Unveiling the Hawala System: Money Laundering Through the Ages

The Hawala system is an ancient method of transferring money that dates back to the 8th century. It is a traditional system of transferring funds globally across geographical borders. Hawala is also known as “hundi,” which means “bill of exchange” or “promissory note” in Urdu.

This system of money transfer is popular in the Middle East, North Africa, and South Asia, and it is a primary means of transferring funds from one country to another. The Hawala system is prevalent in countries where the traditional banking system is not trustworthy, and people do not have access to the banking system.

The Hawala system is entirely based on trust, and it does not require any physical movement of money. Instead, the Hawala dealers use their networks to transfer the money from one place to another. They use a complex web of brokers who act as intermediaries between the sender and the recipient of the funds.

How the Hawala System Works

In the Hawala system, the sender approaches a Hawala dealer and gives him the money that he wants to transfer. The Hawala dealer then contacts another Hawala dealer in the recipient’s country and instructs him to pay the recipient the same amount of money, less a small fee.

The recipient then goes to the Hawala dealer in his country and provides proof of identity. The Hawala dealer then pays the recipient the amount of money that was sent, and the transaction is complete.

Advantages of the Hawala System

The Hawala system has several advantages over the traditional banking system.

Firstly, it is fast, and the money can be transferred within a matter of hours.

Secondly, it is cheap, and the fees charged by the Hawala dealers are much lower than the fees charged by banks.

Thirdly, the Hawala system is highly flexible, and the transaction can be completed even if the recipient does not have a bank account.

Fourthly, the Hawala system is entirely confidential, and the transaction is not reported to the authorities.

Disadvantages of the Hawala System

However, the Hawala system has several disadvantages as well.

Firstly, it is entirely based on trust, and there is no legal contract or guarantee that the money will be paid.

Secondly, there is a risk of fraud, and the Hawala dealers can abscond with the money.

Thirdly, the system is not regulated, and there is no way to monitor the transactions.

Fourthly, the Hawala system is often associated with illegal activities such as money laundering, drug trafficking, and terrorism financing.

Money Laundering and the Hawala System

Money laundering is the process of converting “dirty” money into “clean” money. It is a way for criminals to hide the proceeds of their illegal activities and use them for legal purposes.

The Hawala system is often used for money laundering, as it is an easy way to transfer large sums of money across geographical borders without leaving a paper trail. The money can be moved from one country to another, and the transactions can be completed without any record.

To prevent money laundering, many countries have introduced regulations to monitor the Hawala system. These regulations require Hawala dealers to register with the authorities and maintain records of their transactions.

Conclusion

The Hawala system is an ancient method of transferring money that continues to thrive today. It is a traditional system of transferring funds globally across geographical borders, and it is prevalent in countries where the traditional banking system is not trustworthy.

The Hawala system is entirely based on trust, and it does not require any physical movement of money. Instead, the Hawala dealers use their networks to transfer money from one place to another.

While the Hawala has been used to move funds to terrorist organizations and other illegal activities. Since it operates outside of the traditional banking system, it can be challenging to trace the flow of money and identify the parties involved.

Governments worldwide are taking measures to crack down on Hawala operators and reduce the risks associated with it. For instance, the US Financial Crimes Enforcement Network (FinCEN) requires financial institutions to identify and report suspicious activities involving Hawala systems.

In conclusion, this system has been in existence for centuries and continues to be a popular method of money transfer today. However, its association with money laundering and terrorist financing has put it under scrutiny by governments worldwide. It is important to be aware of the risks associated with using the Hawala system and take necessary measures to mitigate them.