From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.


And I'm Melissa Block.

Afghanistan shares close ties with its neighbor, Iran, and nowhere is that more apparent than in the main currency market in the western province of Herat. There, moneychangers carry thick stacks of Iranian currency. Much of it is brought in by the many Afghan workers who earn their living in Iran. But tighter international sanctions have caused a rapid devaluation of the Iranian rial and that sparked more nefarious trade that has gotten the attention of U.S. officials.

NPR's Soraya Sarhaddi Nelson recently traveled to Herat and has the story.

SORAYA SARHADDI NELSON, BYLINE: Moneychangers throng the courtyard of the currency exchange market in Herat city where they hawk billions of Iranian rials. This vendor rapidly counts six-inch stacks of crisp 100,000 rial notes. The piles look like a small fortune, but with the Iranian currency losing more than half of its value recently, the ten million rials in each of these stacks is worth less than $400 here.

ABDULLAH DASHTI: (Foreign language spoken)

NELSON: Abdullah Dashti, who is the head of the Afghan money dealers' union in Herat, says the moneychangers are feeling the pinch of the international sanctions against Iran and are now looking to unload Iranian currency.

DASHTI: (Foreign language spoken)

NELSON: But he adds that less scrupulous Afghans are using the sanctions as an opportunity to make a profit. He says they are helping desperate Iranians convert their rials into dollars in Afghanistan, where American money serves as a second currency. Dashti says the Iranians don't show up in Herat themselves, but use Afghan intermediaries to make the exchange. They often use the informal hawala system, in which transactions don't involve a physical transfer of money, but a personal pledge to settle the debt later through a third party or bank.

SARDAR NAZARI: (Foreign language spoken)

NELSON: But moneychanger Sardar Nazari says more recently, Iranians have started sending money directly through the main border crossing. He says the rials are ferried in by Iranian taxis and the dollars are sent back to Iran in the same taxis. Nazari claims border guards on both sides are given money to turn a blind eye.

DASHTI: (Foreign language spoken)

NELSON: The union chief Dashti says as many as one in five people in Herat are involved in Iranian money laundering.

Several of the moneychangers say the exchange was so rampant this month that it created a shortage of dollars in the Herat currency market. But Herat's Governor Daoud Sabah disputes that money laundering is a big problem in his province. He says that if there's money coming in illegally, it's via the porous borders.

GOVERNOR DAOUD SABAH: The distance between check posts for us is at least from 12 to 15 kilometers. So if anything comes from in-between, as the narcotics does, that is possible. I do not - but from the border with a taxi illegally, that's absolutely refutable.

NELSON: Iranian diplomats in Herat declined to comment for this story. The consulate spokesman referred NPR to the Iranian Embassy in Kabul, which did not respond to repeated requests for an interview.

A U.S. official who asked not to be identified says the American government is talking to Afghan officials about the money laundering and other corruption. The official characterized the talks as complex but not contentious. A U.S. Treasury Department envoy visited Kabul earlier this month to explain how the U.S. deals with those who violate the sanctions on Iran.

Afghan officials have since warned moneychangers that their accounts will be frozen and their money confiscated if they are found to be violating the sanctions.

NAJIBULLAH AKHTARY: (Foreign language spoken)

NELSON: Najibullah Akhtary, who heads Afghanistan's Money Exchange Union in Kabul, says he is personally steering clear of any large purchases of Iranian currency at the moment because the sanctions have made it too unstable. Akhtary adds that the Afghan government must do a better job enforcing bank regulations to help end the money laundering.

NAZARI: (Foreign language spoken)

NELSON: Herat moneychanger Nazari says that as a result of the crackdown, more dollars are now available in his city. But he adds that the Iranians are already coming up with ways to get around any tightening of money exchanges. He claims the Islamic republic is demanding to be paid in dollars for fuel and most other products sold to Afghanistan.

Soraya Sarhaddi Nelson, NPR News.

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