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The Challenge of Defending Money Laundering Allegations Involving Hawala Banking

As forensic accountants with considerable experience in dealing with cases involving Money Service Businesses such as Hawala, we are often faced with the situation where a defendant is accused of money laundering primarily because he is in possession of a large quantity of cash. Unfortunately there are many areas of society that continue to deal with cash in preference to main stream banking methods, and this is more prevalent in some countries where strict exchange controls can often drive otherwise perfectly legitimate business activities to use alternative money transmission methods such as Hawala.

It is therefore a common occurrence for individuals and businesses in the UK to receive money expected from abroad as cash, either deposited into their bank accounts or as a lump sum in their hands. The trouble is that foreign Hawaladors will use their UK counterparts to supply cash that may well have been obtained from criminal activities in the UK. The UK recipient will have little control over the money they receive, and are hardly likely to hand it back into the system simply on account of the fact they have been told the money transfer is to be in a car park using half a banknote as a means of verifying identity (the use of such “tokens” is seen as a strong indication of money laundering activities by the authorities).

In the years shortly following 9/11, there was a flurry of academic research and regulatory interest in alternative money transmission methods such as Hawala being used to assist with terrorist financing, but little since. At long last, in October 2013 the Financial Action Task Force (FATF) published their report “The Role of Hawala and other Similar Service Providers in Money Laundering and Terrorist Financing”.

The findings outlined in the report mirror many of the practical observations that we have seen at Mark Jenner & Co Limited when reporting in numerous cases involving Hawala activities over recent years. One of the main findings is that there are two competing and conflicting views on Hawala, whereas some see them as essential providers of financial services to those with limited financial access, others see them as leading channels for terrorist financing and money laundering. We believe that in any case of suspected money laundering, legitimate aspects of Hawala banking should be stripped away with explanations provided to the court of the mechanics of such activities, in order that proper focus can be applied to any remaining activities that may or may not constitute offences.

The findings of the FATF report suggest that there are three distinct groups of Hawala activities being seen in the West. These are:

  • Traditional (legitimate) Hawala activities;
  • Hybrid activities where traditional practitioners are unwittingly caught up in criminal activities;
  • Complicit criminal organisations practicing Hawala style transactions to launder money.

These distinctions are clearly seen in the various different cases we receive for investigating and providing expert comment, on whether or not money laundering activities may have been taking place. The biggest problem arises in cases of hybrid Hawala activities, where genuine participants are targeted and used by the criminals.

Every case is different of course, but having cash on your person is not necessarily money laundering. Having cash and not being able to explain it is indicative of something being wrong. Allowance must be made for some areas of society who shun our main stream banks, but even here in genuine cases there is generally a money trail that can be traced. Criminals regularly exploit innocent parties expecting cash from abroad, by providing criminal proceeds and sometimes even getting recipients to act as couriers, transferring dirty cash to other legitimate parties.

The whole principle of Hawala banking means that the £10,000 being paid by an Indian company for machinery exported by a UK company to India always remains in India. The value is received by the UK exporter from funds amassed in the UK by the UK Hawalador, who obtains these funds from his UK customers sending money to their relations in India. The Indian Hawalador swaps his rupees from the Indian merchant to the Indian relations, thus balancing the books all round.

If the funds in the UK don’t come from the Hawalador’s customers in the UK but from crooks, then the Hawalador is participating in money laundering. If he has done his due diligence on his customers, and believes them to be genuine, then he may be protected against any allegations. Therefore, an examination of his records to see the completeness of his “Know Your Client” checks is essential as it will hopefully reveal his lack of criminal intent. It clearly is not enough when caught with a sack of cash to simply claim a Hawala banking transaction was underway, as only regulated principals or their designated agents should be able to do this.