The Hawala System
Hawala is an ancient banking system that owes its origins in Middle East and South Asia, spreading all over the world (Ladanyi & Kobolka, 2014). The system remains a mystery to individuals outside those communities that use the system. The system is reliable, discreet, inexpensive, fast and convenient, earning it legitimate customers, terrorists and money launderers.
The Hawala system serves a conduit for both legal and illegal money transfers, opening up possibility of its misuse to fund terrorist activities, a law enforcement concern. According to (Wheatley, 2005) the Hawala system of money transfer is pinned on its secrecy and trust. The extent to which the transactions that involve hawaladars are anonymous, make it difficult to investigate any money laundering or terrorist funding that involve the money transfer system. The Hawala money transfer is based purely on trust and secrecy. The sender of the money gives a hawaladar (broker) money plus small commission, who then gives password to be sent to the recipient. The recipient than provides the password to the hawaladar in the country of the recipient, who then pays the recipient less small commission.
The hawala money transfers often involve two brokers with legitimate businesses that offer the Hawala services as side business. Hawaladar in the recipient’s country can receive their debt settlement through over invoicing or under invoicing, during transfer of goods across the borders. The process actually does not involve money transfer across the border and this offers huge challenge in dealing with terrorist activities and money laundering activities in the U.S treasury department.
Hawala transactions are discreet and involve no paperwork, or electronic trails like in those in conventional bank system or other merchant transfers like the Western Union or PayPal (Wheatley, 2005). In addition to its anonymity, the hawala money transfer is done without written documents but based entirely on trust between the parties involved in the transaction process. This makes it difficult to trace any money laundering or funds transfers that involve the payments for criminal activities or remittances from criminal acts by eroding the money trails.
What would be Needed to Track the Funds
Hawala has been known to be a conduit with which funds in support of criminal acts have been channeled. It is important that strategies be devised to overcome the challenges associated with hawala and effectively track the funds. There is need to employ investigative methods to track and combat hawala transactions.
Although most of the hawala transactions lack paperwork and are anonymous, (Nakhasi, 2007) points the possibility of tracking the activities of hawaladars. According to the author, even if some of the transactions of most of the hawaladars may evade the conventional banking system, other broker and customers will interact with the financial system with the mainstream banking system. For instance, vast movements of money to United States or any other foreign destination will remain useless unless the hawala engages banks to convert them into acceptable currencies. The use of investigation will help exploit these vulnerabilities in the hawala terrorist funding or money laundering system. The investigation shall employ such loopholes to determine the patterns, network and brokers of the system.