Pakistan Cracks Down on Illicit Dollar Trade With Afghanistan

Despite intense international pressure and sanctions, the Afghan economy under the Taliban regime has survived and met its currency demands through unconventional and occasionally illegal means.

After the Taliban came to power in August 2021, the United States froze nearly $9.5 billion in assets belonging to the Afghan central bank and halted cash payments to the country. The absence of cash and dollar inflows forced the Taliban to seek alternative methods to sustain their economy. Among the measures resorted to is currency smuggling from neighboring Pakistan. 

Afghanistan has been able to maintain its economy and obtain much-needed funds through the illegal trade of goods and money, even in the face of difficult circumstances. According to reports, Afghanistan’s daily requirement of U.S. dollars is estimated to be around $10-15 million. As per Pakistani officials, traders and smugglers have been reportedly moving approximately $5 million from Pakistan to Afghanistan every day.

Pakistani authorities have taken notice of this alarming trend, as it has grave economic implications. 

The Afghan Taliban and other groups are using certain methods to facilitate this illegal activity. Pakistani officials report that $100 bills are smuggled as they are convenient for hiding large amounts of money. Daily commuters play an active role in smuggling. Women laborers are widely used to avoid detection as they arouse less suspicion and are not subjected to intense checking at the border.

The involvement of cash couriers in smuggling activities has raised concerns. In this illicit operation, individuals pay people who commute daily between Pakistan and Afghanistan under the guise of business to carry goods or cash for them. These cash couriers not only engage in smuggling activities but also carry U.S. dollars within the authorized currency declaration limit, making it difficult for authorities to detect their illegal activities. Furthermore, there have been reports of Pakistani officials being involved in the trade at different border posts, further complicating detection. 

Some individuals have taken advantage of duty relaxations for Afghanistan by setting up companies in Pakistan solely for smuggling activities.

In recent weeks, Pakistan has taken a strong stance against currency smuggling to Afghanistan and has implemented significant measures to combat this illegal activity. There has been a crackdown on currency gray markets in key cities, especially Peshawar, which have been enabling Afghan smuggling operations at premium prices. 

Additionally, Pakistan has published a list of banned items that are not required by Afghanistan and are commonly used for smuggling purposes. These items will no longer be eligible for duty concessions, further deterring smugglers from engaging in illicit activities. In addition, more border stations have been established along the Afghan border, and Afghan nationals can no longer enter Pakistan without a visa. This has hampered illegal travel between the two countries.

However, the recent crackdown on illicit trade in Pakistan has raised questions about why this trade was allowed to persist for so long in the first place. Some in Pakistan’s policymaking circles considered it a strategic move to persuade the Afghan Taliban to cooperate with Pakistan on security issues. 

With “Pakistan not seeing an improvement in Afghan Taliban’s behavior regarding threats from different militias who operate from Afghanistan, benefits that were given to Taliban have been taken away,” an official, speaking on condition of anonymity, told The Diplomat. Those “benefits” apparently include Pakistan turning a blind eye to illegal activities like the smuggling of dollars.

With its crackdown on currency gray markets, Pakistan has sent a clear message that it is determined to eliminate loopholes that facilitate smuggling operations and undermine its economy. The Afghan Taliban seem unhappy about the Pakistani crackdown on the smuggling of currency. 

Since the crackdown began, Pakistan’s ties with the Afghan Taliban have worsened, as it has put pressure on the Afghan economy. With informal means of trade between Pakistan and Afghanistan being closed off, Afghanistan is left with limited choices for its economic activities.

Pakistan’s actions to stop illegal trade, together with the expulsion of illegal Afghan migrants, have had a significant positive impact on the country’s economy. As a result, Pakistan’s currency has experienced a massive recovery, and other financial indicators have also reverted to positive trends.

One notable area where these actions have made a difference is the dollar market in Pakistan, which is now under control. The clampdown on the Afghan trade has limited or eliminated speculation, ensuring stability in the market.

“Pakistan’s recent actions are in line with its revised policy, which calls for punishing the Taliban if they continue to jeopardize the country’s security,” the official added. 

“By taking decisive actions against illegal trade and expelling illegal Afghans, Pakistan has sent a clear message that it will not tolerate any threats to its security.”

The official said that Pakistan is still losing soldiers every day as a result of the Afghan Taliban’s lack of cooperation. “What could happen if we punish the Taliban, make it understand that it can’t function without Pakistan’s assistance, and respond to the legitimate expectations of the country?” the official reasoned.