Abstract
Hawala is an informal system of money transfer that is widely used in the Middle East, the Indian subcontinent, the Horn of Africa and North Africa. The Hawala system predates the current international banking system, having been used in the Muslim world before European influences permeated the region. In western countries, Hawala is popular among immigrants, who use it to send money to their relatives back home. The main reasons for Hawala’s popularity as compared to other means of money transfer include its cheapness and anonymity. However, some countries such as India and Pakistan have outlawed Hawala because of fears that it can be used to avoid taxation, as well as facilitating money laundering. In the U.S., the main concern surrounding the Hawala system is that it can be used to fund terrorism. Consequently, anti-terrorism experts in the U.S. Treasury Department are tasked with the responsibility of preventing terrorists from using the Hawala system for their nefarious purposes.
Key words: Hawala, anti-terrorism
The Hawala system operates outside the traditional banking system and relies on trust within a network of Hawala brokers. In the Hawala system, an individual wishing to transfer money deposits it with a Hawala broker, who contacts another broker in the location of the intended recipient with instructions about the transaction. The sender also contacts the recipient with instructions about the transaction, who then approaches the local Hawala broker with this information to receive the payment. Although the Hawala system is primarily used in the Middle East, Hawala brokers are also present in western countries, including the U.S.A (Crimm, 2004). This paper explores the challenges that the Hawala system presents for anti-terrorism funding experts in the U.S. Treasury Department and provides measures on how to track the funds.
The system has been used due to numerous benefits such as lack of bureaucracy and efficiency owing to the complexities arising from complex transactions. The main challenge that the Hawala system presents for anti-terrorism funding experts is its reliance on cash transactions, which do not leave a paper trail. To make matters worse, most of the cash transferred within the Hawala system to fund terrorism comes from illegal activities such as smuggling and extortion. This makes it difficult for anti-terrorism experts to determine the source of the cash (Faith, 2011). In addition, the Hawala system is widely used in lawless or unstable countries such as Somalia, Yemen and Afghanistan, which presents a challenge for anti-terrorism funding experts. The reason for this is such countries lack financial regulatory bodies that can maintain records about the local Hawala dealers, as well as other transactions within these jurisdictions. Furthermore, the Hawala system has the ability to mutate to stay ahead of the authorities, which presents a challenge for anti-terrorism experts. For instance, terrorists can simply switch to an undiscovered Hawala broker if the authorities arrest a known broker (Dalyan, 2008). The ease of entry and exit of brokers into the Hawala system owing to the absence of a regulatory framework compounds the problem for anti-terrorism experts.
The best way to track Hawala funds is to require all Hawala brokers to obtain licenses from their governments. The U.S. can use diplomacy to encourage countries to license their Hawala brokers. Licensed Hawala brokers should then be required to maintain accurate records of all their transactions. Consequently, terrorists will be unable to use the services of licensed Hawala brokers because their transactions will be traceable. Furthermore, licensing Hawala brokers will help governments sift between honest and crooked brokers, who are likely to avoid the licensing measure. The reduction in the number of brokers available for terrorists will reduce their ability to transfer funds (Faith, 2011). In addition to licensing Hawala brokers, the U.S. can encourage intergovernmental cooperation so that different countries share information about their Hawala brokers to facilitate the tracking of international funds transfers through the Hawala system.
In conclusion, the Hawala system presents numerous challenges for anti-terrorism funding experts. There are numerous benefits associated with the use of the Hawala method of remittance such as lack of paper trail, bureaucracy and efficiency. However, the system is also associated with numerous challenges, especially with the rising cases of money laundering and funding of terror activities. Most of these challenges originate from the informal and unregulated nature of the Hawala system. Therefore, the best way to combat terrorist financing through the Hawala system is to regulate it. However, it is worth noting that the effective tracking of funds within the Hawala system requires the cooperation of all governments where Hawala brokers can be found.
References
Crimm, N. J. (2004). High Alert: The Government's War on the Financing of Terrorism and its Implications for Donors, Domestic Charitable Organizations, and Global Philanthropy. William and Mary Law Review, 45, 1341-1451.
Dalyan, Ş. (2008). Combating the Financing of Terrorism: Rethinking Strategies for Success. Defence Against Terrorism Review, 1 (1), 137-153.
Faith, D. C. (2011). The Hawala System. Global Security Studies, 2 (1), 23-33.
