, Hawala scandal
, Talk:Hawala scandal
(also known as hundi
) is an informal value transfer system
used primarily in the Middle East
Its origins are not entirely clear, but it is believed to have been used first in the financing of long-distance trade in the early medieval
period on trading route
s such as the Silk Road
, the Eastern Mediterranean
and the Indian Ocean
. Hawala is mentioned in texts of Islamic jurisprudence
as early as the 8th century. In South Asia
, it appears to have developed into a fully-fledged money market instrument
, which was only gradually replaced by the instruments of the formal banking system
in the first half of the 20th century. Today hawala is probably used mostly for migrant worker
s' remittances to their countries of origin.
In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or hawaladars
. A customer approaches a hawala broker in one city and gives a sum of money to be transferred to a recipient in another, usually foreign, city. The hawala broker calls another hawala broker in the recipient's city, gives disposition instructions of the funds (usually minus a small commission), and promises to settle the debt
at a later date.
The unique feature of the system is that no promissory instrument
s are exchanged between the hawala brokers; the transaction takes place entirely on the honor system
. As the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment.
No records are produced of individual transactions; only a running tally of the amount owed one broker by the other is kept. Settlements of debts between hawala brokers can take a variety of forms, and need not take the form of direct cash transactions.
In addition to commissions, hawala brokers often earn their profits through bypassing official exchange rate
s. Generally the funds enter the system in the source country's currency
and leave the system in the recipient country's currency. As settlements often take place without any foreign exchange transactions, they can be made at (black
) market rates rather than official rates.
Hawala is attractive to customers because it provides a fast, convenient and safe transfer of funds, usually with a far lower commission than that charged by banks. Its advantages are most pronounced when the receiving country applies distortive exchange rate regulations (as has been the case for many typical receiving countries such as Pakistan
) or when the banking system in the receiving country is less complex (e.g. due to differences in legal environment in places such as Afghanistan
Furthermore, the transfers are informal and not effectively regulated by governments, which is a major advantage to customers with tax
, currency control
, or other legal concerns. For the same reasons, governments do not favor the system, and accusations have been made in recent years that terrorist
funding often changes hands through hawala networks.
Hundis (The Bill of Exchange)
On a similar note, Hundis referred to legal financial
instruments evolved on the Indian sub-continent. These were used in trade and credit transactions; they were used as remittance instruments for the purpose of transfer of funds from one place to another. In the era of bygone kings and the British Raj
these Hundis served as Travellers Cheques. They were also used as credit instruments for borrowing and as bills of exchange for trade transactions.
Technically, a Hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order. Being a part of an informal system, hundis now have no legal status and were not covered under the Negotiable Instruments Act, 1881. They were mostly used as cheques by indigenous bankers
Hawala after September 11, 2001
After the September 11 terrorist attacks
, the American government suspected that some hawala brokers may have helped terrorist organizations to transfer money to fund their activities. The 9/11 Commission
Report has since confirmed that the bulk of the funds used to finance the assault were not sent through the hawala system, but rather by inter-bank wire transfer to a SunTrust Bank
, where two of the conspirators had opened a personal account. However as a result of intense pressure from the US authorities, widespread efforts are currently being made to introduce systematic anti-money laundering initiatives on a global scale, the better to curb the activities of the financiers of terrorism and those engaged in laundering the profits of drug smuggling. Whether these initiatives will have the desired effect of curbing such activities has yet to be seen; although a number of hawala networks have been closed down and a number of hawaladars have been successfully prosecuted for money laundering, there is little sign that these actions have brought the authorities any closer to identifying and arresting a significant number of terrorists or drug smugglers.
In November, 2001, the Bush administration froze the assets of Al Barakat
, a Somali
remittance hawala company used primarily by the large Somali Diaspora
. Many of its agents in several countries were initially arrested, though later freed after no concrete evidence against them was found. In August 2006 the last Al Barakat representatives were taken off the U.S. terror list, though some assets remain frozen. http://news.bbc.co.uk/2/hi/africa/5292750.stm
Hawala has been made illegal in some states of the US and other countries as it is seen to be a form of money laundering and terrorist funding.
* Hawala scandal
, 1990s political scandal in India
* cite book|first=Patrick M.|last=Jost| url=http://www.interpol.int/Public/FinancialCrime/MoneyLaundering/hawala/default.asp|title=The hawala alternative remittance system and its role in money
* Ballard, Roger. http://www.art.man.ac.uk/CASAS/pages/papers.htm#remittances A collection of academic papers exploring the operation of contemporary hawala networks, and the role they play in the transmission of migrant workers' remittances from Europe to South Asia
* cite news|title=Fears over US hawala crackdown|url=http://news.bbc.co.uk/1/hi/world/middle_east/3463683.stm|publisher=BBC|date=February 4,
's http://www.cbc.ca/news/background/banking/hawala.html "Money-transfer systems, hawala style"Category:Payment systemscs:Hawalada:Hawalade:Hawalaes:Hawalafr:Système bancaire alternatifnl:Hawalano:Hawala