Hungry Afghans use cryptography to avoid sanctions, the Taliban

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When the Taliban took over Afghanistan in August last year, Fereshteh Forough feared that the group would close its school in Herat, the country’s third largest city. Code to Inspire, an NGO founded by Forough, was teaching computer programming to young Afghan women, and the Taliban oppose secondary education for women.

Months later, the picture is very different — and worse — than Forough imagined. The school survived, becoming mostly virtual, but has been transformed from a coding training camp to a help organization. The biggest risk for Forough students was not lack of education, but hunger. Forough sought a way to provide emergency controls to women, but was hampered by banks not wanting to risk violating severe U.S. sanctions.

JPMorgan Chase has repeatedly blocked its attempts to transfer money, he said, and was increasingly alarmed by students who said they could not access cash at local Afghan banks, many of which have closed or imposed strict withdrawal limits. In response, he turned to cryptocurrency to provide monthly emergency payments to help students afford enough food to survive.

“Since September, we have been sending cash aid, about $ 200 a month, to each family, because most of our students have said that their family lost their jobs. They are the only supporter of the family, “said Forough, whose family fled Afghanistan in the early 1980s during the Soviet occupation and now lives in New Hampshire. Code to Inspire pays its recipients in BUSD, a so-called stable currency whose value is tied to the U.S. dollar, and then women convert it into Afghan, the local currency, in currency exchange. “We’ve created a secure way for our girls to earn money. their cryptography and pay the expenses, so they can pay for the medical expenses and the food and everything they need. “

There are several benefits to using cryptography: Afghans fleeing the Taliban can take their assets safely. Humanitarian agencies seeking to evade banks and discreetly avoid the Taliban can provide cash directly to those in need. Smugglers and middlemen who may steal or attempt to resell aid packages may be evaded if the aid is given directly through a digital transaction.

“I still do not believe that I could receive money without fear [it] confiscated in such a transparent manner, “said TN, a 21-year-old graphic design student at Herat enrolled in Code to Inspire, in a statement to The Intercept.” Creating a BUSD portfolio was very easy and was a It is a wonderful experience to know how quickly and in such a private way you can receive money even in Afghanistan. “

While Code to Inspire is in an exclusively technology-savvy position compared to most Afghan organizations, Forough is not the only one to think that blockchain-based solutions can help Afghans who need it in the midst of a unprecedented economic crisis.

Several other NGOs and humanitarian organizations, which are facing the choice between failed banks still hampered by sanctions and hawala networks of informal money traders that many fear are linked to drug trafficking or controlled by the Taliban, are considering use of cryptocurrency as an alternative.

An American lawyer advising international groups in Afghanistan said his clients are approaching experimenting with cryptocurrency payments, although he was not free to identify NGOs and asked for anonymity to protect their identities. Others are increasing in a more visible way to harness the power of cryptocurrency to provide assistance.

“You can trade back and forth, send it abroad or receive it abroad, without ever touching the banks, without touching the Afghan government or the Taliban.”

Sanzar Kakar, a Seattle-raised Afghan who has worked on commercial projects in Afghanistan, including a local Uber-like car company, created an app. “We are trying to solve this problem, that 22.8 million Afghans are going to starve, including 1 million children this winter who could starve to death,” Kakar said. HesabPay, launched in 2019, helps Afghans transfer money via crypto.

“We can’t get money through banks, but 88 percent of Afghan households have at least one smartphone,” said Kakar, who hopes to facilitate money transfers from Afghans, along with the USDC, another stable currency. It is in the process of setting up currency exchange shops where Afghans can obtain QR codes or exchange strong currency cryptocurrency.

“You can trade back and forth, send it abroad or receive it abroad, without ever touching the banks, without touching the Afghan government or the Taliban,” Kakar said. “Everything is on the blockchain network”.

A liquidity crisis is at the heart of the growing catastrophe in Afghanistan. Following the withdrawal of US forces last August, the country was left isolated during the night. The US confiscated assets from the Afghan central bank and ended US currency transfers. Polish and French companies were hired to print Afghan shipments. Almost immediately, the Society for Worldwide Interbank Financial Telecommunication, known as the SWIFT system, which supports international financial transactions, suspended services in Afghanistan. Commercial banks could not lend money and retail customers could not withdraw their own money from banks.

The exit of the international community, fearing that any transaction within Afghanistan would violate sanctions on the Taliban, slowed the economy. Nearly four-fifths of Afghanistan’s budget was funded by foreign funds before the United States left.

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The Biden administration has issued exemptions to sanctions for humanitarian aid. These Treasury Department licenses, however, have done little to alleviate the spiraling crisis, according to The Intercept. The Taliban leaders listed by the sanctions hold senior Afghan government officials, leading many banks to continue to block routine transactions because they conclude that any taxes or duties paid to the government could risk violating sanctions. Excessive compliance and the costs of compliance associated with sanctions have damaged the ability to conduct ordinary trade in the country, leading to mass unemployment and a sharp rise in food and fuel costs.

Thus, although humanitarian aid is technically permitted, bank restrictions have made it functionally impossible. Several US banks contacted by The Intercept declined to comment on the record of closing transactions with Afghanistan. “We comply with all financial sanctions laws and regulations and process NGO-related payments accordingly. We have no further information to share,” a Wells Fargo spokesman said.

New reports continue to show horrific consequences for the country’s economic collapse. Parents have sold their children in arranged marriages in order to buy enough food to survive. In Kandahar, a high school teacher recently starved to death after at least four days without food, according to a local human rights body. UNICEF estimates that 3.2 million children are malnourished and more than 1 million face the immediate risk of starvation. The United Nations reports that only 2 percent of Afghanistan’s 40 million population has enough to eat.

The Biden administration, while drowning the Afghan economy, has approved $ 782 million in aid since October. Funds include shelter, emergency food and hygiene services and 1 million doses of Covid-19 vaccine.

The challenges of introducing payments and cryptocurrency transactions, however, are acute. “We’ve explored that option, but it’s not for us,” said Kevin Schumacher, deputy executive director of Women for Afghan Women. “How do you pay 1,100 employees in 16 provinces, many of whom can’t read or write, with crypto?

“Even the smallest fluctuations in the encryption rate can wipe out thousands of dollars from your books,” Schumacher added. He also feared that the Treasury Department and the IRS would disregard audits that included cryptocurrency payments. “Finally, very, very, very few vendors in Afghanistan understand and use cryptography.”

Value fluctuations can be mitigated, Kakar and Forough said, by using stable dollar-linked currencies that are not subject to wild valuation fluctuations that occur with popular cryptocurrencies such as Ethereum or Bitcoin. Many Afghans use Binance, the international trading platform, which allows users to buy and sell stable currencies along with more speculative currencies.

Kakar explained that there are many steps in its application to ensure that users are authenticated. HesabPay, Kakar’s company, publishes ads on Afghan television and radio stations to explain the product, which uses biometric technology (such as facial recognition) to identify users.

“Even though it’s decentralized technology, you don’t want to have any involvement with the Taliban, you want to help people directly.”

“Everything is in the blockchain, all in a permanent ledger outside the entire banking system, but under the competition of the Treasury, so they know that the money is not used to finance terrorism,” Kakar said.

Digital cashless transactions that dodge traditional banks still pose risks, especially for US citizens or financial institutions that facilitate or invest in platforms for Afghans.

Rahilla Zafar, a former U.S. aid worker in Afghanistan, is now working with cryptocurrency donors to raise funds for the region. “Even though it’s decentralized technology, you don’t want to have any involvement with the Taliban, you want to help the people directly,” said Zafar, who noted that US donors are concerned about accidentally violating sanctions.

Zafar works with Crypto for Afghanistan, a charity that helps donors raise money for humanitarian projects. One such project is ASEEL, an application that originally served as an Etsy-style marketplace, helping Afghan artisans sell handmade products. The company has now been transformed into a relief organization that distributes food and medicine packages.

ASEEL accepts Bitcoin, Litecoin, Ethereum and other major cryptocurrencies, which are used to purchase supplies. But as ASEEL founder Nasrat Khalid explained, he cannot provide direct cash payments to Afghanistan because of the sanctions.

“We have helped 55,000 people, with a lot of traction in the last six months. But we can only make aid packages because of the OFAC status, “Khalid said, referring to the Treasury Department’s sanctions enforcement office.

Despite the sharp learning curve and various barriers to entry, the use of crypto in Afghanistan is seen as an unqualified improvement in the status quo. Zafar recalled that he had worked in Afghanistan years ago, when militants attacked vans carrying cash across the country. Forough said his sister’s bank account was confiscated by the Taliban after he withdrew from the United States because of his work with Western groups. There are more and more reports of bank closures.

With cryptography, Forough’s small Afghan pocket survives. “A group of our students just finished our scholarship from the academy, 77 of them,” Forough said. “Including, I think, the first women blockchain coders in Afghanistan. It’s very exciting even though the situation on the ground is not very pleasant.”