Law enforcement challenges in hawala‐related investigations
| DOI | https://doi.org/10.1108/13590790510624963 |
| Date | 01 April 2005 |
| Published date | 01 April 2005 |
| Pages | 112-119 |
| Author | Nikos Passas |
| Subject Matter | Accounting & finance |
Journal of Financial Crime Ð Vol. 12 No. 2
Law Enforcement Challenges in
Hawala-related Investigations
Nikos Passas
INTRODUCTION
In most countries, hawala has been operating in paral-
lel with formal ®nancial institutions or as a substitute
or alternative for them. Hawala in Arabic means
`transfer'. In this paper the focus is on informal
hawala, a method of transferring funds that emerged
in Asia but spread throughout the world. Many
people have used hawala-type networks in order to
send money or gifts to their friends and relatives resid-
ing in Asian, African, Latin American and Middle-
Eastern countries. Given the large number of ethnic
groups that make up the US population and the con-
tinuous waves of new immigrants from many parts of
the world, that country has seen inevitably many such
Informal Value Transfer System (IVTS) transactions.
An earlier de®nition of hawala as `money transfer
without physical movement' should be corrected,
because it is erroneous to regard this as a feature
unique to hawala. In fact, both the value transfer and
settlement methods employed by hawala operators
(hawaladars) are not all that dierent from other
fund transfer methods, such as international formal
banking, money changing businesses and wire transfer
companies. What characterises hawala is informality,
higher reliance on trust, a frequent lack of records
intelligible to an outsider, and the use of networks
that are in part illegal in the USA or, most frequently,
in some foreign countries (eg India, Pakistan, France,
Saudi Arabia etc).
While it appears that most clients of IVTS make
honest money and try to assist their extended families,
criminals have also used these networks in order to
launder dirty money, ®nance terrorism, make illicit
payments, and commit other oences, such as tax
evasion, subsidy fraud, embargo busting and customs
fraud. Dealing with hawala operators and networks
represents a serious challenge to US law enforcement
agencies. In general terms, the diculties revolve
around the detection of illicit hawala operations,
investigation and in®ltration, as well as successful pro-
secution and enforcement of the law. After 9/11, an
important challenge has been to distinguish operations
facilitating the transfer of honestly earned money
from criminal enterprises and transactions. In brief,
the ways in which investigations get complicated
include the following:
Much like other ®nancial service providers:
Hawala can hide criminal activities;
Legitimate ®nancial and commercial activities
can shield hawala operations;
Both of these can be obscured by `benami' (false
name) or nominee relationships;
Another layer of diculty is added when trans-
actions involve the use of more advanced tech-
nology (eg the internet) or funds go through
`correspondent' and `pass through' accounts;
Additional layers of diculty develop when such
transactions go through national jurisdictions
without transparency-enhancing bank secrecy
laws, adequate money laundering legislation or
eective enforcement;
Given that the settlement process in many IVTS
transactions involve the trade in goods and
various commodities or smuggling, a further
hurdle is raised when transactions pass through
jurisdictions with porous borders or cash-based
economies (it must not be forgotten, however,
that numerous deals in the USA are also settled
with cash payments).
All these factors necessitate more resources than usual
and excellent cooperation among agencies within the
USA and internationally. While discussing the issues
posed by hawala-type operations, it should be under-
lined that the speci®city of hawala has been generally
exaggerated. Many of the challenges posed by hawala
are similar to those encountered in the control of drug
tracking and other transnational crimes, even if
some of them are occasionally more pronounced.
The main problem is that law enforcement did not
focus very much on these types of transaction,
network and ethnic group involved before 9/11.
Time, training and resources are necessary to
develop the required expertise, understanding and
intelligence for better results. What makes the task
particularly challenging is the climate of relative fear
in immigrant communities and lack of trust toward
Page 112
Journalof Financial Crime
Vol.12,No. 2, 2004,pp.112±119
#HenryStewart Publications
ISSN1359-0790
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