivation for arms sales by key foreign suppliers in earlier years might have been to support a foreign policy objective, today that motivation may be based as much, if not more, on economic considerations as those of foreign or national security policy.

Excerpt from, Richard F. Grimmett and Paul K. Kerr,  Conventional Arms Transfers to Developing Nations, 2004-2011, (pdf)-

Mini Bombs: the CLAW

Textron Defense Systems, announced  that it has entered into a cooperative research and development agreement (CRADA) with the U.S. Special Operations Command (USSOCOM) Program Executive Office (PEO) Fixed Wing for development of standoff precision guided munition capability. Initial activities will focus on Textron Defense Systems’ Guided Clean Area Weapon (G-CLAW), a cost-effective, lightweight, guided precision unitary weapon providing anti-personnel and anti-material capabilities, as well as features for low collateral damage and hazardous unexploded ordnance (UXO) prevention.

Under the CRADA, the organizations intend to integrate the G-CLAW into PEO Fixed Wing’s common launch tube dispenser and complete the required testing to secure flight and weapons safety certifications. From there, Textron Defense Systems and USSOCOM will conduct inert and live-fire demonstrations of precision unitary munition delivery from a tactical carrier aircraft such as the MC-130W Dragon Spear. Integration activities will culminate in an end-to-end, live-fire demonstration.

Our G-CLAW allows users to shape the attack over a broad area, and to achieve precision effects using GPS targeting and a powerful warhead,” says Senior Vice President and General Manager Ellen Lord of Textron Defense Systems. “Further, it incorporates all of the safety features we’ve carefully designed, developed, tested and demonstrated to prevent UXO. Integrating this unitary system into the USSOCOM common launch tube could bring G-CLAW capabilities and performance to multiple new aircraft platforms for the gamut of irregular warfare missions.”

Textron Defense Systems’ weapons incorporate multiple, redundant safety features, including self-destruct and self-neutralization mechanisms, to eradicate the threat of UXO. The G-CLAW is designed for flexible integration into tactical munitions dispensers, as well as from unmanned aircraft platforms.

Textron Defense Systems and USSOCOM Enter CRADA for Standoff Precision Guided Munitions, Globe Newswire, Aug. 27, 2012

Inside the Wires: United States Cyberattacks in Afghanistan Confirmed

The U.S. military has been launching cyberattacks against its opponents in Afghanistan, a senior officer says, making an unusually explicit acknowledgment of the oft-hidden world of electronic warfare.  Marine Lt. Gen. Richard P. Mills’ comments came last week at a conference in Baltimore during which he explained how U.S. commanders considered cyber weapons an important part of their arsenal.  “I can tell you that as a commander in Afghanistan in the year 2010, I was able to use my cyber operations against my adversary with great impact,” Mills said. “I was able to get inside his nets, infect his command-and-control, and in fact defend myself against his almost constant incursions to get inside my wire, to affect my operations.”

Mills, now a deputy commandant with the Marine Corps, was in charge of international forces in southwestern Afghanistan between 2010 and 2011, according to his official biography. He didn’t go into any further detail as to the nature or scope of his forces’ attacks, but experts said that such a public admission that they were being carried out was itself striking.  “This is news,” said James Lewis, a cyber-security analyst with the Washington-based Center for Strategic and International Studies. He said that while it was generally known in defense circles that cyberattacks had been carried out by U.S. forces in Afghanistan, he had never seen a senior officer take credit for them in such a way.  “It’s not secret,” Lewis said in a telephone interview, but he added: “I haven’t seen as explicit a statement on this as the one” Mills made.  The Pentagon did not immediately respond to an email seeking comment on Mills’ speech.

U.S. defense planners have spent the past few years wondering aloud about how and under what circumstances the Pentagon would launch a cyber attack against its enemies, but it’s only recently become apparent that a sophisticated program of U.S.-backed cyberattacks is already under way.  A book by The New York Times reporter David Sanger recently recounted how President Barack Obama ordered a wave of electronic incursions aimed at physically sabotaging Iran’s disputed atomic energy program. Subsequent reports have linked the program to a virus dubbed Flame, which prompted a temporary Internet blackout across Iran’s oil industry in April, and another virus called Gauss, which appeared to have been aimed at stealing information from customers of Lebanese banks. An earlier report alleged that U.S. forces in Iraq had hacked into a terrorist group’s computer there to lure its members into an ambush.

Herbert Lin, a cyber expert at the National Research Council, agreed that Mills’ comments were unusual in terms of the fact that they were made publicly. But Lin said that the United States was, little by little, opening up about the fact that its military was launching attacks across the Internet.  “The U.S. military is starting to talk more and more in terms of what it’s doing and how it’s doing it,” he said. “A couple of years ago it was hard to get them to acknowledge that they were doing offense at all — even as a matter of policy, let alone in specific theaters or specific operations.”

Mills’ brief comments about cyberattacks in Afghanistan were delivered to the TechNet Land Forces East conference in Baltimore on Aug. 15, but they did not appear to have attracted much attention at the time. Footage of the speech was only recently posted to the Internet by conference organizers

Marine General: We Launched Cyberattacks Against Afghanistan, CBS News, Aug. 24, 2012

Plan X for Cyberbattle: DARPA

The Defense Advanced Research Projects Agency (DARPA) Information Innovation Office (I2O) will host a Proposers’ Day in support of the anticipated Broad Agency Announcement (BAA) for the Plan X program.  The Proposers’ Day Workshop will be held on 27 September at the DARPA Conference Center, 675 N. Randolph Street, Arlington, VA from 0900 to 1600 EDT. There will be an unclassified session in the morning and a classified SECRET session in the afternoon. Attendance at the afternoon session is limited to individuals with US DOD SECRET clearances or higher. Neither session is open to the general public or members of the media. It is anticipated that the Plan X BAA will be released by the end of September 2012.

PROGRAM OBJECTIVE AND DESCRIPTION

The objective of the Plan X program is to create revolutionary technologies for understanding, planning, and managing cyberwarfare in real-time, large-scale, and dynamic network environments. Plan X will also conduct novel research into the nature of cyberwarfare and support development of fundamental strategies and tactics needed to dominate the cyber battlespace. The Plan X program is explicitly not funding research and development efforts in vulnerability analysis or cyberweapon generation.

DARPA seeks innovative research in four key areas in support of Plan X:

• Understanding the cyber battlespace: This area focuses on developing automated analysis techniques to assist human operators in planning cyber operations. Specifically, analyzing large-scale logical network topology characteristics of nodes (i.e., edge count, dynamic vs. static links, usage) and edges (i.e. latency, bandwidth, periodicity).

• Automatically constructing verifiable and quantifiable cyber operations: This area focuses on developing high-level mission plans and automatically synthesizing a mission script that is executed through a human-on-the-loop interface, similar to the auto-pilot function in modern aircraft. This process will leverage formal methods to provably quantify the potential battle damage from each synthesized mission plan.

• Developing operating systems and platforms designed to operate in dynamic, contested, and hostile network environments: This area focuses on building hardened “battle units” that can perform cyberwarfare functions such as battle damage monitoring, communication relay, weapon deployment, and adaptive defense.

• Visualizing and interacting with large-scale cyber battlespaces: This area focuses on developing intuitive views and overall user experience. Coordinated views of the cyber battlespace will provide cyberwarfare functions of planning, operation, situational awareness, and war gaming.

A system architecture team is also sought to lead the end-to-end Plan X system development. This will include working with Plan X performers to develop the standard system application programming interfaces, data format specifications, and performer integration schedule. The system architecture team will also be responsible for purchasing Plan X system infrastructure and hardware.  The Plan X program is structured around an on-site DARPA cyberwar laboratory where performers will continuously integrate developing technologies into the end-to-end Plan X system.

Excerpt from: Special Notice Plan X Proposers’ Day Workshop, DARPA-SN-12-51, August 17, 2012

Foundational Cyberwarfare (Plan X)

Proposers’ Day Workshop, 27 September 2012

Protecting the Himalayas:cooperation Bhutan, India, Nepal

The International Centre for Integrated Mountain Development (ICIMOD) issued a press release regarding the conservation of the-

Foreign Soldiers who Die in Afghanistan: the insider attacks

At the height of this dusty summer, American troops are dying at unprecedented rates at the hands of their Afghan allies. And both sides are struggling to explain why, even as they search for ways to stem what are known in military parlance as “insider” attacks.  This month, at least 10 U.S. troops — including a U.S. service member shot Sunday and five members of America’s elite special-operations forces slain earlier — have been killed by Afghan police, soldiers or civilian workers at military installations. As of Sunday, that accounted for a stunning 32% of the 31 American military fatalities in Afghanistan reported thus far in August by the monitoring website icasualties.org.  [I]nsider shootings have wider-ranging repercussions. They have provided a propaganda bonanza to the Taliban, and could threaten a linchpin of the Western exit strategy: training Afghan security forces in preparation for handing over most fighting duties to them by 2014.

The military says only a very small share of insider attacks is carried out by Taliban “sleepers” in the police or army. But that opens the way to perhaps an even more alarming conclusion: that the majority of the assailants are undertaking what are in effect spontaneous, self-assigned suicide missions, because many insider shooters are killed on the spot in return fire.

The military says it is working to address the threat. Changes in recent months have included the posting of armed Western troops — so-called guardian angels — to watch over others in mess halls, sleeping tents and gyms. Last week, the American commander of the NATO force, Gen. John Allen, ordered that NATO troops across Afghanistan keep a loaded magazine in their weapons, even when on base.  This year, an Army captain described an informal buddy system at his base of troops signaling each other to keep a close watch on armed Afghans nearby, especially if one of their comrades was diverted by some task.  “‘Shona-ba-shona,’ OK,” the captain said, invoking the “shoulder-to-shoulder” slogan of the NATO force and its Afghan partners. “But also: ‘Eyes on, all times.'”…..

How to guard against such attacks is the subject of considerable debate in military leadership circles, because overtly heavy-handed measures can send a signal to the Afghans that they are not trusted, which can be taken as an insult. And in traditional Afghan culture, perceived insult can swiftly lead to exactly the sort of violence the attacks represent…The phenomenon is so pervasive that the killings have their own evolving nomenclature. Previously, the military called them green-on-blue attacks, a color-coded reference to Afghan and Western forces. Now the preferred, more encompassing term is “insider threat,” stemming from the fact that assailants have included not only uniformed police and soldiers, but also civilian members of the Afghan security apparatus, or simply someone with access to a coalition base, even in a low-level capacity.

The Taliban movement has noted the rising number of insider shootings with ill-concealed delight, boasting of having infiltrated all branches of the Afghan security forces. In the past, the Taliban leadership claimed responsibility for virtually every such attack, but lately the group’s publicity machine often cites individual initiative by those without links to the insurgency.  “Our fighters are in the ranks of the police, army and intelligence service, but there are also some who carry out attacks on foreign troops only because they are Afghans and Muslims and act on their religious obligation to protect their country from invading forces,” said Zabiullah Mujahid, a spokesman for the group. “It is an indication of utter hatred against the foreigners.”…….

Some analysts believe part of the problem is the sheer longevity of the war, now in its 11th year. In the conflict’s early stages, such attacks were an extreme rarity.  “I wouldn’t say it’s normal, but I think it’s understandable in a war situation which is lasting for more than a decade,” said Fabrizio Foshini of the Afghan Analysts Network. “The conflict has been becoming worse, nastier — and the presence of foreign troops doesn’t seem in the eyes of many Afghans to have brought positive changes.”

Laura King, Afghanistan ‘insider’ attacks pose threat to West’s exit strategy, LA Times, August 20, 2012

Shut up: torture techniques in clandestine prisons

The al Qaeda suspects who were subjected to so-called harsh interrogation techniques, and the lawyers charged with defending them at the Guantanamo Bay military tribunals, are not allowed to talk about the treatment they consider torture.  Defense attorneys say that and other Kafkaesque legal restrictions on what they can discuss with their clients and raise in the courtroom undermine their ability to mount a proper defense on charges that could lead to the death penalty.  Those restrictions will be the focus of a pretrial hearing that convenes this week.  Prosecutors say every utterance of the alleged al Qaeda murderers, and what their lawyers in turn pass on to the court, must be strictly monitored precisely because of the defendants’ intimate personal knowledge of highly classified CIA interrogation methods they endured in the agency’s clandestine overseas prisons.  Defense attorneys called that view extreme.  “Everything is presumptively top secret. So if my client had a tuna fish sandwich for lunch, I couldn’t tell you that,” Cheryl Bormann, who represents defendant Walid bin Attash, said after the May arraignment of the men charged with plotting the 9/11 attacks on the World Trade Center.  At one point in the arraignment, another of bin Attash’s attorneys, Air Force Captain Michael Schwartz, was explaining why his client refused to cooperate. Just when things got interesting, a security officer cut the audio feed to the media and others observing the proceedings from behind a soundproof glass wall with a 40-second audio delay.  “The reason for that is the torture that my client was subjected to by the men and women wearing the big-boy pants down at the CIA, it makes it impossible …,” Schwartz said during the blocked portion of the arraignment, according to a partial transcript later declassified.  Prosecutors have said in court filings that any revelations about the defendants’ interrogations could cause “exceptionally grave damage.”

Civil libertarians argue that if those interrogation methods really are top secret, then the CIA had no business revealing them to al Qaeda suspects.  Defense attorneys will challenge the secrecy rules at the pretrial hearing that begins on Wednesday at the Guantanamo Bay U.S. Naval Base.  Prosecutors have about 75,000 pages of evidence to turn over to defense attorneys in the 9/11 case, but they won’t do it until the judge, Army Colonel James Pohl, issues protective orders aimed at safeguarding the material.

Hundreds of men suspected of supporting al Qaeda or the Taliban were rounded up in Afghanistan, Pakistan and elsewhere and shipped to Guantanamo in response to the September 11 attacks. (Of the 779 men who have been held at Guantanamo since the prison operation began in 2002, 168 remain.)  The CIA took custody of the “high-value” captives believed to have top-level information that could help the U.S. and its allies prevent further attacks.  It held them incommunicado for three or four years and transferred them among secret overseas prisons, questioning them with interrogation methods that defense attorneys say amounted to torture and which the Obama administration has since banned.  Some details of the program, including waterboarding, mock executions and sleep deprivation, have already been disclosed by Bush and the CIA itself. Jose Rodriguez, a former CIA official, recently defended them in news interviews to promote his book, “Hard Measures: How Aggressive CIA Action After 9/11 Saved American Lives.”

Yet in both the 9/11 case and that of Abd al Rahim al Nashiri, who is accused of sending suicide bombers to ram a boat full of explosives into the side of the USS Cole off Yemen in 2000, the government presumes that every word spoken by the defendants, in the past and in the future, is classified at the highest level — “Top Secret,” with a “Sensitive Compartmented Information,” which is routinely shortened to TS/SCI.  The defendants’ words are also “born classified,” a status their lawyers said has previously been used only to safeguard details about nuclear weapons. So are all documents and legal motions related to their cases, which cannot be made public unless they’re cleared by a Department of Defense Security Classification Review team.  How that team works is a secret.  “I’ve never seen them. I’ve never communicated (with them). No one has ever been able to tell me that,” said James Connell, a lawyer for 9/11 defendant Ali Abdul Aziz Ali.  The Pentagon would say only that the review team includes both civilians and uniformed military personnel and that it can take up to 15 business days to make its decisions.

Proscribed topics include details of the defendants’ capture, where they were held and under what conditions, the names and descriptions of anyone who transferred, detained or interrogated them and the methods used to get information from them, according to the court documents.

Defense lawyers say the classification system used at Guantanamo violates President Barack Obama’s 2009 order that prohibits using secrecy labels to conceal lawbreaking or prevent political embarrassment. They say it also “eviscerates” the legal defense protections Congress set down in the law that authorizes the Guantanamo tribunals.  The government’s secrecy rules mean that every lawyer, paralegal and expert on the prosecution and defense teams must undergo an extensive background check and obtain a TS/SCI clearance. Once they get clearance, they are briefed on what has to stay secret. The document that forms the basis of the presumptive classification is itself secret.  “It is ridiculous,” said Army Captain Jason Wright, one of the lawyers for accused 9/11 mastermind Khalid Sheikh Mohammed. “The briefing is classified, so I can’t discuss what I can and cannot discuss.”

Mohammed’s lawyers have asked the UN special rapporteur for torture, Juan E. Mendez, to investigate claims that their client was tortured. But they could only share with Mendez the information that has been publicly declassified.  “We are prohibited from sharing any details of his mistreatment, even to the special rapporteur,” Wright said.

The American Civil Liberties Union has filed a challenge arguing that the government has no legal authority to classify information that it not only disclosed to the defendants but forced them to learn.  “The question here is: Can the government subject people to torture and abuse and then prevent them from talking about it?” said Hina Shamsi, director of the ACLU’s National Security Project.  The ACLU said the claim of broad authority to gag defendants infringes on the American public’s right to open trials and goes far beyond what the courts have allowed, namely that censorship must be narrowly tailored and aimed at protecting a compelling government interest.

Excerpt, Jane Sutton and Josh Meyer, Insight: At Guantanamo tribunals, don’t mention the “T” word, Reuters, Aug. 20, 2012

Financial Sanctions Against Iran and the Afghan Loophole

With American and European sanctions spurring a currency crisis in Iran, officials say a growing number of Iranians are packing trucks with devalued rials and heading to the freewheeling currency market next door in American-occupied Afghanistan, to trade for dollars.  The rial has lost more than half its value against the dollar, and cross-border bank transfers and currency exchanges have become difficult, as sanctions have slashed Iran’s vital oil revenue and cut the country off from international financial markets. Iranian businesses and individuals are desperate to avoid further losses, by converting their money and moving it out for safekeeping. At the same time, the government is trying to find alternate ways to bring in hard currency.

Enter Afghanistan, where dollars function as a second national currency after years of Western spending and where financial oversight is so lax that billions of dollars in cash leave the country every year. Though Afghan and Western officials say they cannot put a precise figure on the trade with Iran, they see it as a potential challenge to the sanctions, and one that the United States, as Afghanistan’s main benefactor, helped create.  The Iranians are “in essence using our own money, and they’re getting around what we’re trying to enforce,” one American official said.  It is a new iteration of an enduring problem in Afghanistan, where Western officials are already struggling to quell a storm of corruption that has undercut the war effort. In the years since the invasion, the country has become a smuggler’s dream, with a booming opium economy and pervasive government graft that is widely believed to be a factor in funneling Western aid money to the Taliban.

On its own, the rush of Iranian money to Afghanistan is unlikely to be enough to undercut the sanctions, which are the cornerstone of Western efforts to coerce Iran into abandoning its nuclear program. But it is clear that American officials are worried. In one indication, President Obama last month quietly strengthened the sanctions by giving the Treasury Department the capacity to punish any person who buys dollars or precious metals, like gold, on behalf of the Iranian government.  “We are taking steps to make it more difficult for the government of Iran to satisfy its heightened demand for dollars — and making it clear to anyone who provides dollars to the government that they face sanctions,” said David S. Cohen, the Treasury Department under secretary for terrorism and financial intelligence.

Afghan money traders said they were told this month by American officials to not conduct business with Arian Bank, an Afghan bank owned by a pair of Iranian banks. The Treasury Department has maintained sanctions against the Afghan and Iranian banks in the past few years, and the traders said they had been recently told that the Afghan bank was being used by the Iranian government to move cash in and out of Afghanistan.  Western and Afghan officials, as well as traders in Afghan money markets, said that a number of Iranians had started seeking to buy dollars and euros with their rials as American and European sanctions tightened over the past year.  The purchases are part of efforts by wealthy and middle-class Iranians to protect their savings and business profits by moving them offshore. But with legitimate transfers out of Iran virtually impossible because of the sanctions, Iranians are instead converting their rials in Afghanistan, and then moving the money to banks in the Persian Gulf and beyond.  “The middle class is in a panic about what to do right now,” said Djavad Salehi-Isfahani, an economist at Virginia Tech and an expert on Iran’s economy.

More troublingly, in the eyes of Western officials, the Iranian government is seeking to bolster its reserves of dollars, euros and precious metals to stabilize its exchange rates and ensure that it can pay for imports. Iran had about $110 billion in foreign currency and precious metal reserves in 2011, and those are believed to be dwindling now.  Afghan traders have proved more than willing to trade dollars for rials, usable as a currency in many parts of western Afghanistan, at advantageous exchange rates. Hajji Najeeb Ullah Akhtary, the president of Afghanistan’s Money Exchange Union, an association of traditional money transfer and exchange businesses that are known as hawalas, said he and his members had seen a steady increase in Iranians bringing cash into Afghanistan over the past year. That comes on top of routine transfers made by Afghans living and working in Iran, including more than one million impoverished refugees, and the regular supply of rials that circulates in Afghanistan.  The cash “comes across in trucks,” he said, with transfers arranged by Afghan middlemen who take a 5 to 7 percent commission.

Iranians were converting rials into dollars in Kabul, the western border city of Herat and in the southern cities of Kandahar and Ghazni, Mr. Akhtary said. The transactions were largely conducted through hawalas, which allow people to transfer large sums of money for small fees to relatives or business associates in distant locales within minutes. The dealers in various places cover one another to make the system work, and settle up after the fact.  The markets are often ramshackle affairs that give little hint of the vast sums being moved. Kabul’s hawala market, for instance, is little more than a few dingy lanes hidden away on the banks of the Kabul River, a trickle of fetid water that winds along trash-strewed banks. But it does huge business. Outside its storefronts, men sit on the pavement behind rickety tables piled high with afghanis, Pakistani rupees, American dollars and Iranian rials, among other currencies.  One hawala dealer, Hajji Ahmed Shah Hakimi, said two routes were primarily used to bring cash in from Iran: one directly across the border with Iran and another through Pakistan.  Both he and Mr. Akhtary insisted that they were not involved in smuggling cash for Iranians or anyone else, but that other hawala traders were.

Mr. Hakimi said the sanctions on Iran were seen in Afghanistan as an American issue, and that is why some Afghans had no problem smuggling money for Iranians. Some Afghan officials echoed that view, saying the Iranian money flow was not a top concern, though the broader problem of bulk cash smuggling was.  The flow of cash in and out of Afghanistan goes largely unmonitored and unimpeded, a “country-sized” money-laundering operation, said a European forensic auditor who has tracked financial crime in Afghanistan and spoke on the condition of anonymity.

In 2011, an estimated $4.6 billion, a sum equivalent to roughly a third of Afghanistan’s gross domestic product, was stuffed into suitcases, shrink-wrapped onto pallets or packed into boxes and flown out of Kabul’s airport on commercial airline flights, most of them headed for Dubai, United Arab Emirates, according to the central bank.  Though new rules and better enforcement have begun to cut into the cash flying out of Kabul, it is anyone’s guess how much moved out of Afghanistan overland on trucks or on twice-weekly flights to Dubai from Kandahar in southern Afghanistan, said an Afghan official who tracks suspicious financial transactions and spoke on the condition of anonymity.  “Kandahar?” he said. “We have no idea what is going there.”

By MATTHEW ROSENBERG and ANNIE LOWREY, Iranian Currency Traders Find a Haven in Afghanistan, NY Times, Aug. 17, 2012

See also Financial Sanctions against Iran and the Chinese Loophole