As a forensic accountant I have been dealing with cases of money laundering involving some Hawala aspect or another for a number of years. Hawala and Similar Service Providers (HOSSPs) are money transfer businesses that are used extensively in other countries and mostly (but not exclusively) by migrants within the UK.
I have conducted informal research into Hawala and regularly publish articles about it. However, the only way in which I am able to understand the internal mechanism of this business is when I have access to the internal accounting records that are disclosed during a money laundering case. This is when I am able to investigate their accounting methods and level of compliance with the UK anti-money laundering framework.
Unfortunately, I am generally unable to do the same for HOSSPs situated abroad, in Pakistan, India or China for example. It is in these countries, where the regulatory framework is sometimes lax, or unlike in the UK it is possible for participants to ignore completely, that the money launderers are able to hijack the system and compromise the parties within the UK.
The money laundering problem
Money laundering is a massive problem, with £ trillions of criminal money moved around the world annually. It is worrying that its scale is likely to comprise an important proportion of the global fiscal economy! However, it does have to be combatted in order to provide an important element of resistance to the predicate crimes in the first place. A large amount of money laundering, of importance to the UK, is the “Street Cash” from various drug, extortion and trafficking crimes in the UK that needs “washing”. Eastern European gangs must move vast amounts of cash to safe havens abroad, drug dealers need to transmit funds to the South American Cartel’s bank accounts in the Caribbean – just two examples of money from UK crimes being dispersed.
Therefore, I often get cases when somebody is caught with a bag containing say £200,000 cash. The defendant says that he was participating in a Hawala transaction – I say “Oh dear!”
There are two distinct variations in this type of case:
- The individual is expecting a large sum of money from abroad – for example he has sold a property back in India;
- The individual is a courier for a money laundering gang.
Of course if the defendant is a money laundering courier, then he stands to be convicted and there is very little a forensic accountant like me can do to help. If however the defendant was expecting his own money from abroad, then it is essential that the Court understands the problem with Hawala.
So the Defendant has sold his Indian property and wants the money in the UK for his family in his new home. The buyer in India has paid in cash (this is common place). The Defendant’s representative in India (his uncle, lawyer etc.) has sent the money via a money service business. In order to avoid the high costs of transmission and adverse exchange rates imposed by the Central Bank, an unregulated transfer agent will be used.
My observation is that unregulated transfer agents are used freely abroad. Their transactions will be facilitated in turn by international organisations, often based in Dubai or Hong Kong. To use the historical term Hawala is something of a misnomer. What is certain is that these organisations, whatever they call themselves, interact with the criminal gangs in the UK to ensure that the criminal cash being amassed there is used to settle the sums being transmitted (from India in this example). The actual funds in India, which are legitimate of course, are retained abroad.
If the UK migrant had received his £200,000 cash, the books would be balanced and the crooks would have transferred the value of this amount of criminal funds abroad. As he has been caught, the authorities have disrupted one avenue of money laundering. They will restrain the cash and attempt to prosecute the individual.
In these cases, it will depend on the circumstances whether or not the individual is prosecuted and the extent of any sanction imposed. The question is not so much the level of guilt, but to what extent a blind eye was turned to what I (as a professional with knowledge of money laundering) consider to be obvious criminal activity. What is important is that the original legitimate transaction is disclosed in the individual’s defence with as much detail as possible. If the source of the money remains uncertain, there is unlikely to be any mitigation, whereas there is a chance if full information is provided. In cases where I have been asked to assist, I have seen a full range of outcomes – from not guilty to very harsh sentences.
Given the efforts of the authorities to interrupt these money laundering gangs, the money spent gathering intelligence, surveilling and apprehending suspects and bringing them to court, it is baffling that people still favour unregulated transfer businesses when sending large sums of money abroad. I can only conclude that the proportion being intercepted is small compared to the total amount being laundered.
The authorities convey a message to all professionals (accountant’s, lawyers etc) how important anti-money laundering measures are – but I sometimes wonder if too little is done to inform businesses and individuals (especially the migrant population in the UK) the dangers of receiving cash that is supposed to have come from abroad. There are many legitimate transfer businesses serving the needs of certain parts of the community, and they should take care to ensure that they are not tarred with the same brush as the criminal elements.