hawala

Also, the name of a simple, informal banking system originating in the Middle East and Asia but with a network that is worldwide. Although it is unregulated, (based on "trust"), and illegal in most countries, it is used by business and individuals alike as a means of transferring money.

It works like a wire transfer: You take your money to your local Hawala "shop", pay a small commission and give instructions as to the location of the desired recipient of your money. This information is noted down and transferred to the remote Hawala location via fax or telephone. The name of the intended recipient is not required: a simple password, (a letter and four numbers), is also supplied which the sender can exchange with the person collecting the money. This person then turns up at their local Hawala "shop", gives the password and collects the cash. Once the transfer has been verified, records of the transaction are destroyed at both ends.

The Hawala system is also known in some parts of the world as 'Hundi'.

References

http://www.imf.org/external/pubs/ft/fandd/2002/12/elqorchi.htm
http://www.fiducite.com/Fiducitations/Fiducitation%20-%20Hawala%20Traditional%20Asian%20Banking%20System.htm

CIA knew little about the system, but set about learning. FBI knew even less, and set about doing nothing. When I asked FBI to identify some hawalas in the United States, they at first said "What's a wala?" and, when told, came back with word that there were none.¹
--Richard A. Clarke, Against All Enemies

(Let it be noted, as a preface, that I am not so sure of the definition in the writeup above; from what I have read, "hawala" resembles the word "trust" in Hindi, and "to transfer" in Arabic).

While it is true that the hawala system has been around for many, many years -- some of the earliest references are found in 11th century Islamic texts -- and that the vast majority of services offered by hawalas may be legitimate, it is important to note their perceived importance in the funding of terrorist activities in the Middle East.

It is, first of all, important to note the advantages that some might find in the hawala system. According to Interpol, there are six reasons why an individual or a group may use hawalas²:

• cost effectiveness
• efficiency
• reliability
• lack of bureaucracy
• lack of a "paper trail"
• ease in tax evasion

With this in mind, it should probably be said that these ideals may or may not have always been the basis for using the hawala. Regardless, the fifth of these is, no doubt, the most useful to terrorist groups in the United States and abroad. According to a Washington Post article, dated February 17, 2002, early attempts to freeze the assets of al-Qaeda and the Taliban were thwarted due to these groups' use of the hawala to launder assets, specifically gold and, to a lesser degree, diamonds. According to this article, it is thought that "Much of the $500,000 used to fund the Sept. 11 attacks came through Dubai³", apparently a "financial center" for the hawala system, and especially thought to be a neutral ground for Islamic terrorist groups.

So what can be done to limit the role of the hawala plays in international terrorism? As it stands, insofar as it is convenient, the hawala will remain as long as the first three qualities identified above by Interpol exists. This especially holds true, then, in lesser-developed countries with little in the way of foreign deposits and western banking systems. As long as it is convenient, the hawala system will continue to exist; furthermore, lack of any other options will only perpetuate this ancient system's existence.

Obviously, this begs the question: is it worth attempting to dismantle a thousand year-old cultural system and phenomenon under the guises of trying to stop terrorism? If the answer to this becomes "yes", what ramifications might this have on the cultures that use it? The author of this write-up is neither a sociologist nor an economist, and doesn't profess to have the answers to this, but it doesn't take credentials in either of these to note the implications that attempts to modify such a system might have. As it stands, efforts to further expand the power of the USA Patriot Act, seen in its attempted successor, the VICTORY Act included provisions against using these systems.

Regardless, however, as to what is done within the United States itself, perhaps part of the solution is to bring aid to countries currently dependent on the hawala and offer incentives to use global banking systems. There is little certainty in any of this, but in a time where increasing efforts are being made to "clamp down" on the system, one can only wonder whether states which use it would be more willing to follow a carrot, rather than a stick.

¹p. 192, Against All Enemies: Inside America's War on Terror: 2004, Richard A. Clarke. Simon and Schuster, Inc., New York, New York.

²"The hawala alternative remittance system and its role in money laundering": January 2002, Interpol. http://www.interpol.int/Public/FinancialCrime/MoneyLaundering/hawala/default.asp