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Difference between revisions of "Hawala (Middle East, India and Pakistan)"
Hawala (Middle East, India and Pakistan) (view source)
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'''''Original Text: India Farooqui''''' | '''''Original Text: India Farooqui''''' | ||
[[File:Hawala Market Afghanistan.jpg|400px|thumb|right|]] | |||
An informal value transfer system operating through a large network of money brokers that allows money to be transferred from one geographic location to another. The ''hawala'' system operates outside of more traditional financial and banking channels, and is based mainly in the Middle East, Indian subcontinent and parts of Africa. | An informal value transfer system operating through a large network of money brokers that allows money to be transferred from one geographic location to another. The ''hawala'' system operates outside of more traditional financial and banking channels, and is based mainly in the Middle East, Indian subcontinent and parts of Africa. | ||
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Every year billions of dollars are transferred across countries and continents using Informal Value Transfer Systems (IVTS). The Financial Crimes Enforcement Network (FinCEN) defines IVTS as, “Any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, or not in the same form.” ''Hawala'' is one of the key forms of IVTS. It is estimated that every year US$100 billion to US$300 billion flow through the Informal Value Transfer Systems <ref>Buencamino, L. and Gorbunov, S. 2002. Informal money transfer systems: Opportunities and challenges for development finance. Discussion Paper of the United Nations Department of Economics and Social Affairs, Discussion Paper No. 26. Obtained through the Internet: http://www.un.org/esa/desa/papers/2002/esa02dp26.pdf, [accessed 10/4/2009]</ref>. | Every year billions of dollars are transferred across countries and continents using Informal Value Transfer Systems (IVTS). The Financial Crimes Enforcement Network (FinCEN) defines IVTS as, “Any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, or not in the same form.” ''Hawala'' is one of the key forms of IVTS. It is estimated that every year US$100 billion to US$300 billion flow through the Informal Value Transfer Systems <ref>Buencamino, L. and Gorbunov, S. 2002. Informal money transfer systems: Opportunities and challenges for development finance. Discussion Paper of the United Nations Department of Economics and Social Affairs, Discussion Paper No. 26. Obtained through the Internet: http://www.un.org/esa/desa/papers/2002/esa02dp26.pdf, [accessed 10/4/2009]</ref>. | ||
[[File:Hawala Market Photo.jpg|400px|thumb|left|Stacks of cash in a Hawala market in Afghanistan]] | |||
Informal Value Transfer Systems were established means of transferring valuables and money long before any of the formal methods were conceived. However, since the growth of formal value transfer systems, informal systems have operated in the shadows, albeit maintaining a devoted following. Many of today’s IVTS originated among ethnic Asian peoples who based codes of conduct for value/money transfer on mutual trust within groups and individuals. The various systems derived their names from the geographical locations and the ethnicity of the groups that practised them. Passas has summarised some of the more common names for IVTS practices in different parts of the world:<ref>Passas, N. (1999). Informal value transfer systems and criminal organizations: A study into so-called underground banking networks. Netherlands Ministerie Van Justice, The Hague, Netherlands. Obtained through the Internet: http://www.minjust.nl:8080/b_organ/wodcpublications/ivts.pdf [accessed 1/5/2003].</ref> | Informal Value Transfer Systems were established means of transferring valuables and money long before any of the formal methods were conceived. However, since the growth of formal value transfer systems, informal systems have operated in the shadows, albeit maintaining a devoted following. Many of today’s IVTS originated among ethnic Asian peoples who based codes of conduct for value/money transfer on mutual trust within groups and individuals. The various systems derived their names from the geographical locations and the ethnicity of the groups that practised them. Passas has summarised some of the more common names for IVTS practices in different parts of the world:<ref>Passas, N. (1999). Informal value transfer systems and criminal organizations: A study into so-called underground banking networks. Netherlands Ministerie Van Justice, The Hague, Netherlands. Obtained through the Internet: http://www.minjust.nl:8080/b_organ/wodcpublications/ivts.pdf [accessed 1/5/2003].</ref> | ||
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==Model of Simple Hawala Transfer== | ==Model of Simple Hawala Transfer== | ||
[[File: | [[File:Hawala Diagram 2.gif|400px|thumb|right|Model of Hawala Transfer]]''Hawala'' persists due to a number of reasons, which include; anonymity, cultural friendliness <ref>Chene, M. 2008. Hawala remittance system and money laundering, U4 expert answer, U4 Anti-Corruption Resource Centre. Obtained through the Internet: http://www.u4.no/helpdesk/helpdesk/query.cfm?id=170, [accessed 17/4/2009]</ref>, low transaction costs <ref>Maimbo, S. 2003. The Money Exchange Dealers of Kabul. Washington, D.C.: The World Bank.</ref>, less transit time <ref>Schramm, M., & Taube, M. 2002, June. ‘The institutional foundations of Al Qaida’s global financial system’. In DIW Workshop “The Economic Consequences of Global Terrorism”</ref>, enhanced level of trust versus banks and other conventional channels <ref>Schramm, M., & Taube, M. 2002, June. ‘The institutional foundations of Al Qaida’s global financial system’. In DIW Workshop “The Economic Consequences of Global Terrorism”</ref>, and increased efficiency<ref>Ballard, R. 2005b. ‘Remittances and economic development in India and Pakistan’. In S. Maimbo, & D. Ratha (Eds.), Remittances: Development Impact and Future Prospects. Washington, D.C.: World Bank</ref>. | ||
‘Underground banking’ is a core term widely used to describe ''hawala''. This term, however, is inherently fallacious. The actual transfer process rarely involves any banking procedures. It is structured more as an exchange on open accounts between two or more individuals <ref>Passas, N. (1999). Informal value transfer systems and criminal organizations: A study into so-called underground banking networks. Netherlands Ministerie Van Justice, The Hague, Netherlands. Obtained through the Internet: http://www.minjust.nl:8080/b_organ/wodcpublications/ivts.pdf [accessed 1/5/2003].</ref>. For these reasons, ‘underground banking’ is a misnomer and incorrectly implies a submerged activity of illegality and corruption. Another term coined by media hype is ‘black ''hawala''’, which alludes to illegal ''hawala'' transactions <ref>Jost, P. and Sandu, H. S. 2000. The Hawala alternative remittance system and its role in money laundering. Interpol General Secretariat, Lyon.</ref>. However, for some critics, ‘black ''hawala''’ has come to define all ''hawala'' transactions. This is typical of the partisan thrust of many present day media commentaries. | ‘Underground banking’ is a core term widely used to describe ''hawala''. This term, however, is inherently fallacious. The actual transfer process rarely involves any banking procedures. It is structured more as an exchange on open accounts between two or more individuals <ref>Passas, N. (1999). Informal value transfer systems and criminal organizations: A study into so-called underground banking networks. Netherlands Ministerie Van Justice, The Hague, Netherlands. Obtained through the Internet: http://www.minjust.nl:8080/b_organ/wodcpublications/ivts.pdf [accessed 1/5/2003].</ref>. For these reasons, ‘underground banking’ is a misnomer and incorrectly implies a submerged activity of illegality and corruption. Another term coined by media hype is ‘black ''hawala''’, which alludes to illegal ''hawala'' transactions <ref>Jost, P. and Sandu, H. S. 2000. The Hawala alternative remittance system and its role in money laundering. Interpol General Secretariat, Lyon.</ref>. However, for some critics, ‘black ''hawala''’ has come to define all ''hawala'' transactions. This is typical of the partisan thrust of many present day media commentaries. | ||
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Although ''hawala'' is considered an alternative to formal transfers involving banks and financial institutions, the processes involved are quite similar. Formal value transfers can take several forms: cash carriers, exchange houses, and money remitters. Apart from cash carriers, formal value transfer systems do not physically move cash or valuables, but an institution forwards a sum to an individual/business entity on behalf of another institution representing a different individual/business entity. An illustration of this is a transfer of funds through Western Union. Detailed records are kept which are then settled through the formal banking sector, while impartial third parties monitor and enforce rules and regulations. | Although ''hawala'' is considered an alternative to formal transfers involving banks and financial institutions, the processes involved are quite similar. Formal value transfers can take several forms: cash carriers, exchange houses, and money remitters. Apart from cash carriers, formal value transfer systems do not physically move cash or valuables, but an institution forwards a sum to an individual/business entity on behalf of another institution representing a different individual/business entity. An illustration of this is a transfer of funds through Western Union. Detailed records are kept which are then settled through the formal banking sector, while impartial third parties monitor and enforce rules and regulations. | ||
[[File:Hawala Agent Afghanistan.jpg|400px|thumb|left|Hawaladar in Afghanistan]] | |||
In contrast, while ''hawaladars'' keep some records of transaction these are not to monitor their activity but as reminders for details of individual accounts, transactions, and balances. This record-keeping is a matter of individual practice, in contrast to the standardised procedures followed by the formal sector. However, the settlement process for ''hawala'' works on the same basis as the formal system: open accounts are kept and there is occasional netting off between ''hawaladars'' to settle accounts, although they may not necessarily use formal channels<ref>Wilson, J. F. 2002. ‘Hawala and other informal payments systems: an economic perspective’. Paper delivered at the IMF Seminar on Current Developments in Monetary and Financial Law, IMF Headquarters, Washington D.C. on 16 May 2002. Accessed: http://www.imf.org/external/np/leg/sem/2002/cdmfl/eng/wilson.pdf </ref>. | In contrast, while ''hawaladars'' keep some records of transaction these are not to monitor their activity but as reminders for details of individual accounts, transactions, and balances. This record-keeping is a matter of individual practice, in contrast to the standardised procedures followed by the formal sector. However, the settlement process for ''hawala'' works on the same basis as the formal system: open accounts are kept and there is occasional netting off between ''hawaladars'' to settle accounts, although they may not necessarily use formal channels<ref>Wilson, J. F. 2002. ‘Hawala and other informal payments systems: an economic perspective’. Paper delivered at the IMF Seminar on Current Developments in Monetary and Financial Law, IMF Headquarters, Washington D.C. on 16 May 2002. Accessed: http://www.imf.org/external/np/leg/sem/2002/cdmfl/eng/wilson.pdf </ref>. | ||