Ancient Banking, Modern Crimes: How Hawala Secretly Transfers the Finances of Criminals and Thwarts Existing Laws

Hawala, an ancient banking system that originated in the Middle East and South Asia, has spread around the world. Secretive by nature, hawala remains a mystery to most people outside of the ethnic communities that use it. It is fast, inexpensive, reliable, convenient, and, most notably, discreet. These qualities have earned hawala many legitimate customers, not to mention money launderers and terrorist financiers. Since its transactions leave little or no trace, hawala bedevils financial auditors and law enforcement officials. It also poses considerable challenges to existing legal and regulatory regimes on money laundering and terrorist financing. These regimes rely upon factors that hawala usually lacks, namely detailed records, registration with the government, and connections to mainstream banking. Accordingly, some law enforcement efforts against hawala will fall short. Even so, there are opportunities for governments to exploit hawala's minimal connections with mainstream financial institutions and to promote alternative remittance systems that are subject to oversight. Section 2 of this paper examines the hawala system, particularly how it operates and the reasons for its enduring popularity. Section 3 analyzes the role of hawala in money laundering and terrorist financing crimes. Section 4 outlines and criticizes the legal and regulatory regimes of the United States and elsewhere that target hawala and its related criminal activity. Section 5 presents strategies for curtailing the illegal use of hawala. Section 6 summarizes the article, and concludes with remarks about the challenges posed to law enforcement authorities by hawala.