Posts Tagged ‘hawala’

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Spain looks to close gaps on hawala

May 1, 2015

Almost alone among EU countries, the U.S. State Department singled out Spain as facing “significant gaps” in identifying unlicensed hawala dealers in its annual narco-trafficking report. Hawala has been used to finance numerous Islamic terrorist attacks globally. The State Department said the following about Spain’s money laundering and financial crimes enforcement capabilities:

Spain has long combated both domestic and foreign terrorist organizations, and Spanish law enforcement entities have identified various threat finance vulnerabilities, including donations to finance nonprofit organizations; establishment of publishing companies that print and distribute books or periodicals for propaganda purposes; fraudulent tax and financial assistance collections; the establishment of “cultural associations;” and alternative remittance system transfers. Other outlets such as small convenience stores and communication centers that often offer wire transfer services, are used to move money in and out of Spain by making small international transfers for members of the immigrant community. Spanish regulators also note the presence of hawala networks in the Muslim community. While AML/CFT supervision of banks appears to be robust, significant gaps regarding the identification of unlicensed operators, and the supervision of money or value transfer services operating under EU passporting rules remain. In May 2014, Spain approved regulations to implement its 2010 AML/CFT law.

The report seems a little vague on the culprits behind the publishing companies and “fraudulent tax and financial assistance collections.” One might think the report refers to the last gasp of the Basques, but the references to international transfers, the immigrant community, and the hawala network suggest that Spanish officials are more concerned about vulnerabilities within the Muslim community.

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Half of Pakistani hawala dealers are unlicensed

April 28, 2015

The U.S. State Department’s international narcotics report for 2015 says that half of remittances sent from the diaspora back home were processed by hawala dealers. Hawala is the traditional Islamic method of transferring funds. Hawala is also a preferred method of sending money among terrorist groups because of the difficulty in tracing such transfers. The remittances handled by hawala amount to $9 billion according to the report:

From January through November 2014, the Pakistani diaspora legitimately remitted approximately $18 billion back to Pakistan via the formal banking sector. Though it is illegal to change foreign currency without a license, unlicensed hawala/hundi operators are prevalent throughout Pakistan, and it is estimated that use of these operators accounts for over half of the total remittances. Unlicensed hawala/ hundi operators are also common throughout the region and are widely used to transfer and launder illicit money. Some support the financing of terrorism.

The report goes on to note that unlicensed hawala is especially common in Karachi and Peshawar.

By the way, even a 50 percent registration rate of hawala businesses is higher than it is in the U.S. Our authorities are only licensing 17 percent of hawala dealers according to a study out of George Mason University.

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Hawala saturates 90% of Afghan financial market

April 27, 2015

The U.S. State Department has published its international narcotics report for 2015. The report notes that only 10 percent of financial transactions in Afghanistan are handled through the formal banking sector. The other 90 percent are handled through hawala, the traditional Islamic system of debt transfers. Hawala is a way of moving value without moving physical cash. Its untraceable nature is tailor made for terror financing and other illicit activities.

The State Department report indicates that the prevalence of hawala in Afghanistan facilitates the movement of proceeds from the Afghan drug trade. As crazy as it may sound to Western compliance officers, the thousands of hawala dealers in Afghanistan have yet to file any suspicious transaction reports to Afghanistan’s central financial regulator—not even a single one. And even their banks are using hawala! All this and we’ve been there for over 13 years…

The growth in Afghanistan’s banking sector has slowed considerably in recent years; and traditional payment systems, particularly hawala networks, remain significant in their reach and scale. Less than 10 percent of the Afghan population uses banks, depending instead on the traditional hawala system, which provides a range of financial and non-financial business services in local, regional, and international markets. Approximately 90 percent of financial transactions run through the hawala system, including foreign exchange transactions, funds transfers, trade and microfinance, as well as some deposit-taking activities. Official corruption and weaknesses in the banking sector incentivize the use of informal mechanisms and exacerbate the difficulty of developing a transparent formal financial sector in Afghanistan. The unlicensed and unregulated hawaladars in major drug areas such as Helmand likely account for a substantial portion of the illicit proceeds being moved in the financial system. Afghan business consortiums that control both hawaladars and banks allow criminal elements within these consortiums to manipulate domestic and international financial networks to send, receive, and launder illicitly-derived monies or funds intended for criminal, insurgent, or terrorism activities…

…There is no clear division between the hawala system and the formal financial sector [in Afghanistan]. Hawaladars often keep accounts at banks and use wire transfer services to settle their balances with other hawaladars abroad. Due to limited bank branch networks, banks occasionally use hawalas to transmit funds to hard-to-reach areas within Afghanistan. Afghanistan’s financial intelligence unit, FINTRACA, reports that no MSBs or hawaladars have ever submitted suspicious transaction reports (STRs)…

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Ted Talk: Hawala focus distracts from Gulf donors

February 17, 2015

Following 9/11 and the invasion of Afghanistan, concerns about the use of hawala in terror finance schemes led Coalition forces and the new Afghan government to refrain from paying Afghan troop wages through hawala, although no other formal banking or payroll system was available at the time. Dr. Edwina Thompson argues that the preoccupation with hawala also distracted Coalition partners from confronting the true source of terror finance:  Gulf donors.

Here’s Thompson’s recent TEDxClapham talk on the subject.  Pay particular attention to minutes 11-14.  But watch the whole video—it includes Thompson’s reflection on her own near abduction by militants while doing research in Jalalabad:

The point is well made. As Money Jihad has often said, hawala is not a source of financing terrorism, it is a method. We can regulate or eliminate methods, but determined sources of financing will find other ways of transferring value unless we stop those donors where they live.

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Spain’s hawala network funds ISIS and al-Nusra

February 1, 2015

Intelligence services and Spanish authorities say that with a network of over 250 hawala dealers, Spain has become a financial center for funding terrorists in Iraq and Syria. Hawala is the traditional Islamic method of transferring value without transferring physical money.

The news daily El País further reports that there are scarcely any controls over hawala businesses in Spain. The majority of the hawala dealers are Pakistani, while many of their customers are Syrian and Moroccan. A hundred Moroccans in Spain have already joined the Islamic State of Iraq and Syria.

Khalid Sheikh Muhammad, the mastermind of 9/11, used hawala agents in Logroño and Barcelona in the early 2000s. And Spain’s hawala system has only grown since then.

Hat tip to Well es bien for sending this over.

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FinCEN pooh-poohs knowing your customer

December 15, 2014

A federal financial crime agency has issued a statement imploring banks to continue or resume doing business with money services businesses (MSB’s)—many of which are hawala companies—despite the risks of hawala financing domestic and international terrorism. FinCEN’s statement stems in large part from pressure brought to bear by Democratic politicians, Somali activists, and well-meaning but misguided international charities who believe that remittances are an effective channel for humanitarian relief to corruption-plagued hot zones abroad. These parties fail to understand that remittances are fuel to the fire in places like Somalia where remittances are siphoned off by al-Shabaab to perpetuate the cycle of violence and misery in that country.

In the statement, FinCEN even goes out of its way to instruct banks that they do “not need to know the MSB’s individual customers” to remain compliant with know-your-customer provisions of the Bank Secrecy Act. This instruction seems at odds with years of federal regulatory admonitions for banks to know their customers.

Financial crimes analyst Kenneth Rijock does a wonderful job picking apart FinCEN’s pronouncement, posing the following observations about MSBs:

  1. They are frequently used by both money launderers, and terrorist financiers. This is a sad fact of life; laundrymen know that many MSBs are storefront operations, poorly run, and who would consider  accepting dirty money, to earn a handsome profit.
  2. They exist in jurisdictions where regulatory agencies are either non-existent, or unable or unwilling to enforce AML/CFT laws. Therefore, the MSB has no reason to have an effective compliance program.
  3. They may be actually owned, or controlled by, criminal elements; Look at Mexico.
  4. They are not like licensed financial institutions, the licensing requirements are often minimal, and corrupt government agencies, once paid off, are usually eager to qualify individuals who are unacceptable as NBFI operators.
  5. If a client cannot go to a bank in his or her jurisdiction, to send larger amounts of funds, it is often because their dodgy business is not wanted at legitimate financial institutions.
  6. MSBs in many countries are known for dysfunctional AML programs. Can we really expect US banks, who are held to best practices standards, to risk accepting money from them ?

Read Rijock’s full analysis here.

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Imran Khan says ditch the banks and use hawala

September 9, 2014

The ex-cricket star, political gadfly, and possible future prime minister of Pakistan Imran Khan is commanding his supporters and their families abroad to send money back and forth to each other through hawala, the traditional Islamic system of transferring money, rather than using conventional banks or wire transfer services.

This account comes from Dispatch News Desk on Aug. 23. As the article notes, Pakistan has officially sought to discourage hawala since it has been so often used to finance terrorist attacks, which is what makes Khan’s instructions disturbing.

“Use Hawala Hundi system for transfer of money to Pakistan”, says Imran Khan

The Chairman of Pakistan Tehrik-i-Inasaf (PTI) Imran Khan has directed his followers living outsides Pakistan to stop sending money to their families in Pakistan through banks(remittances)  and directed them to use Hawala Hundi system for transfer of money to Pakistan. He passed these directions while addressing his workers on Saturday night.

Chairman Pakistan Tehrik-i-Insaaf (PTI) Imran Khan on August 17, 2014 announces Civil Disobedience against sitting government asking his workers and followers not to pay any utility bills and taxes. Now he has directed to stop sending remittances to Pakistan.

Hawala or Hewala also known as hundi, is an informal value transfer system based on the performance and honour of a huge network of money brokers, primarily located in the Middle East, North Africa, the Horn of Africa, and the Indian subcontinent, operating outside of, or parallel to, traditional banking, financial channels, and remittance systems. This is the biggest channel being used by Arab and Afghan terrorists including Al-Qaeda to transfer money and finance their projects, therefore this channel is being discouraged by Pakistan since war on terror.

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