* Read story in multimedia PDF: link.reuters.com/deb64t
* U.S. names Afghan currency dealer as banker to the Taliban
* Suspect hits back at Washington in exclusive interview
* Showdown opens window into shadow war against insurgent
* Attacking funding seen as leverage in Taliban peace talks
By Matthew Green
KANDAHAR, Afghanistan, Dec 23 Haji Khairullah
Barakzai is the ultimate Afghan success story: illiterate
village boy makes a fortune thanks to a lifetime of hard work,
unerring street smarts and God's favour.
But to the U.S. Treasury Department, he is one of the
biggest bankers to the Taliban, the architect of an underground
network that converts opium grown in the poppy fields of his
native southern Afghanistan into cash.
On June 29, the United States and United Nations slapped
"terror finance" sanctions on Khairullah and his 25-year-old
currency-exchange business, freezing his assets and imposing a
travel ban. The move marked a new phase in an escalating but
little known campaign to starve the insurgency of drug money
ahead of a handover to Afghan forces in 2014.
A Treasury statement accused Khairullah of "donating money
and providing financial services to the Taliban", which used his
cash transfer service "in support of the Taliban's narcotics and
Treasury's evidence is classified, but Afghan sources and
Western officials familiar with Khairullah painted a portrait of
a man with long-standing ties to the Taliban and the drug trade
alongside significant legitimate businesses.
Khairullah's friends and associates describe an entirely
different figure, a patriarchal pillar of the community who in
the murky world of Afghan currency trading cannot always be
expected to know the true identity of his customers.
"I am a businessman, and a businessman is like a ram. Anyone
in authority can come and grab it by its neck and slaughter it,"
Khairullah told Reuters, in his first interview since the
sanctions were imposed.
"My life has become hell. I have lost my credibility and
reputation. I have been declared guilty without any verdict from
a judge," he said. He was speaking by telephone from Quetta, the
city in southwest Pakistan where he sought sanctuary after
Washington named him as a key Taliban financier.
The showdown between Khairullah and his pursuers opens a
rare window into another kind of war, where financial
intelligence trumps firepower, and captured territory is
measured in frozen accounts.
It is a war the West has not been winning. Milking money
from the heroin trade, donors in the Gulf and extortion rackets
on NATO contractors, the Taliban increased its income to $400
million in the last Afghan calendar year, according to U.N.
estimates. About a quarter came from narcotics.
"PHONE CALL AND A HANDSHAKE"
Since sanctioning Khairullah and his business partner Haji
Abdul Sattar Barakzai, the U.S. government has stepped up its
campaign to disrupt the insurgents' revenue streams. Washington
has hit militant groups, guerrilla commanders and other currency
dealers with a slew of similar measures.
U.S. officials acknowledge it is hard to rank the
significance of any one of a core group of suspected Taliban
money men with precision, but they believe Khairullah is
integral to the movement's funding structure.
Proponents say squeezing the cash pipelines that pay for
fighters and weapons is a smart way to pressure the Taliban
while the vast majority of foreign combat troops is being
The approach could also be used to exert leverage over
Taliban hardliners, if halting attempts to foster peace talks
gain momentum. Tentative contacts between the United States and
the Taliban suffered a setback in March when the two sides could
not agree on a proposed prisoner swap. But the White House
remains keen to pursue dialogue.
The hunt for Khairullah's presumed millions points to the
sheer difficulty of choking Taliban funding channels.
Investigators who venture into the region's forbidding
ecosystem of illicit commerce find that lines between legitimate
trade and criminality often blur, hand-written ledgers are
barely decipherable, and deceptively nondescript offices move
mountains of cash.
"Everything is done on a phone call and a handshake," said
one U.S. official. "The record system or the paper trail that
allow you to connect the dots is not as clear as the Western
In Kandahar's seven-storey money market, where turbaned
dealers haggle over bricks of well-worn notes, Khairullah's
colleagues leapt to the defence of a respected member of their
"When we went to his office, we only saw people changing
money or drinking tea or eating sweets," said Haji Qandi Agha, a
regal-looking trader who is the market's president. "There was
no talk of the Taliban or heroin."
Agha gestured to a man with a close-cropped beard and
embroidered skull cap who had just approached his counter.
"For example, this man is sending money," he said, after the
customer produced a sheaf of grubby bills from his waistcoat.
"What if the government or America captures him and says he's
Taliban? Is it my crime?"
The man, counting with deft thumbs, did not look up.
CANDY SELLER TO CURRENCY KING
Khairullah was born into a modest family in Afghanistan's
southern Helmand province, where he revealed his entrepreneurial
streak as a boy by selling sweets from a handcart, according to
two politicians who knew him.
Khairullah, now about 50, said he built his empire from
humble beginnings, starting out by trading goods within
Afghanistan and the region. Later, he invested in properties
whose value soared exponentially after the Taliban was
overthrown in 2001. He diversified into scrap metal and rice
exporting in Pakistan and owns a freight company in Dubai.
In Kandahar, the birthplace of the Taliban, Khairullah's
reputation as a shrewd currency trader is leavened by his image
as a philanthropist. Colleagues praised him for mobilising
relief for Pakistani earthquake survivors or Afghan villagers
tormented by frostbite during harsh winters.
Above all, Khairullah is a king of the hawala trade. U.S.
officials believe his network of more than a dozen currency
counters spans Afghanistan, Pakistan, Dubai and Iran.
The hawala trust-based money transfer system, which
pre-dates the time of the Prophet Mohammed, is the banking
system of choice in Afghanistan's cash-based economy.
Customers tend to be far happier entrusting their money to
established hawala agents like Khairullah than a new crop of
Western-style banks. A $900 million fraud at Kabul Bank,
emblematic of the lack of ethics or controls in much of the
formal sector, sharpened suspicions of the new Afghan financial
"It is true that 35 to 40 years ago I had nothing,"
Khairullah said. "Maybe I couldn't even have raised 100,000
rupees ($1,000) back then. But God bestowed me with two eyes to
see and a mind to think."
Current and former officials ascribe Khairullah's wealth to
a different source: Afghanistan's burgeoning heroin trade.
"He is one of the biggest fish in the region," said General
Khodaidad (who goes by one name), Afghanistan's
counter-narcotics minister from 2007 to 2010.
A source in Pakistan's Anti-Narcotics Force also said
Khairullah was suspected of involvement in trafficking. "He is
rich and resourceful, therefore no one can touch him," he said.
In 2012, the farm-gate value of opium - the actual cut
farmers receive from the trade - accounted for 4 percent of
Afghan gross domestic product, or about $700 million, according
to U.N. data. Afghanistan provides 90 percent of the global
supply of heroin and other illegal opiates, which has an
estimated annual street value of $68 billion.
"THEY SHOULD HANG ME"
The accusations against Khairullah date back to the austere
era of Taliban rule in the late 1990s. Then, he mingled with a
coterie of heroin exporters who thrived under the patronage of
Mullah Mohammed Omar, the movement's enigmatic leader, according
to two people from Kandahar familiar with the trade.
"He became close to the Taliban," said one of the sources.
"He bought drugs and sold them and made lots of money."
The source added he had seen Khairullah visit Mullah Omar's
compound in Kandahar city perhaps 20 times before the Taliban
was toppled, forcing many of its commanders to flee to Quetta,
where Khairullah maintains an office.
In the summer of 2000, the year before his ouster, Mullah
Omar banned poppy, causing opium prices to skyrocket. That made
fortunes for Khairullah and others who had amassed stockpiles,
according to a member of Kandahar's provincial council.
Khairullah, who denies ever meeting Mullah Omar, said
reports he was connected with the drug trade were concocted by
his business rivals.
"I will be here five years from now, 10 years from now or 15
years from now," he said. "If they can prove their allegations
against me with concrete evidence, then they can and should hang
me for it."
For much of the West's 11-year campaign, the art of tracking
sources of insurgent funding was a neglected discipline at the
Kabul headquarters of ISAF, the NATO-led force in Afghanistan.
The U.S. military, stretched in Iraq, resisted calls to
pursue Afghan drug lords, fearing that "mission creep" into
counter-narcotics would be a further drain on resources.
The role smuggling plays in sustaining the insurgency began
to receive more attention in 2009 as part of a wider shake-up of
the war effort under U.S. President Barack Obama, who tripled
the number of American troops in Afghanistan.
Investigators suspect Khairullah stands at the centre of an
"iron triangle" locking hawala dealers, heroin kingpins and
militants into an increasingly profitable symbiosis.
Taliban commanders would collect opium from poppy growers,
then hand it over at his shops in farming communities in return
for instant payments, a Western official said.
"He would take opium and give you cash," he said.
Khairullah would then gather bulk quantities of opium in
hidden storehouses to sell to traffickers for a lucrative
margin, the official alleged.
U.S. officials say his hawala shops also served insurgents
like a conventional bank, allowing Taliban leaders to make
monthly payments to fighters, including their top commander in
Helmand, a suspected major player in the heroin trade.
"As of 2010, Khairullah was a hawaladar, or hawala operator,
for Taliban senior leadership and provided financial assistance
to the Taliban," the Treasury statement said.
Khairullah denies the allegations. "I am an illiterate man,"
he said. "I have never been part of a political organisation
either in Afghanistan or in Pakistan. My sole concern has been
Like other hawaladars, he said he could not be expected to
always know who his clients were. "It is not written on
someone's forehead that he is a member of the Taliban," he said.
Esmatullah Helmand, a Khairullah relative who runs his Kabul
branch, said far from being in cahoots with the insurgents, his
boss had feared being attacked for moving money on behalf of
trucking companies supplying ISAF.
"When we saw this thing on the news - that we were
blacklisted - we were shocked," Esmatullah said.
"LOST HIS WAY"
Any hope Khairullah may have had of keeping the sanctions
quiet was shattered when Afghan television broadcast reports of
his designation on the U.S. Treasury and U.N. websites.
Like Western banks, hawala dealers run highly leveraged
businesses with paper assets many times larger than the cash
they hold. Shocks can tip them into bankruptcy.
Khairullah had faced an earlier crunch in 2010 after several
of his partners incurred huge losses. The sanctions triggered a
new crisis as hundreds of his remaining customers scrambled to
retrieve their funds.
"People who would deposit their money with me for years are
now standing outside my door," Khairullah said.
Within days of his designation by the U.S. Treasury,
Khairullah had driven 200 kilometres (124 miles) from Kandahar
to Quetta, an ISAF official said, dodging a U.N. travel ban that
should have barred him from entering Pakistan.
At the same time, he began working his phones. Haji
Najeebullah Akhtary, president of Kabul's Sarai Shahzada
currency market, was among the first to receive a call.
"Immediately, he called me and said he was going to meet
President Karzai," Akhtary said.
Approaching the president would have been a natural step.
Karzai's family hails from Kandahar, and the president has
tended to sympathise with community leaders nursing grievances
Shah Wali Karzai, one of the president's brothers and a
prominent Kandahari, said he had hosted Khairullah's partner
Sattar at a meeting aimed at settling a land dispute in
February, before the pair were sanctioned.
Khairullah's hopes of winning a similar audience with the
president came to nothing. Instead, Karzai ordered security
chiefs to investigate him, a presidential spokesman said.
Undeterred, Khairullah sent another relative to Kabul to
lobby Afghanistan's National Directorate of Security, the
intelligence agency, an NDS official said.
The NDS offered to work with the family to investigate the
U.S. claims and inform Washington if they were unfounded, but
the relative declined, the official added.
Mullah Sayed Mohammed Akhund, a lawmaker from Kandahar, also
fielded frantic calls from his long-time friend.
"I guarantee that he hasn't paid even one penny to the
Taliban," Akhund said. "He has lost his way and he doesn't know
what to do."
As Khairullah called his contacts, the Afghan financial
intelligence unit, FinTRACA, moved to freeze his assets.
Although hawala dealers can shift large sums purely by
cooperating with fellow hawaladars, big players also rely on the
formal banking system to help reconcile elaborate cross-border
transactions that can involve millions of dollars.
When the blocking orders arrived at Afghanistan's commercial
banks, the lenders told FinTRACA that Khairullah's accounts only
held the equivalent of $20,000 - a fraction of the sums he is
believed to have been moving.
FinTRACA did not provide the names of the banks.
"A couple of months prior to the sanctions, he had stopped
transferring money via these accounts," said Mohammad Mustafa
Massoudi, FinTRACA director-general. "He must have had some
tip-off, some knowledge that it was coming."
Nevertheless, Khairullah said the sanctions had forced him
to auction property to raise cash. A real estate agent in
Kandahar said an agitated-looking Khairullah had visited him in
August to try to cut a quick deal to sell 24 plots in a new
development on the edge of the city for $360,000.
"His face told me he was very worried," the agent said.
As Afghan officials pondered the whereabouts of Khairullah's
elusive hoard, Luke Bronin, the U.S. deputy assistant secretary
for terrorist financing, boarded a plane for the Pakistani
commercial capital of Karachi in early September.
U.S. officials say they consulted closely with Pakistan
before sanctioning Khairullah, Sattar and HKHS, their hawala
company, mindful of long-standing Pakistani resentment of
pressure to crack down on the Taliban.
Bronin hammered home the importance of putting the two men
out of business in two days of meetings with financial and
security officials in Karachi and Islamabad.
"They have been designated not only by the U.S. but also by
the United Nations," Bronin told Reuters. "So we have every
expectation that Pakistan will take the necessary steps to shut
Pakistan's central bank said it routinely implements U.N.
freeze orders, but does not divulge details.
In Quetta, Khairullah appears to operate unimpeded, working
from an unmarked first-floor office guarded by a metal door
opposite a motorbike repair shop. Western officials marvel at
his continued ability to raise six-figure dollar sums in cash.
Fuming at his adversaries from his Quetta headquarters,
Khairullah seems anxious as well as angry. A fellow hawala
merchant, Haji Mohammed Qasim, was arrested by Afghan and U.S.
forces in Kandahar in mid-September.
The U.S. Treasury has since accused Qasim of transferring
millions of dollars on behalf of the Taliban and hit him with
sanctions. Perturbed dealers in Kandahar say they do not even
know where he is being held.
Haji Agha Jan, another currency trader, said his business
had collapsed after ISAF detained him for 25 days last year to
interrogate him over his client list. "People are afraid that
the Americans will arrest me again," he said, chewing green
tobacco in his empty shop.
Resentment of the U.S. sanctions in Kandahar's money bazaar
is echoed by the wider business community In Kabul.
The Afghanistan Chamber of Commerce and Industries, the
country's leading business lobby, has been sharply critical of
U.S. authorities for publicly naming suspected Taliban
supporters without submitting evidence to Afghan courts.
"They are destroying the image of individuals and
businesses," said Mohammad Qurban Haqjo, the Chamber president.
"In other countries, nobody is allowed to do that."
On a recent afternoon in the city's currency market, no
customers called at shop 237, Khairullah's counter. A storefront
sign emblazoned with his name had been effaced with blue paint.
Only a Koranic inscription above the door had been left
untouched. It read: "And God is the Best of Providers."
"The Americans and the United Nations have persecuted me,"
Khairullah said. "They will have to compensate me for my
(Additional reporting by Mirwais Harooni, Hamid Shalizi,
Jessica Donati and Abdel Aziz Ibrahimi in KABUL, Mahmoud
Habboush in DUBAI and Jibran Ahmad in PESHAWAR)
(Reporting By Matthew Green; Editing by Bill Tarrant)