[Senate Prints 111-29]
[From the U.S. Government Publishing Office]


111th Congress 
 1st Session                COMMITTEE PRINT                     S. Prt.
                                                                 111-29
_______________________________________________________________________

                                     



             [TITLE] deg.AFGHANISTAN'S NARCO WAR:

                       BREAKING THE LINK BETWEEN

                    DRUG TRAFFICKERS AND INSURGENTS

                               __________

                                A REPORT

                                 TO THE

                     COMMITTEE ON FOREIGN RELATIONS

                          UNITED STATES SENATE

                     One Hundred Eleventh Congress

                             First Session

                            August 10, 2009

                                     


                  U.S. GOVERNMENT PRINTING OFFICE
51-521                    WASHINGTON : 2009
-----------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092104 Mail: Stop IDCC, Washington, DC 20402ï¿½090001


                 COMMITTEE ON FOREIGN RELATIONS        

             JOHN F. KERRY, Massachusetts, Chairman        
CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
RUSSELL D. FEINGOLD, Wisconsin       BOB CORKER, Tennessee
BARBARA BOXER, California            JOHNNY ISAKSON, Georgia
ROBERT MENENDEZ, New Jersey          JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland         JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania   JOHN BARRASSO, Wyoming
JIM WEBB, Virginia                   ROGER F. WICKER, Mississippi
JEANNE SHAHEEN, New Hampshire        JAMES M. INHOFE, Oklahoma
EDWARD E. KAUFMAN, Delaware
KIRSTEN E. GILLIBRAND, New York
                  David McKean, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                               (ii)      
?



                            C O N T E N T S

                              ----------                              
                                                                   Page
Letter of Transmittal............................................     v


Executive Summary................................................     1

1. The Fruits of Neglect--Recent Rise of the Drug Trade..........     3

     Unintended Consequences of the Invasion.....................     4

    See No Evil..................................................     5


2. Why Eradication Failed--2001 to 2008..........................     6

    Grounding Eradication........................................     6

    Gone Today, Here Tomorrow....................................     7

    A Dramatic Change of Strategy................................     8


3. How the Taliban Exploits the Drug Trade.......................     9

     Where Does the Money Go?....................................    10

    The Scope of Corruption......................................    11

    New Tactics in the Field.....................................    12


4. Implementing New Strategies for Afghanistan...................    13

    ``Remove Them from the Battlefield''.........................    15

    Responding to the Stalemate..................................    16

    The Regional Spillover--Problems in Pakistan.................    17

    Beyond the Pakistan Border...................................    17


5. A Metaphor for War--The Battle of Marjah......................    18

    A Surprise Attack............................................    19

    The Pluses and Minuses of Marjah.............................    20


6. The Missing Civilian Component................................    21

    A Verdict on Kabul and Washington............................    21

    Two Bright Spots.............................................    22


7. Recommendations for Afghanistan...............................    23

                                Appendix

1. A Discussion of Alternative Crops--Poppy v. Wheat.............    25


2. The Intricacies of Hawala--The Road to Nowhere................    27

    Close Knit and Close Mouthed.................................    28

    A Regional Perspective on the Money Flow.....................    29




                                 (iii)

                                     

                         LETTER OF TRANSMITTAL

                              ----------                              

                              United States Senate,
                            Committee on Foreign Relations,
                                   Washington, DC, August 10, 2009.
    Dear colleague:  The administration is several months into 
its ambitious new strategy in Afghanistan, and we are seeing 
the first effects of the increases in military and civilian 
resources. One of the emerging changes is on counter-narcotics 
policy. In the past, our emphasis was on eradication. Today, we 
are focused for the first time on breaking the link between the 
narcotics trade and the Taliban and other militant groups. To 
accomplish that important goal, the administration and our 
military commanders have made targeting major drug traffickers 
who help finance the Taliban a priority for U.S. troops. In 
addition, a new intelligence center to analyze the flow of drug 
money to the Taliban and corrupt Afghan officials is beginning 
operations and plans are under way to create an interagency 
task force to pursue drug networks. The attached report 
represents the findings of research conducted by the committee 
staff in Afghanistan, the United Arab Emirates and the United 
States. The report describes the implementation of the new 
counter-narcotics strategy and offers recommendations. We also 
hope that the report will provide new impetus for a national 
debate on the risks and rewards associated with our increasing 
commitment to the war in Afghanistan.
            Sincerely,
                                             John F. Kerry,
                                                          Chairman.

 
                        AFGHANISTAN'S NARCO WAR:
                       BREAKING THE LINK BETWEEN
                    DRUG TRAFFICKERS AND INSURGENTS

                              ----------                              


                           Executive Summary

    At the end of March when President Obama fulfilled his 
pledge to make the war in Afghanistan a higher priority, he 
cast the U.S. mission more narrowly than the previous 
administration: Defeat Al Qaeda and eliminate its safe havens 
in Afghanistan and Pakistan. To accomplish these twin tasks, 
however, the President is making a practical commitment to 
Afghanistan that is far greater than that of his predecessor--
more troops, more civilians, and more money. As the American 
footprint grows, so do the costs. July was the deadliest month 
yet for American and coalition troops in Afghanistan, and 
military experts predict more of the same sad trajectory in the 
coming months.
    As part of the military expansion, the administration has 
assigned U.S. troops a lead role in trying to stop the flow of 
illicit drug profits that are bankrolling the Taliban and 
fueling the corruption that undermines the Afghan Government. 
Tens of millions of drug dollars are helping the Taliban and 
other insurgent groups buy arms, build deadlier roadside bombs 
and pay fighters. The emerging consensus among senior military 
and civilian officials from the United States, Britain, Canada 
and other countries operating in Afghanistan is that the broad 
new counter-insurgency mission is tied inextricably with the 
new counter-narcotics strategy. Simply put, they believe the 
Taliban cannot be defeated and good government cannot be 
established without cutting off the money generated by 
Afghanistan's opium industry, which supplies more than 90 
percent of the world's heroin and generates an estimated $3 
billion a year in profits.
    The change is dramatic for a military that once ignored the 
drug trade flourishing in front of its eyes. No longer are U.S. 
commanders arguing that going after the drug lords is not part 
of their mandate. In a dramatic illustration of the new policy, 
major drug traffickers who help finance the insurgency are 
likely to find themselves in the crosshairs of the military. 
Some 50 of them are now officially on the target list to be 
killed or captured. Simultaneously, the U.S. has set up an 
intelligence center to analyze the flow of drug money to the 
Taliban and corrupt Afghan officials, and a task force 
combining military, intelligence and law enforcement resources 
from several countries to pursue drug networks linked to the 
Taliban in southern Afghanistan awaits formal approval.
    An equally fundamental change is under way on the civilian 
side of the counter-narcotics equation. The administration has 
declared that eradication of poppies, the mainstay of the 
former administration, is a failure and that the emphasis will 
shift to promoting alternative crops and building a legal 
agricultural economy in a country without one for 30 years. 
This marks the first time the United States has had an 
agriculture strategy for Afghanistan.
    The attempt to cut off the drug money represents a central 
pillar of counter-insurgency strategy--deny financing to the 
enemy. This shift is an overdue move that recognizes the 
central role played by drug traffickers and drug money in the 
deteriorating situation in Afghanistan. While it is too early 
to judge whether this will be a watershed, it is not too early 
to raise questions about whether the goals of the counter-
narcotics strategy can be achieved. Is it possible to slow the 
flow of drug money to the insurgency, particularly in a country 
where most transactions are conducted in cash and hidden behind 
an ancient and secretive money transfer system? Does the U.S. 
Government have the capacity and the will to provide the 
hundreds more civilians required to carry out the second step 
in the counter-narcotics program and transform a poppy-
dominated economy into one where legitimate agriculture can 
thrive? Can our NATO allies be counted on to step up their 
contributions on the military and civilian sides at a time when 
support for the war is waning in most European countries and 
Canada?
    The ability to stop--or at least slow--the money going to 
the insurgency will play a critical role in determining whether 
we can carve out the space required to provide the security and 
economic development necessary to bring a level of stability to 
Afghanistan that will prevent it from once again being a safe 
haven for those who plot attacks against the United States and 
our allies. But counter-narcotics alone will not win the war. 
The new strategy is one aspect, albeit an important one, of the 
administration's decision to move troops into Afghan villages 
and shift more resources to building a functioning and legal 
economy.
    The scope of development needed to create jobs, promote 
alternatives to growing poppy and train Afghan security forces 
is enormous. Unlike Iraq, Afghanistan is not a reconstruction 
project--it is a construction project, starting almost from 
scratch in a country that will probably remain poverty-stricken 
no matter how much the U.S. and the international community 
accomplish in the coming years.
    The administration has raised the stakes by transforming 
the Afghan war from a limited intervention into a more 
ambitious and potentially risky counter-insurgency. This 
transformation raises its own set of questions. How much can 
any amount of effort by the United States and its allies 
transform the politics and society of Afghanistan? Why is the 
United States becoming more deeply involved in Afghanistan 
nearly eight years after the invasion? Does the American public 
understand and support the sacrifices that will be required to 
finish the job? Even defining success remains elusive: Is it to 
build a nation or just to keep the jihadists from using a 
nation as a sanctuary?
    These core questions about commitment and sacrifice can be 
answered only through a rigorous and informed national debate, 
sparked by Congress with the support of the administration. The 
American people need to understand the extent of our country's 
involvement in Afghanistan and neighboring Pakistan and try to 
reach a consensus to help guide policymakers and the President 
and his team.
    The Senate Foreign Relations Committee has held a series of 
public hearings in recent months focusing on the evolving 
policies toward Afghanistan and Pakistan. In an effort to 
stimulate a larger debate, the committee plans another round of 
hearings, beginning soon after Congress returns from the Labor 
Day recess. As part of that effort, the committee staff 
prepared this report examining the new counter-narcotics 
strategy as a way of evaluating the overall policy being put in 
place by the administration in Afghanistan. The report examines 
the counter-narcotics policy and addresses these questions in 
six chapters, followed by a set of recommendations.




    1. The Fruits of Neglect--Recent Rise of the Drug Trade

    2. Why Eradication Failed--2001 to 2008

    3. How the Taliban Exploits the Drug Trade

    4. Implementing New Strategies for Afghanistan

    5. A Metaphor for War--the Battle of Marjah

    6. The Missing Civilian Component

    7. Recommendations for Afghanistan


                              ----------                              


        1. The Fruits of Neglect--Recent Rise of the Drug Trade

          Beyond the tragic fact that Afghan opium is flooding 
        Europe, the real problem for U.S. and coalition forces 
        is the amount of drug profits being paid in taxes and 
        protection money to the Taliban and other insurgents.


    Stemming this flow requires an understanding of the 
evolution of the drug trade in Afghanistan over the past three 
decades. It also requires the overdue acknowledgement that the 
drug situation has deteriorated sharply under the stewardship 
of the Government of President Hamid Karzai, the United States 
and NATO-led International Security Assistance Force (ISAF).
    Opium poppies have been grown in Afghanistan throughout its 
history. Hearty plants that thrive even under harsh conditions, 
they are cultivated for their gummy sap, which is converted 
into opium paste. Some paste is processed into heroin at dozens 
of crude labs in Afghanistan and the rest is smuggled out along 
with the processed heroin via three principal routes: Pakistan 
in the west, Iran in the east and Tajikistan in the north.
    The United Nations Office on Drugs and Crime (UNODC) 
estimates that Afghanistan now produces more than 90 percent of 
the world's opium. While the agency says that acreage under 
cultivation dropped this year and more provinces are ``poppy 
free,'' opium yield and the resulting profits in 2009 are 
expected to remain about the same as in the last two years.
    While opium poppies have a long history in Afghanistan, the 
country was not always the world's biggest opium supplier. At 
the time of Afghanistan's pro-Communist coup in 1978, Afghan 
farmers were producing an estimated 300 tons of opium annually. 
It was enough to satisfy local and regional demand and supply a 
handful of heroin production labs that sold their product to 
Western Europe. Most of the poppies were grown in the less 
fertile areas of the northern part of the country because the 
productive land in Helmand and other southern provinces was the 
country's bread basket, producing enough wheat, fruit and 
vegetables to make Afghanistan self-sufficient and account for 
some exports.
    In the period that followed the Soviet invasion of 1979, 
Afghanistan was dragged through a decade of brutal warfare. 
Livestock was killed, American-built irrigation systems from 
the 1950s and 1960s were destroyed and roads were ruined. The 
country's ability to grow food and get it to market plunged. 
Desperate to earn money to pay for imported food, Afghan 
farmers turned to the one product that grew with little water 
and was relatively easy to transport--opium. Like a seesaw, 
opium production rose as food production dropped.
    Poppy remained the crop of choice under the warlords who 
replaced the Soviets and the Taliban who took power in 1995. 
Afghanistan produced 4,500 tons of opium in 1999, roughly 15 
times the output of 20 years earlier. The huge increase sent 
heroin cascading across Europe and the former Soviet Union, 
leading to pressure on the Taliban to reduce production. Eager 
to end its virtual isolation by the international community and 
profit from its own stockpiles of opium, the Taliban announced 
a ban on poppy cultivation in late 2000. The fundamentalists in 
their black turbans enforced the fragile ban through a complex 
process of persuasion, negotiation and coercion, resulting in a 
sharp reduction in output to 185 tons in 2001. The shift was 
praised by the United States and other countries, but it was 
soon undone.
Unintended Consequences of the Invasion
    Events in the fall of 2001 changed the equation, laying the 
groundwork for the nexus between the drug trade, the insurgency 
and government corruption that defines Afghanistan today. The 
U.S. ouster of the Taliban had the unintended consequence of 
eliminating the ban on cultivation. Poppy farmers were eager to 
plant more crops to recoup losses incurred when the Taliban 
stopped most production. According to the UNODC, production 
jumped more than 16 fold to 3,400 tons for the harvest in the 
fall of 2002. Afghanistan was back in the opium business. The 
dramatic rebound in just a year demonstrated the resilience of 
poppy farmers who had few other ways to feed their families.
    Another factor influenced the escalation of opium 
production. After the invasion, the Central Intelligence Agency 
and U.S. Special Forces put regional and local warlords and 
militia commanders on their payroll to undermine the Taliban 
regime and go after Al Qaeda operatives. Despite alliances with 
the opium trade, many of these warlords later traded on their 
stature as U.S. allies to take senior positions in the new 
Afghan Government, laying the groundwork for the corrupt nexus 
between drugs and authority that pervades the power structure 
today.
    Barnett R. Rubin, a scholar of Afghanistan at New York 
University and now a senior advisor to Ambassador Richard C. 
Holbrooke, the administration's envoy to Afghanistan and 
Pakistan, saw this transition as a defining moment in the 
evolution of the drug trade and governance in Afghanistan. 
``The empowerment and enrichment of the warlords who allied 
with the United States in the anti-Taliban efforts, and whose 
weapons and authority now enabled them to tax and protect opium 
traffickers, provided the trade with powerful new protectors,'' 
he wrote in a 2004 paper, Road to Ruin: Afghanistan's Booming 
Opium Industry. ``Opium production immediately resumed the 
growth path it was on before the Taliban ban.''
    Total income from producing, processing and trafficking in 
opium in 2003 had soared to $2.3 billion, roughly half of the 
country's legal and illegal gross domestic product. By the 
following year, some U.S. leaders recognized that drugs were 
propelling the country down the wrong path. Zalmay Khalilzad, 
the previous administration's special envoy and ambassador to 
Afghanistan, acknowledged at the time that ``rather than 
getting better, it's gotten worse. There is a potential for 
drugs overwhelming the institutions--a sort of narco-state.''
    Despite the warning signals, the U.S. military and CIA did 
not consider counter-narcotics part of their mission and failed 
to recognize the early signs linking the drug traffickers to 
the insurgents. Little Afghan heroin makes it to the United 
States, but Afghan heroin floods British streets, so the 
British took the lead on developing a counter-narcotics 
strategy for Afghanistan. But their effort suffered from 
chronic personnel shortages and contradictory policies among 
ISAF members. For example, some countries prohibited their 
troops from carrying out operations against the drug trade.
See No Evil
    American troops had the option of destroying drug shipments 
and supplies encountered in the larger context of patrols and 
fighting, but there were no direct orders compelling them to do 
so--and it is clear that many commanders and others saw drugs 
as a distraction. In the best-selling book State of War, author 
James Risen described an Army Green Beret who said he was 
``specifically ordered to ignore heroin and opium when he and 
his unit discovered them on patrol.'' On a broader level, 
congressional committees received reports that U.S. forces were 
refusing to disrupt drug sales and shipments and rebuffing 
requests from the Drug Enforcement Administration for 
reinforcements to go after major drug kingpins.
    Efforts by officials outside the military to move narcotics 
up the priority list fell on deaf ears. In late 2004, Assistant 
Secretary of State Bobby Charles, who ran the department's 
Bureau for International Narcotics and Law Enforcement, was 
growing increasingly concerned over the worsening drug crisis 
in Afghanistan. ``We needed to be pro-active,'' he recalled in 
an interview with the committee staff. ``If we let it go for 
even one year, I knew we would lose it.''
    At one point, Charles argued to Secretary of Defense Donald 
Rumsfeld that stopping the drug trade should be made an 
explicit part of the military mission in Afghanistan. Charles 
remembers that Rumsfeld initially seemed to agree, but the 
Pentagon's senior generals, already suffering from a drain on 
resources for the Iraq war, resisted strongly. Charles said 
Rumsfeld turned him down. It was, Charles says, a monumental 
error that opened the door for the steadily rising opium 
production and deepening ties between the drug traffickers and 
the insurgency.
     The difficulty of persuading the U.S. military to play a 
role in counter-narcotics persisted throughout the previous 
administration. Even after NATO agreed that drug labs could be 
attacked in late 2008, the Pentagon resisted and no effort was 
approved until early 2009, according to a former senior U.S. 
general involved in the discussion. Instead the focus was on 
eradicating poppy cultivation, a half-step that had little 
chance of success from the outset in part because of 
circumstances unique to Afghanistan and in part because of a 
lack of resources.


                              ----------                              


                2. Why Eradication Failed--2001 to 2008

          The resurgence of Afghanistan's poppy culture in the 
        years after the U.S. invasion forced U.S. civilian 
        agencies to get more deeply involved in the counter-
        narcotics effort even as the military ignored the 
        problem. The effort failed and has been rejected by the 
        new administration.


    Eradication in particular was seen as a silver bullet or at 
least the centerpiece of counter-narcotics efforts by many in 
the previous administration, including former U.S. Ambassador 
to Afghanistan William Wood, who largely based his assessment 
on U.S. success in Colombia where he was ambassador from 2003 
to 2007.
    The State Department's counter-narcotics strategy for 
Afghanistan, which was developed in 2004 and retooled in 2007, 
focused on five pillars: Poppy elimination and eradication; 
interdiction and law enforcement; justice reform and 
prosecution; public information; and alternative crop 
development. Each pillar, however, was not weighted equally in 
terms of attention and resources, with alternative livelihoods 
receiving the short end of the stick and eradication becoming 
the primary focus. Perhaps more important, success was measured 
primarily on levels of cultivation in a given year and few 
resources were devoted to incorporating a counter-narcotics 
strategy into a broader state-building and economic development 
policy.
    Early signs of progress were misunderstood. Eradication's 
supporters argued that they were winning the war against drugs 
when the 2005 poppy harvest turned out to be smaller than the 
previous year. Unfortunately, the reduction was primarily 
because of poor weather and the harvest was back up the 
following year. The fact is that U.S. counter-narcotics 
efforts--with eradication in the driver's seat--were 
artificially separated from broader efforts to defeat the 
insurgency and even drove some farmers and landowners into the 
arms of the Taliban because it failed to provide alternative 
livelihood options.
Grounding Eradication
    The Afghan Government agreed to the concept of eradication, 
but it insisted that eradication be delivered only by manual or 
mechanical ground-based means. The effect was to reduce efforts 
to men dragging metal bars across poppy fields behind all-
terrain vehicles to knock down plants. It was inefficient, slow 
and dangerous. Crews often came under fire from the Taliban and 
gunmen working directly for the traffickers and growers. In 
2007, the latest year for complete statistics, the UNODC 
reported that 15 Afghan police officers were killed and 31 were 
injured during eradication campaigns.
    The most effective method for widespread eradication is 
widely understood to be aerial spraying, the technique used to 
eliminate huge portions of Colombia's coca crop. Crop dusters 
can drop herbicides on vast fields in a short time, outside the 
range of insurgent fire. But the Afghan Government, Britain and 
other countries opposed aerial spraying for a variety of 
reasons. Explaining the benefits and safety of spraying would 
be difficult in a country with a literacy rate of only 28 
percent. More significantly, the tactic would give the Taliban 
a dynamic propaganda victory. ``If we began aerial spraying of 
poppy crops, every birth defect in Afghanistan would be blamed 
on the United States,'' said Ronald Neumann, a former U.S. 
ambassador to Afghanistan. ``Afghans also still remember that 
the Russians dropped small bombs disguised as toys. Every time 
a child picked one up, death and destruction resulted. The 
general belief is that bad things come from planes.''
    Others offer a more sinister interpretation of the refusal 
of Afghan officials to allow aerial spraying. In 2004 and 2005, 
Charles and other State Department counter-narcotics officials 
thought that they had reached an agreement among a large number 
of influential clerics and tribal leaders in southern 
Afghanistan to support aerial spraying. President Karzai agreed 
tentatively to a pilot project. But the Aghan cabinet rejected 
the idea outright, banning all forms of aerial spraying. ``Some 
of them were protecting the source of their own wealth,'' said 
Charles in the recent interview.
Gone Today, Here Tomorrow
    Without access to aerial spraying, eradication does not 
work without the sort of massive show of force and persuasion 
demonstrated by the Taliban in 2000. Research shows that 
without alternative crops, farmers invariably return to poppy 
once the eradication teams are gone. Half the villages where 
the U.S. eradicated poppy in 2007 simply planted the crop again 
in the fall of 2008. In some cases, farmers increased the land 
under poppy cultivation to make up for losses from crops 
destroyed the previous year. Eradication also has the added 
disadvantage of imposing the hardship on the people at the 
bottom of the pyramid--farmers who have to harvest crops to 
feed their families and pay debts--rather than targeting the 
traffickers and their protectors.
    Conventional wisdom holds that most opium farmers likely 
would stop opium poppy cultivation if they had access to an 
alternate livelihood, but few have realistic substitutes 
available to test the theory. Moreover, the lack of roads, 
irrigation systems, and storage facilities makes growing wheat, 
fruits, vegetables and other perishables extremely difficult. 
Many peasant farmers find themselves trapped by debt and feel 
they are left with no alternative but to grow opium poppy, 
which can be stored for long periods and is more easily 
transported. Others grow poppy simply because it pays well (see 
Appendix 1).
    The Taliban and its associates in the drug trade make the 
poppy business as easy as possible by offering ``one-stop 
shopping.'' At the start of planting season in the fall, they 
provide farmers with loans to buy poppy seeds and feed their 
families over the winter. When the growers cultivate and 
harvest the poppy in the spring, the Taliban provides security 
and workers to help in the fields. At the end of the harvest, 
the traffickers return to collect the poppy and pay the farmers 
the remainder of their money. The Taliban and traffickers 
conduct all of their business at the farm gate, so the farmers 
never have to worry about transporting or selling their crop.
    There has been some success. The number of poppy-free 
provinces has dramatically increased from 0 in 2004 to 18 in 
2008 to an expected 22 or 23 later this year. But David 
Mansfield and Adam Pain, counter-narcotics and rural livelihood 
experts with the Afghanistan Research and Evaluation Unit, 
argue that measuring success based on the number of poppy-free 
provinces confuses correlation with causality and ``reflects a 
fundamental failure to understand the different determinants of 
cultivation and how these vary by location and socioeconomic 
group.''
    Officials with the UNODC in Kabul and American experts said 
the opium yield for 2008 was about the same as the previous 
year because farmers had been using high-quality fertilizer 
smuggled in from Pakistan to produce more poppies per acre. 
They predict a similar high yield this year once the harvest 
estimate is completed, particularly in the volatile south. In a 
report issued in June, the UNODC highlighted the link between 
drug-producing areas and the insurgency, saying: ``Opium poppy 
cultivation continued to be associated with insecurity. Almost 
the entire opium poppy-cultivating area was located in regions 
characterized by high levels of insecurity.''
A Dramatic Change of Strategy
    In late June, Ambassador Holbrooke announced that the 
administration was abandoning wide-scale eradication at the G-8 
conference in Trieste, Italy. He said that the United States 
would shift from its strategy from destroying poppy fields to 
interdicting drug supplies, destroying processing labs that 
turn opium into heroin, and promoting alternative crops. He 
also said the State Department would phase out funding for 
eradication, transferring the money to agriculture assistance 
efforts.
    Eradication has proven an expensive failure. DynCorp 
International, a major U.S. Government contractor, has been 
paid $35 million to $45 million a year to supervise manual 
eradication efforts most often carried out by Afghans paid a 
few dollars a day. In addition, the State Department has been 
spending around $100 million annually on aircraft used in 
eradication and counter-narcotics programs.
    But complete elimination of eradication programs is 
regarded by most military commanders and civilian officials as 
a step too far. They said that Afghan governors should retain 
the authority to continue to conduct poppy eradication. Ample 
evidence shows that the credible threat of eradication can 
persuade farmers to cultivate legal crops in areas where there 
is good security and at least fair governance.
    ``Eradication should be part of a comprehensive counter-
narcotics strategy,'' said a senior U.S. military officer who 
works in Helmand Province, the biggest poppy-producing part of 
Afghanistan and the place where the governor has used the 
threat effectively in his campaign to replace poppies with 
legitimate crops.


                              ----------                              


               3. How the Taliban Exploits the Drug Trade

          As it reconstituted from a defeated government to an 
        insurgency force, the Taliban developed a sophisticated 
        multi-pronged scheme for raising money from the opium 
        trade. The money has played a critical role in 
        financing the resurgence of the militants.


    The adoption of the new financing strategy coincided 
roughly with the increase in attacks on U.S. and coalition 
forces in 2006. Some, like journalist Gretchen Peters, the 
author of the recent book Seeds of Terror, say the Taliban has 
transformed itself into something closer to the Mafia than a 
traditional insurgency, particularly in its stronghold of 
southern Afghanistan. ``The Sopranos are the real model for the 
Taliban,'' Peters told the committee staff. ``They are driven 
by economic factors. Remember, the Mafia started out as an 
insurgency in Sicily.''
    Like the Mafia, the Taliban is not a monolith, but a 
collection of insurgent groups--``families'' in mob parlance--
operating with varying degrees of autonomy in Afghanistan and 
Pakistan. Central figures in the fallen Taliban government like 
Mullah Omar control the insurgency in Pashtun-dominated 
southern Afghanistan and pockets in the north and east. 
Factions like the network of warlord Jalaluddin Haqqani operate 
in eastern Afghanistan and western Pakistan. These insurgent 
groups formed alliances with drug traffickers that are 
opportunistic and tactical, rather than strategic. For the 
insurgents, the cooperation with the traffickers is chiefly to 
raise money to finance operations, though there are reports 
that insurgent leaders have grown rich off the drug trade. For 
the traffickers, they pay for protection and intimidation if it 
is required.
    To raise money, the Taliban runs a sophisticated protection 
racket for poppy farmers and drug traffickers, collecting taxes 
from the farmers and payoffs from the traffickers for 
transporting the drugs through insurgent-controlled areas. They 
also demand large payments to the group's exiled leadership. 
The payment system can be broken down this way:


   Taliban commanders charge poppy farmers a 10 percent tax, 
        called an ushr, on the product at the farm gate.

   Taliban fighters augment their pay by working in the poppy 
        fields during harvest.

   Small traders who collect opium paste from the farmers pay 
        the Taliban a tax, and truckers pay them a transit 
        tariff for each kilo of opium paste or heroin smuggled 
        out of the country.

   The Taliban is paid for protecting the labs where the paste 
        is turned into heroin.

   Finally, the biggest source of drug money for the Taliban 
        is the regular payments made by large drug trafficking 
        organizations to the Quetta shura, the governing body 
        of the Taliban whose leaders live in Quetta, the 
        Pakistani border city.
Where Does the Money Go?
    No one knows how much money the Taliban collects from the 
drug trade. The UNODC estimates that the total value of Afghan 
drugs last year was in the range of $3 billion, which would be 
the equivalent of 25 percent of the country's current gross 
domestic product if all the money returned to Afghanistan. But 
there is no effective mechanism for monitoring how much of that 
money finds its way back, how much goes to the Taliban and how 
much is siphoned off by corrupt officials and stashed outside 
the country. Afghanistan is a still a predominantly cash 
economy in which most transactions are executed by hawala 
dealers, who operate an age-old informal money transfer system 
that moves money around the country and throughout the world 
cheaply and quickly, leaving little paper trail (see Appendix 
2).
    The result is that estimates of drug money going to the 
insurgency vary wildly. U.S. officials in Afghanistan said the 
CIA and the Pentagon's Defense Intelligence Agency estimate 
annual Taliban revenue from drugs at about $70 million a year. 
Outsiders like Peters have put the figure as high as $500 
million a year. In 2008, the UNODC estimated that the Taliban 
and militant offshoots collected $400 million in taxes and 
protection payments from the drug trade.
    But doubts crept in among senior UNODC analysts, so this 
year they revised the way they calculated the drug proceeds. 
Later this summer, the agency plans to release a new estimate 
that will put the amount of drug payments in taxes and 
protection money to the Taliban at around $125 million. In 
explaining the sharp disparity, officials at the agency's Kabul 
office said they had miscalculated by extrapolating figures 
from the opium-producing, Taliban-controlled provinces of 
Kandahar and Helmand to cover the entire country.
    The insurgency is a relatively cheap war for the Taliban to 
fight, and $125 million a year buys a lot of rifles, explosives 
and rocket-propelled grenade launchers and pays a lot of foot 
soldiers. American commanders dub the fighters ``$10 Taliban'' 
because that is what they are paid for a day's fighting--more 
than most policemen earn. They can collect double or triple pay 
for planting an improvised explosive device.
    Surprisingly, there is no evidence that any significant 
amount of the drug proceeds go to Al Qaeda. Contrary to 
conventional wisdom, numerous money laundering and counter-
narcotics experts with the United States Government in 
Afghanistan and Washington said flatly that they have seen no 
indication of the Taliban or traffickers paying off Al Qaeda 
forces left inside the country. ``A lot of people have been 
looking for an Al Qaeda role in drug trafficking and it's not 
really there,'' said a senior State Department official 
involved in the region.
    Instead, officials in Afghanistan and Washington said the 
remnants of Osama bin Laden's organization in Afghanistan, like 
the elements of the terrorist group inside Pakistan, are 
financed primarily by contributions from wealthy individuals 
and charities from the Persian Gulf countries and some 
nongovernmental organizations working inside Afghanistan.
The Scope of Corruption
    Just as getting a handle on the amount of drug money 
flowing to insurgents is proving difficult, so is building 
cases against major traffickers and corrupt government 
officials. The United States and the United Kingdom have 
trained specially vetted Afghans to prosecute and preside over 
trials in a special drug court. In the year that ended in 
March, the court convicted 259 people on drug charges, which 
carry a minimum sentence of 10 years in prison. But those 
convicted were low-level to medium-level figures; no major 
traffickers have even been arrested in Afghanistan since 2006. 
The court itself ran into some trouble recently when the chief 
judge was dismissed after he failed the polygraph test 
administered every 90 days to the vetted personnel.
    Afghanistan has long had a reputation for low-level 
corruption, what many people call ``functional corruption.'' 
Local political leaders required small payments for services, 
but people tended to benefit because the locals returned 
something of greater value to them. In recent years, however, 
corruption has become more systematic and greedy leaders at the 
district, provincial and national levels have taken payoffs 
without returning anything to the people.
    American officials told committee staff about several 
Afghan officials suspected of corruption--a governor who is 
expected to be fired after the August 20 election, two police 
chiefs on whom the U.S. military has accumulated extensive 
dossiers outlining collaboration with drug traffickers and a 
handful of senior officials at ministries in Kabul. A senior 
State Department official involved in Afghanistan told the 
committee staff that police chiefs in poppy-dominated districts 
pay as much as $100,000 to get appointed to a job that pays 
$150 a month, with the knowledge that they will recoup far more 
in bribes and kickbacks. Yet efforts to track down illicit 
assets have gone nowhere, according to U.S. and United Nations 
officials.
    Nowhere is the corruption worse than in the huge payoffs 
from drug traffickers. In a country where the drug business is 
so pervasive and laws so difficult to enforce, accusing someone 
of drug dealing is easy--proving or disproving the charges is 
tough. A frequent target of such accusations is Ahmed Wali 
Karzai, the powerful head of the Kandahar Provincial Council 
and one of the President's brothers. Stories about him are 
legendary--how Afghan police and military commanders who seize 
drugs in southern Afghanistan are told by Ahmed Wali to return 
them to the traffickers, how he arranged the imprisonment of a 
DEA informant who had tipped the Americans to a drug-laden 
truck near Kabul, how his accusers often turn up dead. No proof 
has surfaced, and he and President Karzai have denied the 
accusations.
    Ahmed Wali Karzai's reputation came up not long ago when a 
senior U.S. diplomat, his British counterpart and the country 
chiefs of their two intelligence services met with President 
Karzai. The U.S. diplomat told the committee staff that he 
suggested to the President that his brother was involved in 
drugs and that perhaps he should be sent out of the country as 
an ambassador.
    ``Is there hard evidence that my brother has drug links?'' 
asked President Karzai, according to the diplomat.
    ``There is no evidence in a judicial sense,'' said the 
diplomat. ``There is rumor and circumstantial evidence.''
    Last year, the Afghan President offered a sweeping denial 
to the German magazine Der Spiegel. ``This is really a lot of 
rubbish,'' he said. ``I have thoroughly investigated all of 
these allegations and of course none of them are true.''
    Questions have been raised in the past about whether the 
United States has the political will to go after influential 
members of the Government. Officials in Afghanistan said they 
have adopted a tougher line and expressed a willingness to 
pursue senior government officials, provided the evidence is 
available. At a recent interagency meeting to discuss the new 
initiative, a British official asked at what level the 
investigators would stop. ``We said, if you have evidence, it 
doesn't matter,'' a U.S. official told the committee staff. 
``The new political leadership in the U.S. embassy has told us 
there is no red line on anybody for corruption.''
New Tactics in the Field
    The new consensus among U.S. military commanders in 
Afghanistan that the war cannot be won without severing the 
links between the drug traffickers, insurgents and corrupt 
government officials began to get traction as the 
administration increased resources for the war. When U.S. 
Marines descended upon the volatile Helmand River Valley in 
early July, the operation represented the first major test of 
the new counter-insurgency strategy and counter-narcotics 
efforts.
    The 4,000 troops from the 2nd Marine Expeditionary Brigade, 
part of the first wave of 21,000 additional troops arriving 
this year, have pushed into areas where the U.S. and NATO have 
had little presence in the previous 8 years. Rather than 
killing Taliban fighters, the Marines are focused on 
implementing a counter-insurgency strategy by protecting 
civilians from the Taliban and staying long enough to restore 
government services and promote alternatives to poppy 
production. They will be, in effect, sitting amidst the most 
fertile poppy fields and hoping to hold their ground and force 
the growers into marginal areas where it is harder to cultivate 
poppies and riskier to get the opium to market.
    In a more dramatic example of the new counter-narcotics 
strategy in Helmand, the U.S. military bombed an estimated 300 
tons of poppy seeds in a dusty field in late July. The aircraft 
dropped a series of 1,000-pound bombs on the mounds of seeds 
and followed with strikes from helicopters, according to a CNN 
reporter who watched the destruction.
    The Taliban has retreated and regrouped in response to the 
increase in U.S. troops, but it is not on the run. By providing 
a sustained presence in pockets that have been controlled by 
the Taliban and adopting a tough approach on narcotics, 
however, the Marines will open the door to civilian workers who 
can concentrate on developing alternatives to poppy. The new 
security should also permit the first permanent DEA presence in 
Helmand Province. Up until now, security conditions have kept 
the drug agency from maintaining a post within the province 
that produces half the country's opium. DEA officials say they 
hope to get four or five agents up and running in Helmand 
Province as part of a major increase in resources. By the end 
of 2009, DEA officials said the number of investigators in 
Afghanistan will rise to 55 from 5 in addition to rotating DEA 
paramilitary teams already at work in the country.
    If the operation in Helmand Province displaces the Taliban 
and disconnects the insurgency from one of its prime sources of 
drugs, it will represent a critical step in implementing the 
broad counter-insurgency strategy advocated by the 
administration. But it is only a start. The United States and 
its allies must develop lasting alternatives to poppy 
cultivation that will provide an income to farmers, a challenge 
that requires a big increase in agricultural assistance, road 
building and water for irrigation--and the people to oversee 
those projects.
    ``If we're going to bleed this summer to secure these 
areas, if soldiers and Marines are going to die, we need a plan 
to come in behind and build long-term security through 
development,'' said Army Brig. Gen. John W. Nicholson Jr., the 
deputy commander for the six tough provinces that comprise 
Regional Command South.


                              ----------                              


             4. Implementing New Strategies for Afghanistan

          Fighting the drug traffickers who help finance the 
        Taliban and similar groups is one of the priorities of 
        the new strategy in Afghanistan. Military officers now 
        regard it as part of the mission.


    It was not too long ago that American commanders were 
convinced that the drug problem in Afghanistan was not a 
military issue. With limited resources, they were 
understandably worried about what they called ``mission 
creep.'' Current U.S. Ambassador to Afghanistan Karl 
Eikenberry, a retired lieutenant general, was wary of engaging 
troops in counter-narcotics efforts when he was the top 
military commander in Afghanistan as recently as 2007. Now he 
says the strategy has evolved, and he embraces the plan to 
break the links between traffickers and the insurgency. ``The 
narcotics trade is not only a significant source of funding for 
the insurgency, but also undermines legitimate political and 
economic development by promoting a culture of corruption and 
squeezing out licit agricultural growth,'' Eikenberry said in 
an email to the committee staff.
    Commanders on the ground and the Pentagon now view the war 
on Afghan drugs as an integral part of the mission, and it is 
being played out at several locations.
    Bagram Air Base lies between mountains and desert 25 miles 
northeast of Kabul. During the 1980s, it was the main staging 
area for the Soviets. After the U.S. invasion, Bagram was 
updated with new buildings, runways and barracks to serve as 
the bustling U.S. operations center. Tucked away in one of the 
nondescript buildings is the Afghan Threat Finance Cell (ATFC), 
a key weapon in the new phase of the war.
    The ATFC is modeled after an operation set up in 2005 in 
Iraq to choke off funds going to Al Qaeda and militias like the 
Mahdi army of anti-American cleric Moqtada al-Sadr. The Afghan 
version was established with a skeleton crew earlier this year 
with the dual mission of disrupting the trafficking networks 
supporting the insurgents and collecting information on senior 
Afghan Government officials suspected of corruption. So far, 
only about 15 people are in place, but the eventual staff of 60 
is expected to reflect an interagency approach--they will come 
from the Treasury Department, DEA, the FBI and the Defense 
Intelligence Agency. By the end of 2009, the unit expects to 
have analysts and investigators poring over evidence gathered 
by the military, Afghan police and U.S. and international law 
enforcement and intelligence agencies.
    ``There is a growing realization that the way to attack the 
Taliban is to go at the financial network behind the 
insurgency,'' one of the financial experts setting up the ATFC 
told the committee staff. ``This is largely a self-financed 
insurgency, and the number one source of money is drug money.''
    The unit is part of ramping up to gather intelligence on 
the nexus between the drug traffickers and insurgents. Another 
element operates inside an Afghan army compound in Kabul, where 
the DEA and private contractors have spent months vetting and 
training Afghan police to join the counter-narcotics police. 
Training the Afghan army and police is a core goal for the 
United States and its NATO allies. A key part of the program is 
developing enough counter-narcotics officers to station the 
specialized units within police departments in every district 
across the country. So far 2,000 policemen have passed through 
the training and been dispatched.
    In addition, DEA has worked with the Afghan Ministry of 
Interior to select and train members of three elite forces--the 
special investigative unit, which so far has 56 officers who 
have submitted to polygraphs and trained at the DEA academy in 
Quantico, Virginia, to investigate drug networks; the national 
interdiction unit, which is comprised of about 300 paramilitary 
police officers who mount raids by air and ground on suspected 
drug centers and traffickers; and the technical investigative 
unit, whose members are trained to intercept telephone calls 
involving suspected illicit transactions.
    ``The top priority is the drug trafficking organizations 
linked to the insurgency,'' said Michael Marsac, the DEA 
country attache as he guided the committee staff through the 
training facilities in late June. ``There are two types of drug 
organizations. There are drug traffickers who are supporting 
the insurgency and there are insurgents who use drugs to fund 
their operations. We are targeting both.''
    Gathering hard evidence is difficult in Afghanistan. The 
police are only beginning to develop the skills for the 
painstaking investigations required to collect and analyze 
information. Bribes and intimidation of police, from commanders 
on down to rank and file cops, are stock in trade for drug 
traffickers and their protectors. Still, Marsac said he is 
optimistic and pointed to the new telephone monitoring 
capability as an important tool.
    Last December 18, the switch was flipped to allow the 
monitoring of cellular phones, the preferred method of 
communication in a country where landlines are rare. The 
eavesdropping is sanctioned under Afghan law so long as it is 
approved by a special court. By mid-summer, 100 Afghan 
nationals fluent in the many languages and dialects used in the 
country were monitoring telephone calls involving suspected 
drug and insurgent activity. The start has been rocky, with the 
eavesdropping going fairly well in Kabul but suffering from 
equipment difficulties and lack of electricity in other major 
cities like Heart, Kandahar and Jalalabad.
    Marsac described one notable success. Last February, 
Taliban suicide bombers and gunmen attacked government 
buildings at three sites in Kabul, killing 20 people and 
wounding nearly 60. The attack was a complex and well-
coordinated operation that symbolized the country's 
deteriorating security situation on the eve of a visit from 
Ambassador Holbrooke.
    A few days later, a special Afghan police unit working with 
British troops to monitor cell phones in southern Afghanistan 
picked up chatter about a second attack. The information was 
relayed to the DEA-trained investigators in Kabul who tracked 
the phone calls to an apartment in Kabul. Police kicked down 
the door and arrested six additional suicide bombers.
``Remove Them from the Battlefield''
    Soon a new task force targeting drug traffickers, 
insurgents and corrupt officials is expected to begin formal 
operations out of Kandahar Air Field in southern Afghanistan. 
The unit will link the U.S. and British military with the DEA, 
Britain's Serious Organized Crime Agency (SOCA) and police and 
intelligence agencies from other countries. While the ATFC at 
Bagram will primarily gather intelligence and build legal 
cases, the Joint Interagency Task Force (JIATF) will go after 
drug networks linked to the insurgency, interdict drug 
shipments, destroy heroin labs and identify and arrest their 
protectors in government.
    The JIATF is awaiting formal approval in Washington and 
London, but operations have been coordinated informally through 
what officers involved call ``goodwill'' among British, U.S. 
and Australian personnel. An investigator with SOCA involved in 
the JIATF described the approach as a critical opportunity to 
blend military and law enforcement expertise. ``In the past, 
the military would have hit and evidence would not have been 
collected,'' he explained. ``Now, with law enforcement present, 
we are seizing the ledgers and other information to develop an 
intelligence profile of the networks and the drug kingpins.''
    An American military officer with the project was blunter, 
telling the committee staff, ``Our long-term approach is to 
identify the regional drug figures and corrupt government 
officials and persuade them to choose legitimacy or remove them 
from the battlefield.''
    The Rules of Engagement, known as ROE, govern the conduct 
of the U.S. military in Afghanistan, spelling out when and how 
much force can be used on the battlefield. The precise rules 
are classified, but two U.S. generals in Afghanistan said that 
the ROE and the internationally recognized Law of War have been 
interpreted to allow them to put drug traffickers with proven 
links to the insurgency on a kill list, called the joint 
integrated prioritized target list. The military places no 
restrictions on the use of force with these selected targets, 
which means they can be killed or captured on the battlefield; 
it does not, however, authorize targeted assassinations away 
from the battlefield. The generals said standards for getting 
on the list require two verifiable human sources and 
substantial additional evidence. Currently, there are roughly 
50 major traffickers who contribute funds to the insurgency on 
the target list.
    ``We have a list of 367 `kill or capture' targets, 
including 50 nexus targets who link drugs and insurgency,'' one 
of the officers explained to the committee staff.
    The authorization for using lethal force on traffickers 
caused a stir at NATO earlier this year when some countries 
questioned whether the killing traffickers and destroying drug 
labs complied with international law. Jaap de Hoop Scheffer, 
secretary general of NATO at the time, said filters had been 
put in place to make sure the alliance remains within the 
bounds of the law.
    Not every investigation will land someone on the hit list. 
More often, information will be used to develop cases for 
prosecution. American officials would like to put Afghanistan's 
drug kingpins on trial in the United States, where they have 
more confidence in the judicial system. But those efforts have 
been largely blocked by the absence of an extradition treaty 
that would allow Afghans to be transferred to the U.S., a 
technique employed effectively against Colombian and Mexican 
cartel bosses. Treaty negotiations have been stalled by 
Afghanistan's insistence on reciprocity, which would allow 
Kabul to seek extradition of Americans.
Responding to the Stalemate
    The inaction has led to some creative responses by U.S. law 
enforcement. In October 2008, agents from the DEA and Britain's 
SOCA tricked Haji Juma Khan, a major kingpin linked to the 
Taliban who ran his empire out of Quetta, into flying to 
Indonesia. He was arrested upon arrival in Jakarta and, by 
prearrangement, deported the next day to New York City, where 
he is awaiting trial on charges of conspiracy to distribute 
narcotics and supporting a terrorist organization. American 
prosecutors say that he moved up to $1 billion worth of opium a 
year, paying protection to the Taliban and bribes to officials 
in Afghanistan, Pakistan and Iran. In a similar ruse, Haji 
Bashi Noorzai, a big-time trafficker with ties to fugitive 
Taliban leader Mullah Mohammad Omar, was lured to New York and 
arrested on the pretense of meeting with U.S. officials to 
discuss curbing poppy cultivation. Noorzai was convicted of 
heroin smuggling and sentenced to life in prison on April 30.
    Had either man been arrested in Afghanistan, they would 
have wound up in a narcotics court system that is still being 
developed, under the guidance of prosecutors and other advisers 
from the U.S. and Britain. So far, the special drug court has 
convicted low-level and mid-level dealers, but it has not 
handled any cases against major figures because none has been 
arrested. In addition to continuing to improve the court's 
Afghan personnel, officials at the U.S. embassy said they need 
a team of 10 to 15 experienced prosecutors and investigators to 
build financial and drug cases against big traffickers.
    No one from ATFC or JIATF said disrupting the drug networks 
and their allies would be fast or easy. Along with the normal 
difficulties of building a solid case, the investigators and 
troops face the added obstacles of working in a place where the 
courts are suspect, witnesses can be killed with impunity and 
investigators face the threats associated with working in a war 
zone.
    Though the CIA has hundreds of employees in Afghanistan, 
the new interagency groups are working to fill a gap left by 
the absence of any concerted effort on the part of the 
intelligence agency to monitor the money movement between 
traffickers and insurgents, according to U.S. officials. ``I 
have to ring their neck to get anything out of them,'' said a 
senior official at the U.S. embassy in Kabul. ``If we don't get 
a handle on the money, we will lose this war to corruption.''
The Regional Spillover--Problems in Pakistan
    Afghanistan and Pakistan are separated by a 1,600-mile 
border known as the Durand Line. The border is isolated, rugged 
and crisscrossed by thousands of trails; it is well known that 
militants cross with ease. Less publicized is the freedom of 
movement enjoyed by drug smugglers, particularly along the 745-
mile stretch in the south. Afghanistan's virtually invisible 
border with the Pakistani province of Baluchistan runs through 
some of the most desolate and rugged wastelands on the planet, 
making it ideal for transporting drugs out of Afghanistan and 
bringing in the precursor chemicals used to process opium paste 
into heroin. UN officials estimate that about a third of 
Afghanistan's drug production exits through Pakistan, with most 
moving from Helmand and Kandahar provinces via land to the 
Makran Coast on the Arabian Sea for shipment throughout the 
region by boat.
    A recent Defense Department assessment found that the 
Pakistani Government has a limited capability to conduct 
counter-narcotics operations on the Makran Coast and in 
Baluchistan because of the inhospitable terrain, limited 
resources and lack of political will. The June 18 report was 
sharply critical of Pakistan's primary Anti-Narcotics Force 
(ANF), which is under the Ministry of Narcotics Control. ``Even 
though the ANF is the premier counter-narcotics agency in 
Pakistan, it currently does not have the manpower, nor willing 
leadership, to effectively counteract the enormity of the 
narcotics issues throughout the country,'' said the report. 
``At this time, Pakistan counter-narcotics capabilities are 
weak.''
    A senior U.S. law enforcement official in the region told 
the committee staff that cooperation between the United States 
and the ANF is poor. He said major traffickers cross the border 
from Afghanistan and operate with impunity in Quetta and other 
Pakistani cities. ``They pick up the low-lying fruit,'' said 
the official in describing the ANF tactics. ``We give them 
leads on targets. We give them phone numbers of traffickers 
that they should be interested in. We are constantly doing 
that. We get smiles, a decent cup of tea, occasional reheated 
sandwiches and assertions of progress, and we all leave with 
smiles on our faces.''
    The lack of cooperation is one reason that the leadership 
of the exiled Taliban government resides safely in Quetta, the 
capital of Baluchistan, outside the reach of U.S. forces and 
flush with cash from the major drug traffickers in Kandahar and 
Helmand provinces.
Beyond the Pakistan Border
    The American focus on the southern border dates back to the 
mujahedeen connections and it is now reinforced by the arrival 
of 4,000 new troops. But the border on the north with 
Tajikistan and Turkmenistan is equally porous and United 
Nations and American officials estimate that another third of 
Afghanistan's opium and heroin production goes out through the 
northern route.
    In Tajikistan, the biggest exit point, the United States 
and the European Union have divided responsibility for working 
with local authorities to train police and patrol the 835-mile 
border with Afghanistan. But the mountainous terrain and 
network of established smuggling trails makes stopping more 
than a fraction of the drugs impossible, according to U.S. 
officials in the region.
    Poverty also encourages smuggling in Tajikistan, the 
poorest of the former Soviet states, and it underscores the 
need for economic development to avoid a failed state on the 
northern border of Afghanistan. ``The current counter-narcotics 
programs aren't well geared to tackle questions of development, 
governance and corruption,'' said a senior U.S. official in 
Tajikistan.
    On Afghanistan's western border lies Iran, which the UNODC 
says suffers from the highest per capita drug use in the world. 
The UN agency estimates that another third or so of 
Afghanistan's drug production is smuggled into Iran on its way 
to Turkey and on to Europe, despite a lengthy wall extending 
along part of the 945-mile border and efforts by the Iranian 
army to stop the smugglers. The drugs enter Iran along trails 
used by smugglers for centuries, carried by truck, car, 
motorbikes, on foot and in caravans of camels. Iran has lost an 
estimated 4,000 soldiers in battles with smugglers in the last 
decade and its jails are filled with buyers, sellers and users 
of opium, hashish and heroin.


                              ----------                              


              5. A Metaphor for War--The Battle of Marjah

          A war is neither won nor lost in a single battle. But 
        three days of intense fighting in mid-May can be seen 
        as a demonstration of the new counter-narcotics 
        strategy and a metaphor for the larger war in 
        Afghanistan.


    An analysis of the battle of Marjah early this summer 
crystallizes the dilemma embodied in the administration's new 
strategy: The operational tactics were extremely effective in 
disrupting both the Taliban and drug traffickers, but the 
results demonstrated that the U.S. and ISAF forces face a 
formidable enemy that will not be defeated without a 
substantial increase in military and civilian resources.
    The village of Marjah in southern Afghanistan has long been 
an insurgent stronghold and bustling hub of drug smuggling 
about 15 miles southwest of Lashkar Gah, the capital of poppy-
rich Helmand Province. The Taliban felt safe gathering and 
training there, and they often stored weapons and explosives in 
the village bazaars.
    In late April 2009, U.S. military intelligence picked up 
information that a spectacular attack on Lashkar Gah had been 
ordered by the Taliban's leadership in exile, safely ensconced 
across the border in Quetta, Pakistan. The target appeared to 
be Gulab Mangal, the new governor who was having some success 
persuading farmers to turn away from poppy to other crops.
    Marjah was designated by the Taliban leadership as the 
staging ground for the attack, and fighters from across 
Afghanistan and as far away as Waziristan in Pakistan began 
filtering into the village. Along with the usual arsenal of AK-
47s, grenade launchers and explosives, they towed in four 
Soviet-era anti-aircraft guns, a sign the operation was going 
to be big.
    As the contingent grew, the Taliban bosses in Quetta 
pressed to launch the attack. But the local commanders insisted 
on delaying because many of their fighters were working in the 
fields, harvesting the last of the poppy crop. ``We still have 
poppies in the field,'' one commander said in a conversation 
picked up by military intelligence. ``We do it when we come 
out.''
A Surprise Attack
    As Afghan and U.S. troops prepared for their surprise 
assault on Lashkar Gah, an opportune distraction occurred. 
British forces killed a local tribal leader in an unrelated 
skirmish, causing the Taliban to postpone the attack for three 
days of funeral services for the leader, who had ties to the 
insurgency. The Taliban fighters were in the midst of the 
second night of mourning on May 19 when they heard the 
prodigious thumping of a fleet of military helicopters 
approaching. Within minutes, the night sky was ablaze with the 
first shots in what would become a fierce three-day firefight 
on a deadly piece of ground not far from the border with 
Pakistan.
    The composition of the coalition force that attacked Marjah 
says a lot about how far we have come in Afghanistan. Eighty 
percent of the 216 troops were American-trained commandos from 
the Afghan National Army. They were augmented by U.S. Special 
Forces and NATO soldiers. The presence of a 12-man DEA 
paramilitary team also reflected a new level of cooperation 
between the military and law enforcement; the DEA was there to 
identify the drugs and processing chemicals that intelligence 
had said were hidden in the local bazaars.
    After three days of intense fighting, about 60 militants 
lay dead and coalition forces had seized roughly 100 tons of 
heroin, hashish, opium paste, poppy seeds and precursor 
chemicals used to turn opium into heroin. The troops also 
uncovered a cache of weapons, suicide belts and explosives as 
well as sophisticated communications equipment inside the opium 
bazaar, indicating that the Taliban had used it as a command 
center.
    The haul was dragged into a huge pile on the outskirts of 
the town and plans were made to have a jet fly over and bomb 
the material. But a senior U.S. military officer said a 
targeting officer determined that the resulting explosion would 
be the equivalent of an 80,000-pound bomb, which would have 
wiped out everything in a wide swath. So the cache was divided 
into smaller piles and blown up from the ground.
    A potentially bigger prize eluded the troops. The Taliban 
had defended a second bazaar deeper within Marjah with 
ferocity. The American general who commanded the attack told 
the committee staff that he sought air support and 
reinforcements from coalition command in Kabul and the U.S. 
military in Kandahar to go after the second bazaar, but he was 
told that there was no help available. So the coalition troops 
pulled back and their commanders watched the next day via 
aerial surveillance as trucks left the untouched bazaar, 
carrying away whatever weapons and drugs the Taliban had fought 
so hard to defend.
The Pluses and Minuses of Marjah
    There is much to praise in the battle of Marjah, not least 
the performance of Afghan commandos. Creating a credible 
national army and police force is central to any exit strategy. 
In addition, the DEA agents helped identify vast quantities of 
drugs and chemicals, an example of overdue cooperation between 
the military and law enforcement. Finally, along with stopping 
a Taliban attack, the outcome hit the insurgency in the pocket 
book--the supply of opium and heroin dropped noticeably in the 
weeks that followed, which meant less money for the militants.
    ``Marjah was a nexus target,'' said David Wright, a senior 
European Union official training Afghan counter-narcotics 
police in Helmand Province. ``A year ago, they wouldn't have 
done that operation.''
    There is reason for concern, too. The inability to muster 
the resources to complete the attack is troubling, both with 
regard to the specific battle and to the larger war. The 
Taliban and its various offshoots have proven to be a 
resourceful enemy, capable of retreating and regrouping. In 
fact, a 700-strong contingent of British, Danish and Afghan 
troops had executed a similar attack on Marjah just two months 
earlier and the Taliban had returned almost overnight.
    Plus, there is plenty more heroin in the pipeline--while 
eradication efforts have reduced the planted acreage in the 
poppy centers of southern Afghanistan, yields there are up 
sharply because farmers have used fertilizer smuggled in from 
Pakistan. Then there is the matter of who owns the drugs 
destroyed in Marjah. In a different place, the DEA would be 
unraveling a trail to the owner. But the DEA does not have a 
single agent in Helmand Province and investigative efforts are 
nonexistent so far, though U.S. military and law enforcement 
officials say there is strong evidence the drugs belonged to a 
former police chief now living in Kabul.
    At least as serious in the long term, there are not enough 
civilian resources yet in Helmand and Kandahar provinces to 
come in behind the troops to provide the economic development 
required to consolidate any future military gains and achieve 
something resembling a lasting victory. Despite commitments, 
the State Department and U.S. Agency for International 
Development have not added the new staff that was promised 
since the Marines arrived earlier this summer, according to 
interviews and published accounts.
    Similarly, while Canadian, Dutch and British soldiers have 
shouldered a heavy burden and sustained substantial casualties 
in southern Afghanistan, many European Union countries have 
failed to fulfill pledges to provide staff for non-military 
functions. For example, the EU committed to provide 400 people 
to train Afghan police last year, but the actual number is 
under 200, according to the European Council on Foreign 
Relations. Now there are concerns that troops and civilians may 
be reduced in the future because the war is unpopular in most 
European countries as well as Canada.


                              ----------                              


                   6. The Missing Civilian Component

          The counter-insurgency doctrine laid out in the Army 
        and Marine Corps Counterinsurgency Field Manual 
        specifies that the military can provide 20 percent of 
        the solution, but the civilian side must provide the 
        remaining 80 percent.


    President Obama implicitly recognized the importance of the 
civilian contribution when he divided his plan for Afghanistan 
into four tasks: (1) disrupt the insurgent networks capable of 
planning attacks against the U.S. and its allies; (2) promote a 
more accountable and effective Afghan Government; (3) build the 
Afghan military and police to a level of self sufficiency; and 
(4) persuade NATO allies and other countries to contribute 
under the auspices of the United Nations. This course of action 
recognizes that the surge in military force needs to be 
synthesized with a strategic program that protects the Afghan 
population and provides an alternative not just to poppy 
cultivation but to the Taliban and its insurgent allies.
    None of these tasks can be accomplished easily, and none 
without the support of the Afghan people. Most Afghans welcomed 
U.S. troops when they arrived and few want a return of the 
Taliban's harsh rule. But polls show a sharp drop in support 
for the United States as civilian casualties and violence have 
increased, the foreigners have stayed longer than expected and 
economic development has lagged. Similarly, the faith of 
Afghans in their own government has plunged, primarily because 
of what they see as its inability to provide security and the 
unprecedented spread of corruption. A poll earlier this year by 
ABC-TV and the BBC found that 85 percent of Afghans call 
government corruption a problem; 63 percent say it is a big 
problem.
A Verdict on Kabul and Washington
    On August 20, Afghans will go to the polls for presidential 
and provincial elections. Many people see the vote as a 
referendum on the legitimacy of the Karzai Government, which 
has been so thoroughly penetrated by the drug economy that 
Secretary of State Hillary Clinton referred to Afghanistan as a 
``narco-state'' in her confirmation testimony in January, a 
tough assessment echoed by some and disputed by others. For 
many voters, their decision to vote for Karzai will rest in 
good part on whether they blame or credit Karzai and the 
international community for levels of poppy cultivation.
    But the vote is also a referendum on the failure of the 
United States and its allies to provide the security and 
economic development required to build a stable country. Only 
now are the necessary resources being discussed in Washington 
and other capitals of NATO nations--and the answers are not all 
positive yet.
    The administration is dramatically shifting gears on 
counter-narcotics by phasing out eradication in favor of 
promoting alternative crops and agriculture development. For 
the first time, the United States will have an agriculture 
strategy for Afghanistan. While this strategy is still being 
finalized by Ambassador Holbrooke's team and Secretary of 
Agriculture Tom Vilsack and his experts, it will focus on 
increasing agricultural productivity, regenerating the 
agribusiness sector, rehabilitating watersheds and irrigation 
systems, and building capacity in the Afghan agriculture 
ministry. The U.S. Department of Agriculture plans to increase 
its staffing to 64 by early 2010, up from the 3 in 2003 and 14 
in 2009.
    The new agriculture officers will be part of an additional 
450 civilians being deployed to Afghanistan in the coming 
months. But already there are questions about whether the new 
people will have the right skills to carry out the development 
strategy and whether they will be dispatched to the often-
unsafe rural areas where the work must be done--and whether 450 
more will be even close to enough. In late June, the U.S. 
embassy in Kabul asked the State Department to authorize 
another 350 civilian slots for Afghanistan. While there is 
recognition among policymakers that the war effort in 
Afghanistan has been under-resourced for years and will require 
intensive resources over the next few years to achieve the 
President's goals, scaling up the commitment without changing 
the fundamentals of how the money is spent will achieve little 
beyond expanding the U.S. presence and creating new 
vulnerabilities.
    ``The mission is 20 percent military, 80 percent civilian, 
and the civilian side is behind,'' said John Nagl, a retired 
army lieutenant colonel and a co-author of the counter-
insurgency field manual who is now president of the Center for 
New American Security in Washington, D.C.
Two Bright Spots
    There are some bright spots on the development landscape. 
In Helmand Province, Governor Mangal has proven to be among a 
new breed of independent-minded governors, praised for his 
efforts to eradicate poppy fields and persuade farmers to grow 
other crops. Last planting season, he handed out free wheat 
seeds to promote the kinds of alternative crops that once made 
the province the bread basket of Afghanistan. This fall, he 
plans to add more crops to his giveaway list.
    Improving access to crops like wheat, grapes, pomegranates 
and apples and developing a legitimate rural economy are part 
of the civilian-led effort to push poppy farming out of the 
prime growing area along the Helmand River Valley and similar 
fertile areas across the country. Most experts said that poppy 
cultivation will never be eradicated completely in Afghanistan. 
A more realistic goal is to force poppy fields into the 
marginal areas.
    In another positive development, the Afghan Government's 
National Solidarity Program has helped villages across the 
country identify, plan and manage development projects, from 
digging wells to educating farmers. Despite the poor security 
environment, the program even operates in Helmand Province, 
where its well-regarded leader, Mohammed Ehsan Zia, the 
minister of Rural Rehabilitation and Development, said the 
early success ``is testimony to the honesty and courage of the 
rural people of Afghanistan.''
    There are no easy answers to ridding Afghanistan of drug 
trafficking, and none but the most optimistic believe the 
country will ever be free of poppy cultivation. The goal is to 
build an agricultural economy for the long term that will 
weaken the power of the drug lords and halt or at least reduce 
the flow of money to insurgents. Much work remains to integrate 
these approaches into the broader security and development 
framework so that counter-narcotics efforts and economic 
development are not artificially separated. Fundamentally, this 
means rethinking how we measure success on counter-narcotics 
efforts, shifting away from the sole goal of reducing opium 
poppy cultivation to avoid the risk of undermining longer-term 
development and security in Afghanistan.


                              ----------                              


                   7. Recommendations for Afghanistan

          Accepting that Afghanistan requires a greater 
        commitment of U.S. troops and civilians means that the 
        public should understand the sacrifices that will be 
        required in the coming years.


    The deterioration of the security situation in Afghanistan 
is conspicuous. Forty-two American soldiers and Marines died in 
July, the highest since the start of the war, and the 
casualties were not just associated with the Marine push into 
Helmand Province. Coalition troops from Britain, Canada and 
other NATO allies also suffered their highest death toll since 
2001. More powerful improvised explosive devices are appearing 
and in some cases the Taliban has demonstrated a new ability to 
launch complex attacks.
    The coming months will test the administration's deepening 
involvement, its new strategy on counter-narcotics specifically 
and its counter-insurgency effort in general. Some observers 
fear that the moment for reversing the tide in Afghanistan has 
passed and even a narrow victory will remain out of reach, 
despite the larger American footprint. Others see promise in 
the commitment of additional resources and the recognition that 
success requires providing Afghans with the security and 
assistance that will allow them to find their own way to the 
future. None of the civilian officials or military officers 
interviewed in Afghanistan and elsewhere expected substantial 
progress in the short term. They talked in terms of years--two, 
five and 10.




Recommendations:
  1. Congress and the administration should join in efforts to 
        promote a national debate that will provide the public 
        with a clear understanding of the commitment required 
        in Afghanistan and Pakistan. The debate should 
        articulate the administration's goals, the costs of 
        meeting these goals and the consequences for failing to 
        do so.


  2. Given the significance of the new counter-narcotics 
        strategy, the administration should provide Congress 
        with a written description of that policy and a clear 
        road map for how it will be integrated with the other 
        components of the counter-insurgency, including the 
        development of alternative crops for Afghan farmers.


  3. As requested by Congress two years ago, the administration 
        should develop a clear system of metrics to assess 
        progress in Afghanistan on counter-narcotics, 
        corruption, security and economic development. These 
        metrics should reflect both quantitative and 
        qualitative indicators and both near-term and long-term 
        goals.


  4. The Department of State should pursue enhanced cooperation 
        with Afghanistan's neighbors to identify and support 
        regional counter-narcotics efforts and better 
        understand the important linkages and flows of drugs, 
        money, and people from Afghanistan to Pakistan, 
        Tajikistan, Kyrgyzstan, Uzbekistan, Turkmenistan, and 
        Iran. In particular, Ambassador Holbrooke should lead 
        efforts to travel to Central Asia to strengthen 
        cooperation on Afghanistan and better link U.S. policy 
        towards Central Asia with our strategy in Afghanistan.


  5. Sending more civilians to Afghanistan should be part of 
        the national debate. But as the administration prepares 
        to deploy the additional 450 civilians already 
        committed to going, serious efforts should be made to 
        match civilian expertise in key districts across the 
        country and not just staff up Embassy Kabul or forward 
        operating bases. Efforts should be made to recruit 
        civilians with expertise in agriculture, development, 
        and other technical skills that can be adapted to needs 
        in Afghanistan, including recruiting civilian expertise 
        from Afghanistan's neighbors, which would be more cost-
        effective and bring people who know the region, 
        climate, language, and soil.


                                APPENDIX

                              ----------                              


          1. A Discussion of Alternative Crops--Poppy v. Wheat

    A realistic goal for the coalition and Afghan forces is to 
push poppy cultivation out of the fertile areas along the 
Helmand River into the periphery, into the desert. It won't 
stop cultivation completely, but it will make the job much 
harder and costlier because those who still want to grow 
poppies will be restricted to arid areas where they will have 
to dig wells 90 to 100 feet for water. The key here is not to 
reduce cultivation levels in absolute terms, but to focus on 
delivering security, governance, and development to major 
population centers. But that policy will only work in the long 
term if farmers have access to substitute crops and sufficient 
security to grown them and get them to market. ``Farmers need 
to earn a living,'' said a U.S. Army officer in Kandahar. ``We 
don't want them putting out IEDs or shooting at us.''
    One alternative that has not been widely used in 
Afghanistan is the concept of cultivating various crops with 
short growing seasons. For example, if a farmer rotates crops 
with different harvest times on the same plot of land, the 
farmer will make more money than he otherwise would have with 
poppy, and he will not mortgage his future to the Taliban. 
Onions, tomatoes, and cucumbers are examples of crops with 
short growing seasons. Growing these crops while planting tree 
fruits for the long term can produce current income to replace 
poppy revenue.
    Wheat, touted as the best way to transition poppy farmers 
away from opium, is neither a panacea nor good predictor for 
whether farmers will make a permanent shift. Wheat prices are 
volatile and farmers are likely to switch back to poppy when 
wheat prices fall or when prolonged droughts damage wheat 
crops. With prices high, farmers cultivate wheat to eat and 
sell. But when prices fall, farmers grow poppy and buy higher-
quality Pakistani wheat to eat, defeating the purpose of 
transitioning to wheat. Furthermore, the lack of security on 
Afghanistan's roads keeps transportation costs artificially 
high, making wheat more expensive than poppy to get to market.
    Despite the fact that the current balance is tipped in 
favor of poppy, Afghanistan will be a net exporter of wheat in 
2009 for the first time in 30 years. While Afghan and U.S. 
officials justifiably tout the success, some experts caution 
that it may be an anomaly more attributable to environmental 
and economic factors than to eradication efforts. ``As soon as 
wheat prices fall again--and they will--wheat farmers will 
revert to poppy,'' said David Mansfield of the Afghanistan 
Research and Evaluation Unit, who has spent 12 consecutive 
years working in Afghanistan.

------------------------------------------------------------------------

-------------------------------------------------------------------------
Why Poppy?



Why would Afghan farmers risk legal consequences and  eradication of
 their crops by growing poppy?



   Poppy is 40 percent more profitable than wheat, on average.


   Poppy has a shorter cultivation time than wheat and is harvested
 earlier in the season. The shorter growing time allows farmers to grow
 maize after the poppy crop is finished.


   Poppy is nearly weather-resistant. It can withstand drought and poor
 soil, and few insects can destroy a season's harvest.


   Once refined, opium does not need refrigeration, it does not expire,
 it does not require safe handling or specialized transportation, and it
 sells quickly.


   The Taliban provide loans to farmers to buy poppy seeds in the
 marketplace.


   The Taliban provide capital for poppy farmers by pre-paying for a
 portion of the crop. The Taliban also provides farmers with security to
 guard their investment.

------------------------------------------------------------------------

    That is precisely why alternative crops are so necessary. 
Many tribal elders remember when Afghans could feed themselves. 
To do so again, they need roads, power, and water. The first 
step toward that goal, now that the Marines have taken up what 
their commander says is long-term residence in Helmand 
Province, is to bring in teams from the U.S. Department of 
Agriculture to help identify what crops to grow and where. The 
United States should be prepared to provide assistance to 
farmers for several years until pomegranate orchards and 
vineyards mature into cash-producing alternatives to poppy. In 
addition, the administration needs to push hard to reach 
agreement in negotiations between Pakistan and Afghanistan that 
would open a route for Afghan farmers to get their products to 
the growing middle-class market in India.
    Faced with a dangerous and costly problem, it is human 
nature to look for a panacea. Some have advocated using 
Afghanistan's flourishing poppy fields to produce medicines 
such as morphine and codeine, which are high-demand painkillers 
in a growing global market. Legal opium production is permitted 
under the United Nations Single Convention on Narcotic Drugs 
and other international drug treaties. Turkey produces 50 
percent of the world's legal opium and India produces another 
30 percent. The governments process all opium into paste; the 
paste is then either refined or sold to international 
pharmaceutical companies. Violators who divert poppy to illegal 
drugs face harsh penalties in both countries. But these two 
legal opium poppy production regimes work only because they are 
built on trust and on the rule of law, important tenets which 
are missing in Afghanistan.
    U.S. officials say that the Afghan opium industry would be 
impossible to monitor because of the country's harsh landscape, 
the absence of the rule of law, and pervasive corruption. In 
addition, the country lacks the type of clean facilities 
required to produce medical-grade opiates. Finally, any new 
Afghan opium on the legal market would have a negative impact 
on prices in an industry where there is already little profit.
    Besides squeezing existing producers like Turkey and India, 
the cultivation of medical opium in Afghanistan would have a 
negative impact on prices of illicit opium, with opium farmers 
competing against each other to produce enough opium poppy to 
supply both the legal and illegal industries. The incentive 
would be for farmers to grow as much poppy as possible on 
whatever land was available.


                              ----------                              


           2. The Intricacies of Hawala--The Road to Nowhere

    Following the money is a time-tested means of assembling 
criminal cases against drug traffickers and corrupt government 
officials, but that task is probably harder in Afghanistan than 
anywhere in the world because of the ancient and secretive 
system called hawala.
    The Arabic term for ``transfer,'' hawala at its most basic 
interpretation means transferring value and money from one 
place to another through money exchangers known as hawaladars. 
Typically, a hawaladar receives money, say $5,000, from a 
customer who wants to transfer the funds to someone in another 
location. The customer pays a small fee and receives a 
numerical code written on a hawala slip. The hawaladar contacts 
his counterpart in the other location and instructs him to pay 
$5,000 to someone who will come in with the numerical code. 
After receiving the code from the original customer, the 
recipient goes to the hawaladar, presents the code and gets the 
$5,000. The hawala dealer who took the initial $5,000 owes that 
amount to his counterpart. Accounts are settled through 
additional transactions, commodity exchanges and normal banking 
services.
    Hawala networks span countries and continents and are used 
by millions of people for legitimate transactions. The most 
common involve workers in foreign countries like Saudi Arabia 
or the United Arab Emirates sending money home to families in 
Afghanistan, India, Pakistan or the Philippines. Dealers charge 
a small commission on each transaction and often profit from 
currency exchange rates.
    The system is most often associated in the Western public's 
mind with more notorious customers like Osama bin Laden, who 
used the hawala networks in Pakistan, Dubai and throughout the 
Middle East to transfer funds and store money, according to the 
9/11 Commission Report.
    Afghanistan is a natural place for hawala. A majority of 
business is conducted in cash and the State Department 
estimates that 80 to 90 percent of all financial transfers are 
made through hawala. In Kabul, the hawaladars congregate in a 
specific neighborhood along the banks of the Kabul River, not 
far from the gold and gem dealers. During the Soviet and 
Taliban eras, the hawaladars fully replaced the formal banking 
system. Today, the country has only 15 commercial banks and few 
people have bank accounts because of illiteracy, the cost of 
bank transactions and the small footprint of traditional 
banking. As a result, hawaladars are still used by humanitarian 
and development organizations to move money to rural areas 
outside the reach of the country's fledgling banking system.
    Convenience, security and secrecy make hawala the method of 
choice for Afghanistan's drug traffickers to move and disguise 
profits with little or no paper trail. In the basic 
transaction, the traffickers receive payments for drugs from 
middlemen and buyers in other countries and turnaround and 
launder the money by transferring it to hawaladars in places 
like Dubai, where the drug lords and their nominees use the 
cash to buy real estate and commodities.
    United Nations Office on Drugs and Crime (UNODC) officials 
in Kabul said they have inspected records of drug-related 
transactions involving $1 million and recently saw evidence of 
a $15 million transfer using hawala. In some cases, the 
officials described seeing major transactions in which heroin 
or opium were used as collateral for payments.
    The existence of the written records contradicts the 
widespread misconception that hawala is paperless. While 
recordkeeping is far from formalized, most hawaladars maintain 
carefully coded logs of transactions as part of the settlement 
process. Those handling dirty money tend to be more secretive, 
destroying even rudimentary records once transactions are 
completed or avoiding any record of the criminal deals. ``Not 
surprisingly, transfers made on behalf of drug traffickers tend 
to be kept more discreet, either by maintaining very simple 
notes locked in a safe, or by not keeping a record at all,'' 
scholar Edwina A. Thompson wrote in her study, The Nexus of 
Drug Trafficking and Hawala in Afghanistan. One dealer told 
Thompson that he kept the records of his shop's drug-related 
transfers on his son's computer at home.
    Family and tribal ties guarantee that the process works 
smoothly and provide another layer of secrecy. Intermarriages 
among hawaladar families in Afghanistan are common because they 
cement trust between dealers. Brothers and cousins also tend to 
operate in the same system to provide broader coverage of 
financial centers in the Mideast, Europe and the United States. 
A report by Samuel Maimbo of the World Bank described a dealer 
in the Afghan city of Jalalabad, which lies on a major 
smuggling route for drugs, who operated with a brother in 
Kabul, a cousin in the western Afghan commercial hub of Herat 
and another brother who ran a hawala in Melbourne, Australia. 
The Jalalabad hawaladar also worked with affiliated dealers in 
Tokyo, London, Peshawar and Dubai.
Close Knit and Close Mouthed
    The close-knit nature of the system, the absence of 
effective regulation and the ingrained secrecy combine to make 
transactions conducted through hawala almost impossible to 
track. Officials in Afghanistan and the United Arab Emirates, 
which include Dubai, repeatedly said they had no idea how much 
money moves through the informal exchange system. A U.S. 
intelligence official in the region said it was almost 
impossible to penetrate hawala networks, explaining that the 
family nature of the businesses made it difficult to get inside 
cooperation. He said records seized from the occasional raid 
were usually too fragmentary to provide clues to the 
beneficiaries of transactions.
    No one knows how many hawaladars exist in Afghanistan. 
Thompson estimated in 2005 that there were 900 significant 
hawaladars in the entire country and others have estimated that 
50 or so dealers in Kabul and Kandahar account for the bulk of 
the drug transactions. there are countless smaller operators in 
cities and villages across the country and most of them mix 
drug money with legitimate transactions.
    The Afghan Government has registered about 125 of Kabul's 
hawala dealers, but many in the capital are unregistered and 
progress has been slow elsewhere. A diplomat described a 
conversation in which he urged an official of the Afghan 
Central Bank to register dealers outside Kabul. ``They're 
everywhere,'' the official replied. ``I can't do that.''
    The Central Bank official's attitude reflects the 
difficulty in developing a system of banking supervision and 
money controls in Afghanistan. An anti-money laundering law was 
adopted in 2004 and followed with a statute allowing for the 
seizure of assets in criminal cases. Prosecutors and bank 
examiners have been trained by the U.S. and others to spot 
suspicious transactions and investigate money laundering cases. 
But efforts have been plagued by inadequate staffing and a 
sense that drug lords and their accomplices are outside the 
reach of the law, according to U.S. and foreign officials.
    Statistics tell the sorry story: In a country awash with 
drug money, no one was prosecuted for money laundering or 
terrorist financing in 2008 in Afghanistan and no attempts were 
made to seize or freeze assets. ``While efforts continue to 
strengthen police and customs forces, there remain few 
resources, limited capacity, little expertise and insufficient 
political will to seriously combat financial crimes,'' the 
State Department said in a blunt report issued in February.
A Regional Perspective on the Money Flow
    The lack of progress has caused some financial-crimes 
experts in the region to suggest focusing outside Afghanistan 
to try to stop the flow of illicit proceeds both into and out 
of the country. The first place mentioned by almost everyone in 
the know is Dubai, the city-state on the Persian Gulf in the 
United Arab Emirates, just a three-hour flight from Kabul.
    ``It's quite open among the disaspora of Afghans and 
hawaladars that the favorite hidey hole for money is Dubai,'' 
said a senior UN official in Kabul. ``It would be better to 
target Dubai because it cares more about its financial 
system.''
    Dubai has worked hard to polish its image as the Middle 
East's leading financial center. Its star exhibit is the Dubai 
International Finance Center, a free-trade zone open to 
foreign-owned banks and financial firms. The center resembles 
an offshore banking haven in the midst of a freewheeling city-
state. It sits on 110 acres amidst Dubai's seemingly endless 
parade of skyscrapers and malls and runs its own regulatory and 
judicial system. Most of the auditors and regulators are drawn 
from the U.K., Australia and the United States and transactions 
are governed by British and U.S. law. Some of the world's 
biggest financial institutions, like HSBC and Goldman Sachs, 
have set up shop in the zone to take advantage of its tax-free 
status and ready access to the Middle East.
    Outside the free-trade zone, however, regulations are more 
haphazard and efforts to restrict the flow of drug money from 
Afghanistan and elsewhere are hit and miss, according to 
American and foreign officials. After the attacks of September 
11, 2001, Dubai and others of the seven city-states that 
comprise the UAE were criticized because terrorists had moved 
money through the banks and hawala dealers. The Government 
responded with new financial laws, including one in 2003 
requiring hawala dealers to register, and its Central Bank 
insists that the country has made great strides in instituting 
tough controls on money and trade.
    But there are signs that Dubai--and to a lesser extent the 
city-state of Sharjah--remains a destination spot for hot 
money. Earlier this year, the State Department said that 
narcotics traffickers were increasingly attracted to Dubai and 
other trade and financial centers in the UAE. The International 
Monetary Fund also raised concerns, recommending that UAE laws 
be amended to block loopholes and match international standards 
and that it should increase the resources devoted to enforcing 
financial laws.
    In addition, the Financial Action Task Force, a Paris-based 
inter-governmental body that develops and promotes policies to 
combat money laundering and terrorist financing, criticized the 
UAE for failing to exercise regulatory controls over hawala 
dealers despite its law. Registration is voluntary and there 
are no penalties for dealers who refuse to register.
    Abdulrahim Moammed Al Awadi, the head of the anti-money 
laundering at the Central Bank in Abu Dhabi, told the committee 
staff that the UAE has instituted tough measures throughout its 
financial sector. In a power-point presentation, he listed 
dozens of international agreements and UAE laws implemented to 
clean up the country's financial system.
    One of the laws that Awadi touts was the first-ever law to 
register and regulate hawala dealers. So far, he said, the 
country has more than 300 licensed hawaladars who are required 
to keep complete records, including official identification 
documents for customers, and alert the authorities to 
suspicious transactions. Hawala is particularly popular in 
Dubai and other Gulf states because of the high percentage of 
low-paid, foreign workers who use the system to send 
remittances home; in Dubai, for instance, 85 percent of the 
population is foreign workers.
    Awadi said that registration and reporting are voluntary 
for the dealers and he declined to provide the committee staff 
with a list of registered hawaladars. He defending the 
registration system and said the Central Bank had been stung by 
the criticism by the Financial Action Task Force. As a result, 
Awadi said the Government was debating whether to abandon its 
efforts to regulate the informal sector.
    Hawala is not the only way to move cash quietly to and from 
Dubai. UAE law enforcement authorities have intercepted 
couriers arriving at Dubai's huge international airport from 
Afghanistan with millions of dollars in suitcases. But U.S. 
officials said the general rule is that couriers are simply 
required to declare the cash and allowed to move on, without 
seizing suspected illicit cash or creating a database of 
couriers for intelligence purposes. U.S. law enforcement 
agencies proposed a training program to teach inspectors at 
Dubai airport to spot suspicious couriers, but the effort was 
blocked by the Central Bank.
    ``We don't know, once the money comes into Dubai, where it 
goes,'' said an official at the U.S. embassy.
    The United States has plans to increase its resources in 
the UAE. The DEA is considering bumping up the number of agents 
in Dubai from two to 10 as part of a new regional approach to 
drug trafficking and money laundering. As in Afghanistan, 
however, the CIA is not playing an active role investigating 
the money trail. ``Ninety percent of our intelligence resources 
are devoted to counter-terrorism, counter-intelligence and 
counter-proliferation,'' complained an official at the U.S. 
embassy in Abu Dhabi.
    Regulating the movement of money throughout the region, 
from Afghanistan and the UAE to Pakistan and Europe, should be 
a critical element of the strategy to choke off the funds going 
to the insurgency in Afghanistan and to corrupt officials there 
who undermine the efforts of international agencies, 
governments and good Afghans to build a stable and secure 
country. The harder it is to make money from drugs in 
Afghanistan, the more likely the ties can be broken to the 
Taliban and other militant organizations.

                                    

      
