After the horrible attacks on September 11, 2001, an ancient
informal money transfer system called hawala came under
scrutiny for its possible involvement in the financing. This book
explores what other, similar informal transfer systems exist, and
what their percentage of total remittances is. After an analysis of
its competitors, hawala is further explained through a sample
transaction, followed by an insight on its bookkeeping. Later the
institutional framework is analyzed and, most important, its
considerable incentives to the customer are outlined.
The work then tries to define the ‘ideal’ characteristics of a
transfer system in respect to terrorist financing and explores the
current and actual use of hawala to finance terrorism. How are
the necessary funds generated and moved? A brief outlook into
the future of terrorist financing will end this chapter.
Being aware of the incentives to the regular customer as well
as to the terrorist organizations to use hawala , the major policies
to stop the financing of terrorism will be evaluated as to their
efficiency. Are they enough to dry up terrorist funding?
Table of Contents
1. Introduction
2. Informal Money Transfer Systems (IMTS)
2.1. Various Systems: An Overview
2.2. The Scope of Informal Money Transfers
3. The System of Hawala and Hundi
3.1. An Example of a Hawala Remittance
3.2. Bookkeeping and the Paper-Trail
3.3. The Institutional Framework of Hawala
3.4. Advantages of Hawala
4. Hawala and the Financing of Terrorism
4.1. Money Transfers: Terrorist’s Wish List
4.2. Hawala, Charities and 9/11
4.2.1. The Charities as a Money Generator
4.2.2. Legitimate Businesses as a Source of Money
4.2.3. The Transfer of Funds for the 9/11 Attacks
4.3. Future Terrorist Financing
5. Policy Options in the Fight against Terror Finance
5.1. The Regulations by the Unites States
5.2. The Regulations by the UN Counter Terrorism Committee (CTC)
5.3. The Regulations by the G-7 Financial Action Task Force (FATF)
5.4. The Abu Dhabi Declaration on Hawala
6. Conclusion
Objectives and Research Focus
This work examines the vulnerability of informal money transfer systems, specifically Hawala, to exploitation for terrorist financing. The primary research goal is to understand how these systems operate, why they are utilized by both legitimate migrants and terrorist organizations, and to evaluate the effectiveness of international policy interventions intended to disrupt terrorist funding flows.
- The historical and institutional evolution of Informal Money Transfer Systems (IMTS).
- The mechanics of Hawala transactions, including bookkeeping and risk management practices.
- The nexus between charitable donations, legitimate front businesses, and terrorist activity.
- An evaluation of current regulatory frameworks from the U.S., the UN, and the G-7/FATF.
Excerpt from the Book
3.1. An Example of a Hawala Remittance
The following example describes a money transfer without any actual commodities traded. Kareem, a 38 year old independent cab driver in London, wants to wire GB£ 1’000 to his brother Abdul in Islamabad, in order to help his brother finance a new shisha (waterpipe) café in his neighborhood in Islamabad. Kareem does not want to open up a bank account, since the western banks in London engage in haram practices, a behaviour that is not in compliance with Islamic Law10. While Kareem is waiting for a new customer at the East London cab station, he visits a store that sells Middle-Eastern spices and crafts. The owner of this store offers hawala transfers. Although Kareem does not personally know the owner of the shop, he entrusts him the GB£ 1’000, as a fellow cab driver recommended this particular store to Kareem11. Kareem tells the hawaladar (the operator of the transaction) where he wants the money to be sent. In return, he is given a password, so that the beneficiary can be identified. There is no written contract between Kareem and the operator12.
The hawaladar then either calls, emails or faxes his cousin Mohammad in Islamabad and informs him about the beneficiary, the amount and the password. For this communication, encoded language is often used. A phrase of the Quran might serve as a code for a certain amount. Shortly after, Kareem calls his brother and tells him the password, so he can identify himself properly. At the hawaladar's office in Islamabad, Abdul (the beneficiary) is asked for the password and is given the amount in Pakistani Rupees minus a 1,5% service charge13 that the first intermediary in London already deducted. The entire procedure takes place without an actual movement of money. Therefore, hawala is defined as a transfer of money without any movement of money.
Summary of Chapters
1. Introduction: This chapter contextualizes the research within the aftermath of the 9/11 attacks and outlines the scope of the study regarding informal money transfer systems and their potential for misuse by terrorists.
2. Informal Money Transfer Systems (IMTS): This chapter defines informal banking, clarifies common misconceptions about its nature, and provides an overview of various traditional systems, including the Chinese 'fei ch'ien' and the 'chop' system.
3. The System of Hawala and Hundi: This section details the history and mechanics of Hawala, focusing on how the system functions through trust and relational contracts rather than legal enforcement.
4. Hawala and the Financing of Terrorism: This chapter analyzes the requirements of terrorist financing, explores how charities and legitimate businesses serve as funding sources, and investigates the specific transfer methods used in the 9/11 attacks.
5. Policy Options in the Fight against Terror Finance: This chapter evaluates the regulatory responses implemented by the U.S. government, the United Nations, and the FATF, and assesses the impact of the Abu Dhabi Declaration.
6. Conclusion: The concluding chapter summarizes the main findings, reiterates the difficulty of regulating informal systems without eliminating their legitimate benefits, and offers a brief outlook on the future of terrorist financing.
Keywords
Hawala, Hundi, Terrorist Financing, Informal Money Transfer Systems (IMTS), Charities, Zakat, 9/11, Financial Action Task Force (FATF), Money Laundering, Hawaladar, Underground Banking, Regulations
Frequently Asked Questions
What is the primary subject of this academic work?
The work investigates the ancient, trust-based informal money transfer system known as Hawala and explores how its characteristics are leveraged by terrorist organizations for the illicit transfer of funds.
What are the central themes discussed in the text?
The core themes include the mechanics of informal money transfers, the role of cultural and religious trust in maintaining these networks, the intersection of charitable giving with terrorist fundraising, and the effectiveness of modern anti-terror financial policies.
What is the primary objective of this research?
The primary goal is to analyze whether current international regulations can effectively disrupt terrorist funding via informal channels without undermining the essential, legitimate financial services these systems provide to migrant populations.
Which scientific methodology is employed?
The author employs a descriptive and analytical approach, utilizing case studies, empirical estimates from various countries, and an institutional economic analysis of how self-enforcing contracts and "clubs" facilitate Hawala operations.
What topics are covered in the main section of the book?
The main sections cover a technical explanation of how Hawala transactions function, an analysis of the "terrorist's wish list" for financial transfers, a detailed look at how charities and legitimate businesses are exploited, and an evaluation of international counter-terrorism policies.
Which keywords characterize this publication?
The key concepts include Hawala/Hundi, Terrorist Financing, Informal Money Transfer Systems (IMTS), Charities, and international regulatory bodies like the FATF.
How is the anonymity of the Hawala system maintained?
Anonymity is maintained by the absence of formal paper trails, the reliance on verbal passwords for beneficiary identification, and the fact that most Hawala records are not kept for long-term audit purposes by external authorities.
What does the author conclude regarding the ban of Hawala?
The author argues that a total ban on the system is impractical and likely to fail, suggesting instead that a mixture of registration, increased due diligence, and making official financial channels more effective and accessible is the only viable path forward.
- Quote paper
- Sebastian Müller (Author), 2004, Money Wars: Hawala and Its Use to Finance Terrorism, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/32766
