How can a money transfer system known as Hawala be a threat? The UK is at the forefront in the battle against economic crime. It has a better understanding of the ever-increasing financial threats facing nations than most. However, the authorities’ approach to regulating Hawala can sometimes seem to be a little hesitant.
The argument that most people obey the rules is somewhat weak, especially when it comes to matters of finance. Unless there is a very visible enforcement of rules people tend to please themselves.
ARE OTHER COUNTRIES TO BLAME?
Not all countries employ the stringent money laundering prevention and detection policies like the UK. Yet unregulated Hawala thrives in many jurisdictions abroad. It is the interaction by these unregulated systems with the UK that is often the problem.
Hawala is an overused term, referring to the historical method for money movement developed in Asia in the Middle Ages. It is now applied to money service businesses operating separately to or in conjunction with the mainstream banking organizations.
HAWALA IS AN AREA OF FINANCIAL RISK
Hawala is perceived by the authorities as an extremely high area of risk in relation to money laundering. Yet I do not see TV advertisements warning us of the danger of unregulated Hawala.
An Indian businessman wishing to import his wealth into the UK may employ a local Hawala agent in India. This avoids the currency controls imposed by his country’s administration. In the UK, such an equivalent business may be at the back of an Asian supermarket. It may be in a tiny first floor flat above a travel agent. The the hope is that it will be properly regulated by the FCA and HMRC. Money deposited in India and many other countries abroad may not be subject to similar controls!
THE ACCEPTABLE FACE OF UNREGULATED HAWALA
Money transfer from abroad stands a very high chance of becoming entwined within an organized money laundering network. Arriving in the UK, it will not be settled by a regulated agent. It will come from a stranger handing over a bag of cash in a car park. Suddenly he is pounced upon by the police who seize the cash!
It is impossible to precisely gauge the scale of the money transferring around the world. Much of it is unregulated and unrecorded. The proportion sent by Hawala businesses amounts to hundreds of billions of pounds every year. For a large part, the transfers are innocent. A legitimately regulated Hawala agent in the UK might then distribute the unregulated deposits from India. However, the organized criminals are able to hi jack some of the massive volume of transfers. This is to “layer” their own criminal proceeds within in the UK.
THE RISK WITHIN HAWALA
The UK authorities continue to perceive the risk of both money laundering and terrorist financing to be very high. Particularly in respect of these “money service businesses” (MSBs). The National Risk Assessment carried out by HM Treasury and the Home Office was published in December 2020. It noted the ability of UK MSBs to easily interact with a wide number of jurisdictions. This is attractive to terrorists and organized financial criminals alike. However, this was also the finding of the Financial Action Task Force (FATF) within its October 2013 report! It was looking at the role of Hawala and other similar service providers in money laundering and terror financing. From the number of cases that I see, I would say that the use Hawala has grown somewhat since then!
The cases I deal with reflect the movement of money using alternative transfer methods over a number of years. Sometimes the activity goes back a decade or so. I notice an increase in applications for forfeiture for money sourced from eastern European countries, China and Iran. However, there are still plenty of “car park cash” seizures of money from from places like India and Pakistan.
THE PROBLEM IS GETTING WORSE?
I accept that the financial playing field is getting bigger and more complicated every year. This makes the task of policing it even harder. The difficulties of dealing with complex fraud and economic crime, make the task of the regulatory authorities very hard.
In the end, there will always be those that are ignorant of the dangers of using non-mainstream systems. There are others who will eagerly exploit them for criminal purposes. This is unfortunate for the economy and makes life hard for the authorities trying to police the flow of money. Fortunately, it ensures a constant stream of work for the forensic accountant specialising in fraud and money laundering!
I will continue to help those who have fallen foul of the criminals when trying to import their cash. The first task is to explain the innocent nature of this massive transfer system. The next is to trace the legitimate source of the original funds.