Cablegate: Burma: Using the Hundi System to Transfer Money

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OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0698/01 2460944
ZNR UUUUU ZZH
O 020944Z SEP 08
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8116
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBY/AMEMBASSY CANBERRA 1487
RUEHBJ/AMEMBASSY BEIJING 2015
RUEHKA/AMEMBASSY DHAKA 4967
RUEHNE/AMEMBASSY NEW DELHI 4978
RUEHUL/AMEMBASSY SEOUL 8569
RUEHKO/AMEMBASSY TOKYO 6138
RUEHCN/AMCONSUL CHENGDU 1561
RUEHCHI/AMCONSUL CHIANG MAI 1808
RUEHCI/AMCONSUL KOLKATA 0412
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/DIA WASHDC
RUEHGV/USMISSION GENEVA 4001
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 1964
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 03 RANGOON 000698

SIPDIS

STATE FOR EAP/MLS, INR/EAP, EEB/TFS
DEPT PASS TO USAID/ANE
PACOM FOR FPA
TREASURY FOR OASIA, OFAC, FINCEN, TFFC
BANGKOK FOR USAID/OFDA - BILL BERGER

E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV BM
SUBJECT: BURMA: USING THE HUNDI SYSTEM TO TRANSFER MONEY

REF: A. RANGOON 197
B. RANGOON 663

RANGOON 00000698 001.2 OF 003

1. (SBU) Summary. Prompted by government restrictions on
foreign currency holdings and U.S. financial sanctions, many
Burmese opt to transfer U.S. dollars in and out of Burma
through informal channels, known colloquially as the "hundi
system." The system links Burmese money changers and
businesses with counterparts elsewhere in the region, often
in Bangkok or Singapore, allowing cheap and efficient money
transfers based on personal relationships and trust. The
hundi system enables Burmese to conduct transactions in U.S.
dollars outside the reach of GOB authorities, eliminating the
need to withdraw Foreign Exchange Currency (FEC) and the
associated exchange rate loss. It also bypasses U.S.
prohibitions - affecting both businesses unconnected to the
regime and crony companies - on dollar-denominated
transactions into Burma and among Burmese nationals outside
the country. End Summary.

Burma's Backstreet Bankers
--------------------------

2. (SBU) The Burmese Central Bank heavily regulates the
banking sector, favoring the four state-owned banks - Myanmar
Foreign Trade Bank (MFTB), Myanmar Economic Bank (MEB),
Myanmar Agricultural Bank (MAB), and Myanmar Investment and
Commercial Bank (MICB) - while limiting the operations of the
few private banks that are allowed to function. The GOB
restricts who can open bank accounts and limits the number
and value of financial transactions. Both state-owned and
private banks charge high fees and take up to two weeks to
complete transactions, such as wire transfers or letters of
credit. Only state-owned banks can hold foreign exchange, so
companies and individuals licensed to conduct business in
dollars must open an account at MFTB (Ref A). Bank account
holders must pay a 10 percent tax on any foreign currency
deposits. Consequently, the majority of Burmese do not have
private or business bank accounts, choosing instead to horde
cash in their homes or offices. Most Burmese financial
transactions are conducted in cash.

3. (SBU) Most Burmese prefer informal banking methods to
move money in and out of the country. Some Burmese choose
the risky and illegal practice of hand-carrying bags of cash
while traveling overseas. A far larger number opt to use the
"hundi system," a method of remitting money through informal
networks both inside and outside of Burma. (Note: "hundi" is
derived from a Sanskrit word and means "to collect." The
Hundi system is comparable to the "hawala" system used in the
Middle East. End Note.)

4. (SBU) Businessmen describe the hundi system as
trust-based. For example, to move money to Ms. X in Burma,
Mr. Y provides dollars to a hundi dealer - which can be a
money changer, local businessman, or even a student - located
outside the country. The dealer, using his business or
personal connections, contacts either a business partner or
other individual living in Burma, who then provides the
money, either in dollars or kyat, to Ms. X. In a less common
example, Mr. Y might pay for an overseas expense for Ms. X --
e.g. her daughter's college tuition -- in exchange for Ms. X
paying off one of his obligations in Burma in local currency.
Funds can also be moved from Burma to recipients abroad, as
well as from place to place within Burma. Transactions are
usually completed within 1-2 days. None of our contacts have
reported losing money through the hundi system. "You don't

RANGOON 00000698 002.2 OF 003

trust, you don't send," one merchant told us.

5. (SBU) According to our business contacts, most hundi
dealers charge a small commission, usually 1-2 percent of the
total amount. Some dealers forgo commission if the
transaction amount is more than USD 50,000, since they can
earn money on exchange rate differentials. Business contacts
report that Hundi dealers with financial ties to Burma can be
found in most large Asian cities, although the majority of
transactions originate from Bangkok and Singapore. Several
business contacts confirmed that they have sent money from
the United States to Burma using informal hundi networks.

Who Uses the Hundi System?
--------------------------

6. (SBU) Despite the informality of the hundi system, its
users range from individuals who work overseas (especially
crewmen) to Burmese businessmen with international business
ties. Investors, and even some international organizations
and NGOs, also use the system to remit money. Businessmen
emphasize that the benefits of the hundi system outweigh the
associated risks:

-- Hundi transactions are often completed more quickly than
domestic and international banking transactions;
-- Dealer commission fees are lower than bank transaction
fees;
-- The risks of theft or detection are lower than carrying
in bags of cash;
-- Recipients often receive a better rate of exchange; and
-- Recipients in Burma do not have to pay taxes on incoming
foreign currency.

7. (SBU) Furthermore, businessmen note that the hundi
system allows them to conduct transactions in dollars, which
is prohibited under U.S. financial sanctions that ban the
transfer of dollars into Burma for commercial purposes. As a
result of these restrictions, imposed in 2003, Burmese
companies that engage in international or cross-border
commerce - whether crony companies affiliated with the regime
or private enterprises operating under the GOB's radar - have
been compelled to find alternate means of moving dollars in
and out of the country. Individuals remitting funds from the
United States also prefer hundi transactions because U.S.
sanctions exemptions limit personal remittances to $1,200 per
annum. By sending money through informal channels,
individuals can remit more while recipients avoid the 10
percent tax. NGO contacts pointed out that transferring in
dollars eliminated the need for FEC, which has depreciated 25
percent against the kyat vs. the dollar in the past three
months (Ref B). Sever
al NGOs and international organizations have used the hundi
system to move money in order to reduce financial losses
associated with exchange rate differences.

8. (SBU) Several Embassy contacts also confirmed their use
of the hundi system within Burma's borders. Since Burma is a
cash-based society, one must carry around large amounts of
kyat when traveling. The domestic hundi system enables
people to transfer kyat so that it is waiting for them at
their destination, reducing the risk of theft.

Who are Hundi Dealers?
----------------------

9. (SBU) While our contacts would not disclose the names of

RANGOON 00000698 003.2 OF 003

their hundi dealers, they noted that many of them were
Burmese living overseas or Asian businessmen with ties to
Burma. They reported that individuals often became dealers
because their own business operations required the transfer
of money into and out of Burma, and they were eager to avoid
the formal banking sector's transaction costs. In some
cases, trading partners or dealers settle outstanding
accounts informally through the hundi system. Instead of
paying cash directly to their trading partner overseas,
dealers can settle their partner's debts locally. Trading
partners can maintain their balance of payments informally
while using the hundi system to make additional profits by
transferring funds for others.

Comment
-------

10. (SBU) The hundi system provides an opportunity for
individuals to transfer funds inexpensively and relatively
securely while avoiding Burma's weak and restrictive banking
system and onerous foreign currency restrictions. It also
allows legitimate businesses, which are unable to conduct
dollar transactions due to U.S. financial sanctions, to
transfer dollars in and out of Burma; this, in turn, allows
Burmese to engage in financial transactions outside the
government's writ and promotes the development private
enterprise. At the same time, however, the hundi system also
allows regime leaders and crony businessmen to circumvent
U.S. targeted sanctions, and these informal financial
linkages should be considered as we seek to cut off the
finances of regime officials and cronies designated under
U.S. targeted sanctions.
VAJDA

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