SECRET SYSTEM MAY BE FUNDING TERRORIST

PESHAWAR, Pakistan -- In the twisting alleyways of this ancient trading
post on the Pakistani frontier, illicit business of every kind has thrived
for centuries.

But one of the most secretive enterprises is carried out in plain view, in
the guise of routine transactions that take place dozens of times a day
behind the city's uncounted, nondescript storefronts -- an import-export
office, or a trading mart.

It's called "hawala," and investigators believe Osama bin Laden's terrorist
network may be using this traditional brokering system to move mountains of
cash around the world -- without leaving an electronic fingerprint or paper
trail.

Taking its name from the Urdu-language word for "reference," this low-tech
method of money transfers is widely used in south Asia, the Middle East and
beyond.

It works like this: a customer walks into an office with a wad of cash and
tells the broker where to send it.

A day or two later -- or as quickly as an hour, in a pinch -- the faraway
recipient, identified by name or just a code number, goes to an affiliated
broker and walks away with that same amount of money. Sometimes the money
is even home-delivered.

The actual cash, of course, hasn't gone anywhere. Reimbursement is based on
a system of trust among the network of hawala brokers, who are often blood
relatives. They generally use a running tally of debt and repayment to
settle up, rather than any money actually changing hands.

Hawala is almost universally outlawed, but financial experts believe many
or even most of the transactions are innocent.

The system blossomed in the 1970s, when huge numbers of laborers from the
Indian subcontinent began working in wealthy Persian Gulf states and needed
a way to get their wages home.

Ordinary people -- including several middle-class Pakistanis interviewed in
Peshawar -- said they used it to send tuition money to college-age children
studying in the West.

But financial experts say the system's relative anonymity and lack of any
legal record keeping also makes it attractive to drug traffickers, weapons
brokers, tax evaders, corrupt officials -- or operatives of a shadowy
network like that of bin Laden.

The amounts of money floating through the hawala system at any given time
are huge. Analyst Shah Sahib of the Pakistan Allied Bank, the country's
fourth-largest, estimates transactions in Pakistan alone could total $1
billion per day.

In the five weeks since the terror attacks on the World Trade Center and
the Pentagon, Pakistan's hawala trade is beginning to feel the heat. One of
the biggest brokers in the southwestern city of Quetta had his assets
frozen as part of the U.S.-inspired drive to halt the flow of funds to
groups suspected of having links to terror.

One Peshawar professional man said he used hawala half a dozen times or so
a year, mainly out of impatience over the monthlong lag of a bank transfer.

His only unsuccessful transaction came not long ago, he said, when he had
arranged to send a gift via hawala to help a friend in Manila with school fees.

The next evening, the broker returned the cash, telling him: "This isn't a
good day for a transaction." It was Sept. 11.