Tajikistan’s Cash Transfer Woes

One of the most popular payment systems in use in Tajikistan, Zolotaya Korona (which means Golden Crown, also called Koronapay), was allegedly used to transfer money to the group that attacked and killed four foregin cyclists in 2018, according to the National Bank of Tajikistan last month.

The announcement serves to highlight several issues, from terrorism financing to migrant worker remittances amid a fragile Tajik banking sector. Some analysts also suspect that the claim mostly serves to support the state’s decision last year to funnel all wire transfers through a central processing center.

The announcement about Zolotaya Korona’s possible use by terrorists came after months of pressure by the Tajik state on companies that provide wire services. Last October, the National Bank announced that it would establish a processing center through which all wire transfers would route. The bank said all money transfer companies would need to hold money in local accounts to provide security and mitigate risk of the company being unable to repay money that local banks cashed out to their customers.

The state said this would cost customers nothing; the costs (official and unofficial) for companies to park millions in Tajik banks hasn’t been discussed in depth. Technically, the banks holding reserves for the transfer companies can’t tap into it, but what’s the stop the state from doing so?

In early December, money wiring services in Tajikistan suddenly became unavailable, according to a Eurasianet report. Reuters reported at the time that Zolotaya Korona had been cut off from Tajikistan entirely.

“For reasons beyond our control, it has been impossible for us to connect to the National Processing Centre of the National Bank of Tajikistan,” Zolotaya Korona said in a statement. “There are some legal issues that need to be resolved as well as technical integration matters which were supposed to be resolved by the National Bank of Tajikistan.”

At the time, the National Bank said most wire transfer systems had been successfully connected. Eurasianet’s reporting suggested otherwise, as did reports in Asia Plus, an independent Tajik news site.

Zolotaya Korona reportedly accounts for around 82 percent of wire transfers to Tajikistan. Given that volume, fulfilling an obligation to hold reserves locally is potentially difficult and certainly undesirable given the fragility of the Tajik banking sector.

Tajikistan’s banking sector has long struggled. In 2016, profligate lending touched off a major banking crisis in the country. That year two Tajik banks were liquidated by the state after unsuccessful bailouts and this past November, the National Bank said that one of the banks that survived – Tojiksodirotbank – reportedly still owed 31,000 accountholders more than $116 million.

Tajikistan’s banks have a history of not just poor lending decisions, but state meddling. According to Eurasianet, Tojiksodirotbank was made to pay for the construction of stadiums, schools, and other public facilities on the orders of President Emomali Rahmon. It’s easy to make poor lending decisions when it’s the president asking to borrow.

Ostensibly, the establishment of the national processing center is designed to protect local banks. Those who use wire and cash transfer services are largely migrant workers sending money home. For reference: in 2018 the volume of cash transfers by individuals to Tajikistan from Russia amounted to $2.5 billion.

According to an April 2019 report by the UN Committee on the Rights of Migrant Workers, while official Tajik statistics cite 500,000 migrant workers abroad, experts estimate the real number is much higher, as many as 2 million. Ninety-five percent of Tajik migrant workers travel to Russia.

With this wider context, the announcement that Zolotaya Korona was used to transfer funds to terrorists in Tajikistan looks less like a timely report of newly learned facts and more like an effort to justify the trouble the company has had in operating under the new rules.