Skip to main content

Hawala money transfer: An introduction

Hawala is defined as a system to transfer money across border  ‘…based on trust and operating through network based … on regional or ethnic affiliation rather than through banks and financial institutions’.[1] In other words it is defined as a system which transfers money around the world without any actual money movement.[2] The Financial Action Task Force (FATF), quotes number of terms to refer to hawala, such as (i) as informal funds transfer; (ii) alternative remittance; (iii) underground or parallel banking; (v) a relationship; or (iv) intermediary banking.[3] In Arabic language, the term ‘hawala’ means ‘change’ or ‘transform’; by contrast, in Hindi or Urdu it refers to ‘trust’; the terms ‘hawala’ and ‘hundi’ are also used in India and Pakistan interchangeably.[4] 

It is said that the hawala money transfer functions as a financial services provider in those remote parts of the world where normally the banking systems are unreachable.[5] Besides, other view is that it is also a means to transfer valuables or more precise consideration between multiple contracting parties. Therefore, it would be more appropriate to call it an Informal Value Transfer System (IVTS), instead of an informal money-transfer system.[6]

Practical example of hawala money transfer: Mr. A, an Omani immigrant living in the United States wishes to send his earning to Mr. B, his brother in his native land. For that Mr. A, contacts Mr. Y, who works as a hawaladar[7] for hawala money transfer in the United States. Then, Mr. Y, the hawaladar by his own links contacts hawaladar Mr. Z, in Oman and request the same amount to be transferred to Mr. B. Thus, Mr. B, in Oman, gets the amount sent by his brother Mr. A, from the United Sates.[8] 

From a user’s perspective, the hawala money transfer is considered as faster, safer and more cost-effective than the formal money transfers, both, internally or across the borders. One of the reason being cost effective may be that it functions concealed from the governmental authorities and thus avoid governmental levies, for example, taxes etc. Moreover, informal hawala money transfer facilitates trade between the regions where the conventional banking instruments are considered unsafe, weak or null to exist. It is also said that the purpose of developing hawala was to facilitate the trade between distant regions at a time or in regions where conventional banking instruments were either absent, weak or unsafe.[9]

By comparison, with low cost and using the minimum or no use of negotiable instrument in hawala transaction.[10] It can be argued that the hawala transaction (i) lacks a path which provides certain rules and regulations to be observed in order to perform any transaction with respect to money or other valuables; (ii) lacks transparency; (iii) stabilizes illegal immigrant community; (v) unlimited transactions take place without subject to taxes and other governmental charges. The FAFT is of the view that the IVTS is both, simple as well as complex. It is simple in a sense that it keeps the system to operate as basic as receiving or transferring the cash. Whereas, it is complex because it may rely on a series of some unrelated operations at the clearing or settlement phase of the process.[11]





[1] Bryan A Garner (ed. in chief) Black’s Law Dictionary (West 2009) 786
[2] Bala Shanmugam, ‘Hawala and money laundering: a Malaysian perspective’ (2004) 8(1) 38
[3] FATF, Money Laundering & Terrorist Financing Typologies 2004-2005 (10 June 2005) <http://web.archive.org/web/20050616064013/http://www.fatf-gafi.org/dataoecd/16/8/35003256.pdf> accessed 1 February 2015; Angela Leong, The disruption of international organised crime : an analysis of legal and non-legal strategies (Ashgate 2007) 36
[4] Shanmugam (n 2) 37
[5] ibid 38
[6]Thomas Viles, ‘Hawala, hysteria and hegemony’ (2008) 11(1) JMLC 26
[7] Hawaladar is a person who performs the number of unrelated transactions to complete the hawala money transfer. Moreover, halawadars operate on both sides, at the source and at the destination. Notably, the relation between the hawaladars at source and at destination functions solely on trust, without any kinship or connection, thus independently. Furthermore, majority of the hawaladars perform that IVTS as a part-time business, along-with their main business. FATF on Money Laundering, Report on Money Laundering Typologies 1999-2000 (3 February 2000) <http://www.fatf-gafi.org/media/fatf/documents/reports/1999%202000%20ENG.pdf> accessed 1 February
[8] Patrick M Jost and Harjit Singh Sandhu, ‘The hawala alternative remittance system and its role in money laundering’  (FinCEN and INTERPOL/FOPAC January 2000) <http://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/FinCEN-Hawala-rpt.pdf> accessed 1 February 2015

[9] U4 Anti Corruption Resource Centre, ‘Hawala remittance system and money laundering’ (23 May 2008) <http://www.u4.no/publications/hawala-remittance-system-and-money-laundering> accessed 1 February 2015
[10] Jost and Sandhu (n 8)
[11] FAFT Report 2004-2005 (n 3) 6

Comments

Post a Comment

Popular posts from this blog

The six major non-corporate cases of 'Bankruptcy tourism' in the UK

 1.  Skjevesland v Geveran Trading Co Ltd (No.4) [2002] EWHC 2898 (Ch) The case was about a Swiss banker,  (1)  who had ordinary residence in the UK, because he resided there for 92 days a year; (2)  he had a flat in London to satisfy the fact that he had a place of residence in the UK;  (3) however, his 90% of the economic interests were in Switzerland.  It was held that his ‘Centre of main interest’ (COMI) is outside EU, and the Regulation was not applicable. 2. Staubitz-Schreiber, Re  (C-1/04) [2006] ECR I-701 It was upheld by the European Court of Justice that the COMI to be determined at the time when the debtor lodges a petition for insolvency proceedings and not after that. Therefore, once jurisdiction is established, it is unlikely for a debtors to change COMI.  3. Stojevic v Official Receiver [2007] BPIR 141 It was held that the principle COMI of a natural person is the place where he has his habitual residence. An indirect economic interest of the debtor
Post a Comment
Read more

Bankruptcy Tourism & UK

The term ‘bankruptcy’, defined as a procedure by which debtors obtain financial relief and undergo a judicially supervised liquidation of the debtor's assets for the benefit of creditors. It is also known as a state of a person who has been adjudged by a court to be insolvent. Then the court orders the compulsory administration of a bankrupt’s affair so that his assets can be fairly distributed among his creditors. Whereas, the term ‘Bankruptcy Tourism’ refers to a process by which both, corporation and individuals (more oftenly foreign) publicize their insolvency in the jurisdiction of their choice. [1] Alternatively, the terminology is also known as ‘forum shopping’. [2] The law of insolvency varies country wise. Because of that the debtors wish to choose the place of their choice to declare their bankruptcy aiming to take advantage of the most lenient law of insolvency. By doing so they abuse the legal system of that country and get rid of the creditors.    In particul
1 comment
Read more

Oman's oil deficit - need to diversify

The Sultanate of Oman shares borders with Saudi Arabia, United Arab Emirates and Yemen; the country also shares marine borders with Iran and Pakistan. Geographically, it is held on the mouth of Persian Gulf; besides, the Sultanate is also the second largest territory in the Arabian Peninsula. Thus, its physical location and peaceful political situation attract to invest in Oman and offer a convenient place to enhance trade and business relations. It contrast to the excellent opportunities in trade and business. Oman is an oil rich monarchy, which heavy rely on its hydrocarbon resources, mainly oil and gas. Historically, the first ever oil discovery was made in 1956. Later, the first commercial oil discovery was achieved in 1962 and thus, the first ever export of oil cargo was made in 1967. It was accounted that by 2009, in Oman there were more than 135 oil producing fields, which rapidly reached the mark of 162 by 2013. According to the Ministry of Finance, Oman, in the year of 20
Post a Comment
Read more