What is Hawala?
The word “hawala” comes originally from the Arabic language and means transfer or remittance. Hawala provides a fast and cost-effective method for worldwide remittance of money or value, particularly for persons who may be outside the reach of the traditional financial sector. In some nations hawala is illegal, in others the activity is considered a part of the “gray” economy. It is therefore difficult to accurately measure the total volume of financial activity associated with the system, however, it is estimated that the figures are in the tens of billions of dollars, at a minimum. Officials in Pakistan, for example, estimate that more than $7 billion flow into the nation through hawala channels each year. Other Alternative Remittance or Informal Value Transfer Systems include “hundi,” “fei ch ‘ien,” “chit system,” “poey kuan” and the black market peso exchange.
The very features which make hawala attractive to legitimate customers (mainly expatriates remitting money to relatives in their home country) ---efficiency, anonymity, and lack of a paper trail---also make the system attractive for the transfer of illicit funds. As noted in a recent report of the Asia Pacific Group (APG) on Money Laundering, the terrorist events of September 2001 have brought into focus the ease with which alternative remittance and underground banking systems may be utilized to conceal and transfer illicit funds. Not surprisingly, concerns in this area have led many nations to reexamine their regulatory policies and practices in regard to hawala and other alternative remittance systems.
What is Being Done to Address Hawala?
On October 31, 2001 the Financial Action Task Force (FATF) released the Eight Special Recommendations on Terrorist Financing which, when combined with the FATF Forty Recommendations on money laundering, set out the basic framework to detect, prevent, and suppress the financing of terrorism and terrorist acts. Special Recommendation Six deals with alternative remittance and contains three major elements:
- Jurisdictions should require licensing or registration of persons or legal entities providing money/value transmission services, including through informal systems or networks.
- Jurisdictions should ensure that money/value transmission services, including informal systems or networks, are subject to FATF Recommendations 10-12 and 15.
- Jurisdictions should be able to impose sanctions on money/value transmission services, including informal systems or networks, that fail to obtain a license/register and that fail to comply with relevant FATF Recommendations.
US Treasury Department
Alternative Payment Solutions & Informal Value Transfer
Financial Action Task Force (FATF) Material on Hawala/ARS
Financial Crimes Enforcement Network (FinCEN) Material on Hawala/ARS
USA PATRIOT Act Reports
Asia Pacific Group (APG) Reports on ARS