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DAVE DAVIES, host:

This is FRESH AIR. I'm Dave Davies, senior writer for the Philadelphia Daily News, filling in for Terry Gross.

Much has been written about the resurgence of the Taliban in Afghanistan and Pakistan and the support a stronger Taliban provides to al-Qaida. But my guest, journalist Gretchen Peters, believes far too little attention is being paid to the growing source of cash for the Taliban: the heroin trade.

She writes that in 2006, Afghanistan produced the largest illegal narcotics crop a modern nation has ever cultivated in a single harvest, most of it in areas under Taliban control. The Drug Enforcement Administration now estimates that opium provides the Taliban with 70 percent of its funding.

Peters has covered Pakistan and Afghanistan for more than a decade for the Associated Press and later for ABC News. Her new book, "Seeds of Terror: How Heroin is Bankrolling the Taliban and al Qaeda," explores the ties between the two organizations and the drug trade. She also looks at the conditions that have nourished its growth, including corruption in the region's governments and the mistakes and inattention of U.S. policymakers.

Well Gretchen Peters, welcome to FRESH AIR. There's been enormous attention lately to the resurgence of the Taliban in the region, their increasing level of military activity. To what extent does the Taliban rely on the narcotics trade for their finances?

Ms. GRETCHEN PETERS (Author, "Seeds of Terror: How Heroin is Bankrolling the Taliban and al Qaeda"): Well, that is an open question. It's a very difficult question to answer because, in part, the Taliban keeps, as far as anyone knows, very few paper records.

I don't know if there's anybody who actually knows what percentage comes from poppy, but the U.S. military and the U.N. calculate that the Taliban earn about $400 million a year off the opium trade. I estimate that they earn as much as half-a-billion dollars because I add in donations of materiel: trucks, gasoline, medical supplies, weapons. So I believe the real dollar figure is much higher.

Nobody has any idea how much al-Qaida earns off of the drug trade, but what we can say is that the Taliban and al-Qaida are earning astonishing sums of money off of criminal activity, largely the drug industry but also other criminal activity like extortion, kidnapping, other forms of taxation in the communities where they hold sway.

But nothing is being done to track that money, and nothing is being done to try and cut off those profits.

DAVIES: All right, let's talk about the drug trade specifically. Now, does the Taliban actually grow the opium? Do they refine it and process it? Do they deal it themselves, or do they simply tolerate it and make money from those who do?

Ms. PETERS: It varies by region, their level of involvement. In the southern part of Afghanistan, where most poppy is grown, in the southern provinces of Helmand, Kandahar, Nimruz, Farah, in those areas you see some Taliban commanders who are very much involved in the poppy trade.

In some districts, they will try and dictate the poppy output, how much farmers are growing. They will tax the crops. They will tax trucks that are leaving the areas. In other districts, they might just tax the district leader of the area. They might just take money from the traffickers as they leave.

So it does seem to vary region by region, but what I have tracked over the last five years that I have been studying this issue is that their level of involvement has deepened, and so we now see Taliban commanders who are running their own refineries along the border.

We now see increased numbers of commanders, district-level commanders of the Taliban, who are not just taxing shipments of poppy, but they're protecting shipments of poppy. They're actually coming to the protection of refineries when the NATO forces and Afghan anti-drug troops come in to try and shut those drug labs down.

We see them expanding vertically through the drugs trade. This is a pattern of behavior that has also been seen in places like Colombia, with the Revolutionary Armed Forces of Colombia, better known as the FARQ.

DAVIES: Now you mentioned refineries. When you say refineries, you're talking about, what, labs that process opium into heroin?

Ms. PETERS: I'm talking about labs that process raw opium usually into morphine base, something that's referred to locally as brown sugar, and when I say refineries, I am not talking about particularly elaborate operations. These are usually mud huts with some plastic drums in them and some workers who are usually very, very high who are mixing chemicals and cooking them with opium.

These are very, very rudimentary operations, and increasingly as NATO troops have moved into southern Afghanistan, I've been getting reports that the refineries are more mobile. They will be built into the back of souped-up Toyota pickup trucks so they can move from one place to another.

DAVIES: And some of these labs you mentioned are actually run by Taliban commanders. They're getting move involved. I guess the most well-known Taliban figure in the West is Mullah Omar. You write that there were rumors, reports, that he had a massive stash of opium himself, what 3,000 tons or something?

Ms. PETERS: Yes. There's a common misperception in the West that the Taliban was anti-poppy because of the one year that they banned the cultivation of poppy while they were in power.

However from my research of their movement and how they came to power in the first place, they were very, very close to major trafficking rings that operated along the Afghan-Pakistan border. They continued to tax the poppy trade and the opium as it was trafficked out of the country while they were in power, and while they did ban poppy cultivation for one year, they did not extend that ban to the trafficking of the processed opium. So they continued to collect taxes off of that.

A lot of the Taliban commanders still today actually collect poppy in kind. They don't collect 10 percent of the value of the crop. They actually, literally will collect five or seven or eight or 10 percent of the crop itself. So they will keep these huge stashes of opium, and there has always been this rumor that Mullah Omar himself had an opium stash of several thousand tons. That would have been worth well over $1 billion, had it ever been smuggled to the West, and nobody's ever found it. However, there have been cases where NATO troops and counter-narcotics forces have come across huge opium stashes when they have broken up Taliban hideouts.

DAVIES: Now the Taliban that most of us got to know something about in 2001, you know, we thought of them as brutal and terrifying but as motivated by their own kind of notion of religious piety. Is the Taliban today, which as you said is becoming more and more integrated into narcotics and criminal enterprises, has it changed? Is its sense of piety diluted by its contact with the criminal world?

Ms. PETERS: I think the Taliban is becoming more ruthless. I think they've becoming more violent. They're more hated in the communities, the rural communities where they operate. I am certainly not suggesting that they were ever a particularly warm and cuddly bunch. I mean, it was a very, very brutal time, and I traveled all over Afghanistan while they were in power.

Things were very, very dire indeed across Afghanistan, but add that point, you could travel across Afghanistan, anybody could. They provided security. They ruled with an iron fist, but the country was very, very safe.

Now there is just this incredible level of senseless violence. They behead people who they believe are spies. There are people who get hung in the main square of villages that they control and left there for days as a sign of what will happen to anybody who doesn't follow their orders.

It's much more like what we see happening in the drug wars of Mexico and Colombia. And that's a point that I try to make in the book, that the war in Afghanistan often gets compared to the war in Iraq, but to my mind, what's happening there is much closer to what we see happening in Latin America.

As this insurgent group and other extremist groups that also operate along the border, al-Qaida and other Pakistani insurgent groups, as they get sucked into crime, they become more and more violent, more and more ruthless, and they seem to be losing their - the ideological roots of their movement.

When I say that, I do not mean to suggest that I think al-Qaida and some of these Pakistani extremist groups have put aside their intention to attack the West and to attack the governments of Pakistan and Afghanistan, far from it. They appear to be just as determined as ever to wreak havoc in those regions and to try and take power and try and increase the amount of area they control.

DAVIES: And what about the personal lifestyle of the leaders? I mean, do they personally observe Sharia laws and customs, or do they live more like the hedonistic lifestyle of a rich drug dealer?

Ms. PETERS: I haven't found any evidence that people like Mullah Omar are currently living like hedonistic drug dealers. However, certainly the major traffickers who work with them certainly have very lavish lifestyles and hardly behave like pious Muslims.

One of the chapters in my book is about a major smuggler who was recently captured, whose name is Haji Juma Khan. He was widely known for having wild and lavish parties that lasted late into the evening with alcohol and prostitutes that were flown in from Russia and around the world.

So this was a guy who worked very, very closely with the Taliban, with al-Qaida and also with corrupt officials in the Afghan and Pakistani governments, hardly somebody who sounds like your typical Taliban, though.

DAVIES: Right. I mean, the scale of his empire and power were truly breathtaking. I mean, he had a 15,000-man army, bought a town, is that right?

Ms. PETERS: He at one point bought all the land in a small town in southern Afghanistan. Yes, that's correct.

DAVIES: And created an artificial lake, and this was a way-station for his drug convoys, right?

Ms. PETERS: That's correct.

DAVIES: Yeah, yeah. You know, we've been talking about the Taliban more. Is al-Qaida's involvement with the drug trade different from the Taliban? Are they any more ideologically pure? Is Osama bin Laden - do his principles about involvement or distance from the drug trade differ from the Taliban?

Ms. PETERS: The story of al-Qaida's involvement in the drugs trade is very, very murky, and it's very difficult to pinpoint, in part because U.S. officials have flip-flopped on their opinions of it so many times.

Around the beginning of the millennia, around 2000, there were quite a few statements that came out of senior U.S. officials who tracked this issue, that they had clear evidence that Osama bin Laden was involved in the drugs trade.

Later on, when the Bush administration decided to invade Afghanistan, the way that officials spoke about the drugs trade and al-Qaida's involvement in it took a 180-degree turn, and it seemed to be something they considered a distraction.

And so the decision that appeared to have been made, to simply deny that al-Qaida was involved in the drugs trade at all, what my research (missing audio) was that low-level al-Qaida operatives appear to help move drug shipments for money as those drug shipments leave Afghanistan.

The Taliban is only involved in the drugs industry in Afghanistan within Afghanistan's borders. Once it leaves Afghanistan, into Pakistan, Iran, central Asia, that's when al-Qaida operatives appear to take over in some circumstances.

In some circumstances, it's simply smuggled by traffickers, but there do appear to be cases where al-Qaida operatives move drug shipments for money. And this is a point where you really stand to make the most money. This is where the value of the drugs goes up about - anywhere between five and 12 times in value.

What I have not been able to determine, if these are just cases of al-Qaida operatives freelancing for money or if this is a sign that al-Qaida as a movement is trying to earn money through the drugs trade.

DAVIES: We're speaking with journalist Gretchen Peters. Her new book is "Seeds of Terror." We'll talk more after a break. This is FRESH AIR.

(Soundbite of music)

DAVIES: If you're just joining us, our guest is journalist Gretchen Peters. Her new book is "Seeds of Terror: How Heroin is Bankrolling the Taliban and al Qaeda."

You write in the book that the corruption of government officials is key in many countries in allowing the drug trade and these other criminal enterprises to operate. What's the role of the government of Hamid Karzai, the Afghan president, in all this?

Ms. PETERS: Well, the role that corruption plays in fueling the insurgency cannot be underestimated. The Taliban are gaining ground, both in Afghanistan and Pakistan, not because they are so strong or because they are so well-loved - they are not in either country. They are gaining ground because the governments there are so corrupt and so utterly wretched at governing, and so the importance of trying to create better governance in both countries is absolutely critical to fighting this problem, and we're not going to get anywhere in Afghanistan or in Pakistan.

We often talk about the drug corruption in Afghanistan. I don't think anybody has looked into the extent to which Pakistan's government has been corrupted by the drug trade, as well, because you have to remember that much of the opium that is grown in Afghanistan or produced in Afghanistan is smuggled out through Pakistan, and there is a tremendous corruption problem there, as well, and a whole lot more has to be done to create clean governments in both of those countries if we expect to increase the level of stability in that region.

DAVIES: I want to talk about the role of the opium farmers themselves. You know, you begin the book by describing a trip that you took, I think in 2006, with an opium eradication team from the Afghan military, I believe, and as they set about destroying these poppy fields, the crops in these poppy fields, you saw farmers standing by, these poor farmers, you know, railing at the soldiers, invoking Allah to come and bring down his wrath upon them, a pretty sympathetic picture to these folks. What is the role of the farmers themselves? Do they have any option but to grow opium?

Ms. PETERS: Well again, it depends where they are. I think that in areas where there is no governance, where the Taliban is in control, in southwest Afghanistan, a lot of the farmers really do have very few options. Poppy is a crop that doesn't rot. It's easy to transport. There is an unending demand for it. They can sell it for a lot more money than most legal crops, and if they grow something like melons or grapes, they're likely to get bruised and completely destroyed by the time they travel down Afghanistan's bumpy roads to the nearest market.

So a lot of farmers will tell you that they have no choice. In some areas, they have been threatened by the traffickers, by the Taliban, that if they don't grow poppy, they can expect to face dire consequences.

I really feel a lot of sympathy for the farmers, and particularly what I feel sympathetic with them about is the fact that so far, most strategy to try to reduce Afghanistan's output has focused on the cultivation side of the drugs trade, and I really think that's a mistake.

The farmers are the ones who make money, to what extent they do make money, and that's another very important question. A lot of them really don't profit very much from the poppy trade. Some large farmers do, but the vast majority are just eking by because of the loan structure. It's a very, very difficult market for them.

But where the insurgents and the traffickers make money is on the production side, where the opium is produced at the lab end of things, protecting the trade as the convoys leave the region. I believe that NATO and the U.S. government has done very little to try and hit this side of the trade, and this is where it will hurt them in their pocketbooks.

We've also done virtually nothing to try and trace the whole money side of the drugs trade, where the money is laundered, where it ends up. There's been virtually nothing done to try and stop that side of the drugs trade. In fact, we've pretty much only focused so far on the production side of the poppy crop, and I think that's a mistake. That's also turned thousands and thousands and thousands of farmers against NATO and the United States.

DAVIES: Well you know, as I read in many points in the book you describing military reluctance to act directly against, you know, narcotics traffickers, I had to wonder if part of that is the fact that over the years, there have been warlords and others who are allies of the United States who are themselves involved in the drug trade, and that in some respects, you know, we were compromised in going after these targets.

Ms. PETERS: That's certainly true. The U.S. military, the CIA and other international organizations have, at times, aligned themselves with warlords, regional commanders, who have definite links to the drug trade and other criminal activity.

I think another issue that has been a problem here is that there has been this mindset within the U.S. military in particular, and I do see this changing, but there has been this mindset that the insurgency is a military matter, and drug smuggling is a problem for law enforcement.

There's continually this opinion within our government that the DEA and other counter-narcotics law-enforcement officials are the ones who need to deal with the drug problem. However, the military is fighting the Taliban and al-Qaida. I contend that this separation leads us to failure. If they're working together, our operations have to be working together. And I also believe that we have to start looking at fighting this insurgency more the way a law-enforcement team would fight a criminal gang.

We need to figure out how to cut these people off from their profits, that's a central tenant of any successful counter-insurgency strategy. Just recently, just last month, the DEA announced that it will now be sending 80 agents to Afghanistan, and I think that's a good start. But what I see a need for is to actually embed law-enforcement officials who can collect intelligence, collect evidence in each of the military units that are operating in these areas where the drug trade is taking place. And the Pentagon does appear to realize now that they're going to have to cut off the enemy from this important source of funding.

DAVIES: Gretchen Peters' book is called "Seeds of Terror." She'll be back in the second half of the show. I'm Dave Davies, and this is FRESH AIR.

(Soundbite of music)

DAVIES: This is FRESH AIR. I'm Dave Davies, filling in for Terry Gross. We're speaking with Gretchen Peters. She's covered Pakistan and Afghanistan for more than a decade and has written a new book about the growing ties between the Taliban and al-Qaida, and the heroin trade. She writes that the drug trade is now the prime funding source for the Taliban and should be getting more attention from U.S. policymakers. Her book is called "Seeds of Terror."

You know there's a notion here in the United States that for all of the enormous effort put into the war on drugs that it's a terrible failure, that for all the surveillance and interdiction and arrests, we have prisons full of people, but the street drug trade continues to flourish because the demand is what really matters. And I'm wondering - I don't know if you agree with that - but what are the implications of that notion for dealing with this in Afghanistan where we don't have nearly the law enforcement infrastructure, and a corrupt government that really is abetting the narcotics trade?

Ms. PETERS: It's going to be unbelievably complex to try and clean up Afghanistan at this point. And I think it can happen but it's going to take a huge amount of effort, a lot of money, a fair amount of time. One of the reasons that the United States has always resisted getting involved in fighting drugs in Afghanistan is because very little of the crop of drugs produced there, either the hashish, or the opium actually ends up in the United States. Our counter-narcotics programs have traditionally focused on stopping drugs from coming to the United States, from stopping our citizens from using them basically. So...

DAVIES: But where is the heroin that's used in America come from if not from the opium in Afghanistan?

Ms. PETERS: The heroin used in the United States generally comes from Latin America. So there were points in recent history, as recently as the 1980s when about 40 percent of the heroin sold in U.S. streets came from Pakistan and Afghanistan. That's no longer true. However, I have heard reports that the amount of Afghan heroin being sold in the United States is on the increase. But it's very, very incremental. To me, what's the bigger issue is that insurgent groups who are fighting against U.S. troops in Afghanistan are using money that they get from the drugs trade to attack our soldiers. Every time a U.S. soldier dies in an IED attack in Afghanistan there's an extremely good chance that opium money paid for that IED.

What worries me more is that al-Qaida also appears to be profiting from the drugs trade, which means the next time, God-forbid, they launch an attack on the United States there's a very good chance the drug money will pay for that attack.

DAVIES: It certainly underlines the importance of dealing seriously with the problem. And in, I guess, the last chapter to your book, you offer, I guess, it's about a nine point plan that involves you know serious interdiction efforts and going after the top criminals, but also things like providing real alternatives for Afghani farmers, for financial monitoring and enforcement on the Hawala system of transferring money, dealing with corruption in the government.

I mean it's ambitious and I guess pretty expensive. And, you know we just saw leaders from Afghanistan and Pakistan meet with President Obama and it was interesting, having just read your book, I looked at the press reports of, following those meetings and the word opium appeared about two-thirds of the way down. Are policymakers getting it do you think?

Ms. PETERS: Well I think officials in Washington recognize how serious the problem is. The challenge that the Obama administration faces is how are they going to finance the efforts it's going to take to turn this situation around? Afghanistan has already gone way up in cost every month and we're about to send another 17,000 troops out there. This is becoming a very, very expensive operation. And yet, everybody in Washington seems to be allergic to the idea of nation-building.

The way I look at it: yes, nation-building is going to be expensive. A lot of the policies that I recommend they take up will be expensive. It will be very expensive, for example, to try and move poppy farmers on to alternative crops. Subsidizing the legal crops will be expensive. It's already very, very costly - the police reform program that is being undertaken right now, however, the costs that we incur as a nation by continuing to fight the Taliban and al-Qaida in that region are far, far higher.

I just think that down the line the better investment is not to keep trying to kill Taliban and al-Qaida in the mountains of Afghanistan and Pakistan, it's to make them irrelevant to actually create a region that is stable, that has good governance, that has rule of law. That to me seems like a better investment. And, in addition, it's just the morally right thing to do. These are countries we have, we call our allies, that we are ostensibly trying to help and yet, whenever I hear officials talk about what they plan to do in those regions, they seem to be trying to reduce our expectations that anything good will come out of it. They seem to be trying to get by, by doing as little as possible.

I think it's going to be less expensive in the long run to try and really turn these countries into stable places to live.

DAVIES: Well Gretchen Peters, thanks so much for speaking with us.

Ms. PETERS: No problem.

DAVIES: Gretchen Peters' book is called "Seeds of Terror: How Heroin Is Bankrolling the Taliban and al Qaeda."

Coming up, we speak with a general who's working to reverse the growth in suicides in the Army.

DAVIES: This is FRESH AIR.

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