The use of Hawala as a The use of Hawala as a

Remittance SystemRemittance SystemAbdulrahman Al-Khalifa

What is Hawala?What is Hawala?

Hawala is an efficient value transfer system that has endured many civilizations and unstable regions

This system has developed and spread among different cultures:

Fei-Chien in China

Padala in the Philippines

Hui Kuan in Hong Kong

Hundi in India

Where did it Originate?Where did it Originate?

During the twelfth and thirteenth centuries, as a means of facilitating long distance trade mainly the silk road

It operated within a tight range of family members based purely on trust

It has remained as the main system of money transmission in Asia up until the mid-twentieth century

The Silk RoadThe Silk Road

How does it Work?How does it Work?

1. Cash is given to the hawala dealer ( Could range from a corner store to a travel agency)

2. No fees are discussed (usually they are factored in), only where and in what currency

3. The money transfer could range from a few minutes to a week depending on the relationship with the intermediaries

4. Hawala dealers combine daily, all their transactions into ledgers of their different counterparts

Why is it still Preferred?Why is it still Preferred?

Hawala dealers usually charge .25% to .65%

Expatriate workers from all around the world:

500,000 Afghans live in the United States where each is estimated to send through hawala $1500 per year, a total of $750 million annually.

Dubai DH to Pakistan PKR:

Western Union (paid 109.52, received 5,858)

Hawala (paid 100, received 5,920)

Exchange House (paid 109.52, received 5,901)

Where TOC fits inWhere TOC fits in

Speed, size, reliability , and low cost lures organized crime groups.

Due diligence (NPO)

Tax evasion, human trafficking etc

Honest earned money could be received as illicit cash from smugglers (money pools)

9/11 cost approximately $500,000

London bombings cost approximately $2000

What have the regulators done to What have the regulators done to

control the system?control the system? Different approaches with different governments:

FINCEN in the US requires hawala to be filed as Money Service Business (estimate 17% registered)

FIU in Bahrain took the same approach (estimated 83% registered)

UAE Central Bank invited but did not require registration

UK customs implemented CATCH

The Way AheadThe Way Ahead

Informal hawala is a danger to the global security and economy

The licit with the illicit could be easily merged creating a medium of exchange for TOC

Financial Intelligence Units should be more engaged in the oversight and implementation of the regulations

The Way Ahead (continued)The Way Ahead (continued)

More effort should be drawn to public awareness in regard to the dangers of the informal system and what it is capable of

BibliographyBibliography

Al-Hamiz, Saeed. Hawala: A U.A.E. Perspective. Regulatory Frameworks For Hawala and Other Remittance Systems, no. 1 (2005): 30-34.

Goldstone, Jack. Why Europe?: The Rise of the West in World History 1500-1850. New York: McGraw-Hill, 2009.

Gottselig, Glenn and Sarah Underwood. Financial Intelligence Units: An Overview. Edited by Paul Gleason and Glenn Gottselig. Washington, DC: International Monetary Fund Publication Services, 2004.

Houssein, Mohamed D. Somalia: The Experience of Hawala Receiving Countries.Regulatory Frameworks For Hawala and Other Remittance Systems, no. 1 (2005): 87-93.

Maimbo, Samuel M. The Money Exchange Dealers of Kabul: A Study of the Hawala System in Afghanistan. World Bank Working Paper, no. 13 (2003): 30-34.

OBrien, Craig Michael, Hawala and Western Business Principles. MA diss., National Defense Intelligence College, 2007.

Passas, Nikos. Formalizing the Informal? Problems in the National and International Regulation of Hawala. Regulatory Frameworks For Hawala and Other Remittance Systems, no. 1 (2005): 7-16.

www.rogerwendell.com/ silkroad.html