The western Afghan city of Herat has become a thriving hub for the money exchange business, a consequence of geography and politics. Money-changers throng the currency market carrying thick stacks of Iranian currency, much of it brought in by the hundreds of thousands of Afghan workers who earn their living in Iran.

While the stacks of crisp 100,000 rial notes that money-changers bring to the market might look like a small fortune, the 10 million rials in each of these stacks is worth less than $400, because the Iranian currency recently lost more than half of its value.

Abdullah Dashti, who heads the Afghan money dealers union in Herat, says the money-changers are feeling the pinch of the international sanctions against Iran and are now looking to unload Iranian currency.

Multiple Ways To Change Money

But less scrupulous Afghans are using the sanctions as an opportunity to make a profit, Dashti says, by helping desperate Iranians convert their rials into dollars in Afghanistan, where American money serves as a second currency. The Iranians don't show up in Herat themselves, he says, but use Afghan intermediaries to make the exchange.

Iranians looking to change money 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.

But money-changer Sardar Nazari says that more recently, Iranians have started sending money directly through the main border crossing.

Nazari says the rials are ferried in by Iranian taxis, and the dollars are sent back to Iran in the same taxis. He claims that border guards on both sides are given money to turn a blind eye.

Union chief Dashti says as many as 1 in 5 people in Herat are involved in Iranian money laundering.

Several of the money-changers say the exchange was so rampant this month that it created a shortage of dollars in the Herat currency market.

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 comes through the porous borders.

"The distance between checkposts for us is at least 12 to 15 kilometers [seven to nine miles], so if anything comes from in between, as the narcotics do, that is possible," Sabah says. "From the border with a taxi illegally? That's absolutely refutable."

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.

The U.S. Response

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 money-changers that their accounts will be frozen and their money confiscated if they are found to be violating the sanctions.

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 banking regulations to help end the money laundering.

Herat money-changer 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.

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