Hawala: Demystifying The Presumption of Illegitimacy
A Hawala Defence is common in criminal cases involving money laundering. Over the last twenty years criminal defence teams have asked me to provide an explanation for Hawala many times. However, a simple explanation of the Hawala process is not enough. It is essential that the forensic accountant’s work traces the provenance of funds and provides good reasons for using the system.
There is a presumption within some regulatory bodies that Hawala money transfer is illegitimate and that the Hawala Defence is spurious. However, Hawala is a legitimate form of money transfer, so long as it complies with the regulatory framework within the jurisdiction in which it is operating.
Using A Hawala defence For Money Laundering
The problem that I encounter is that Western authorities generally view Hawala with suspicion. This is because Hawala is associated with an historical money transfer system emanating from the East based on trust. In the distant past, money was sent between ethnic groups using trusted agents (or Hawaladars). The system was not burdened by regulation and notably very few records were kept by the Hawaladars.
However, we must fast forward to today’s modern financial marketplaces. Is it now acceptable to ignore modern money transfer frameworks and use culturally acceptable but old fashioned systems? When the police apprehend someone handing over a bag containing £100,000 cash to another person in a supermarket car park, some criminal activity is assumed. Yet the recipient will say “…this is my money being sent from India by Hawala…” Using the Hawala Defence may or may not be appropriate, and I often have to provide an opinion on such matters.
Good Reasons For Using Hawala
There are many occasions where Hawala is the only practical method for transferring money to the UK. For example, due to US sanctions, Iranian ex-patriates have no other way of sending money. Leading respected charity organisations I have worked with resort to sending £ hundreds of millions of UK, US and European government aid funds to Syria via Turkey using Hawala.
When there is little or no banking infrastructure, transfers to or from remote locations are facilitated by the local Hawaladar. In war zones, such as Syria or the Horn of Africa, Hawala allows aid to be received and trade to continue.
Hawala is not expensive and can often be a quicker process than electronic transfers through mainstream banks.
The Problem With Hawala
There are a number of respected academic experts defending Hawala that I come across. I defend the system myself and often work alongside these experts. However, I have to also be aware, as an independent expert, of the limitations of the Hawala defence.
The academics will discuss the cultural needs of Hawala and often ignore today’s financial restrictions. It is not an excuse to accept the use of a torn half of a banknote “token” as a means of identification simply because it was a method used in the past – not in the UK at least.
Very often the Hawala defence is used to “excuse” the movement of the proceeds of crime. The Financial Action Task Force considers Hawala or Similar Service Providers to be an area of high risk. I have been involved in cases where the UK Hawala operation has been used to send proceeds of crime to places such as Afghanistan and Nigeria. The massive sums were generally disguised as collections of smaller amounts being remitted by migrants back to their home country.
Citing Hawala as a defence instantly presents the opportunity for the authorities to argue its illegality in many countries. Indeed, it is illegal in the UK if not properly regulated by the Financial Conduct Authority and HMRC.
Making Hawala Transactions Safe
Allegations of money laundering in the UK will often arise when an unregulated Hawaladar is used. This is normally a foreign agent sending funds to the UK. An unregulated agent is more likely to use an unscrupulous intermediary, often based in Dubai for example. The intermediary facilitates the international leg of the transaction. The intermediary is more likely to interact with organised criminals to settle the business using criminal cash in the UK. The recipient in the UK may be unaware of this, simply expecting money for the sale of a property abroad.
Users of Hawala must be more aware of the risks involved. Money should be sent using a system that is properly regulated. If money cannot be transferred using a regulated system then the transaction is going to be illegal. Except in a few circumstances (sending money from Iran or to a war zone) it is possible to transfer money electronically, albeit incurring delays and sometimes at an added expense. Looking for a cheaper quicker alternative is natural, until the transfer money is seized by the authorities. Then you might need lawyers and accountants to secure its return, which is never guaranteed!