What is hawala, where did this business start, how big is its business?

 Transferring money from one part of the world to another and that too without moving it. For this neither banks nor currency exchange is required, neither any form is to be filled nor fee is to be paid. If so, then the one who will send the money, the other to whom the money will come and at least two intermediaries in between.


This is the hawala business, which was there even before the advent of the traditional banking system. And it has been going on for centuries because of its ease of use and the many benefits that are available to the people involved. Through this, millions of dollars can be moved around the world without knowing how much the amount is and who is controlling it.

Hawala is the name of the transfer of money from one place of the world to another illegally and in this the most important role is played by the agent or middleman or who can be called intermediary. Because these middlemen rarely leave the record of any transaction. So these are the ones who are the biggest obstacle in finding out from where the money is coming out through hawala. and may also hire themselves for potential money laundering, drug trafficking, and financing of extremist organizations.

Alberto Prego Moreno, Professor of International Studies at the Pontificia Comilla University in Madrid, told BBC Mundo: "Although hawala itself is not linked to these activities, it may be a tool used to achieve ulterior motives." In fact, it is spread in the Persian Gulf, East Africa, South Africa and Southeast Asia.

 

Understand  it like this

It is defined as a traditional and informal method that runs parallel to any other banking system and is based on the importance and trust of its intermediaries.

For example, someone from New York can send money to Islamabad without opening a bank account.

For this, he has to approach the local middleman and give him the amount in dollars and the password on which both the sender and the receiver of the money agree. That is, apart from both of them, this password is now known to middlemen as well.

Now the local middleman contacts the middleman there in the capital of Pakistan and tells him the amount and password. This second middleman gives the same amount of Pakistani Rupees to the person to whom the money was to be delivered. He makes sure that the money reaches the right person, he asks for the password.

This whole process is completed in just a few hours and the middleman keeps a small amount as a commission.

Where did the hawala come from?

It is not clear when hawala originated, but some people connect it to India through the Silk Route from the 8th century.

The Silk Route is known as the trading route of ancient Chinese civilization. The silk trade flourished during the reign of the Han dynasty between the two hundred years BC and the second century BCE. Earlier silk caravans went west from the northern end of the Chinese Empire. But then there was contact with the tribes of Central Asia and gradually this route reached Rome through China, Central Asia, North India, present day Iran, Iraq and Syria. It is worth mentioning that not only silk was traded on this route, but all the people associated with it used to trade their products.

But there was frequent theft and plunder on the Silk Route, so Indian, Arab and Muslim merchants adopted different methods to protect their profits.

Hawala means 'in lieu of' or 'in exchange for'


Merchants used a password, which was an object, word or gesture, and a corresponding supplement, word or password, had to be disclosed to the recipient.

In this way, he ensured that the transaction of money or goods reaches the right hands.

How old this system was, it can be gauged from this that the first bank in India was 'Bank of Hindustan' which was established in 18th century in Kolkata.

Today, the speed with which the world is progressing in terms of technology, it has become easier to do the work of hawala with the same ease. Today, instant messaging applications send codes instead of passwords. Therefore, middlemen can also carry out this very easily in parallel with their business activities.

But why are these transactions done secretly?

Professor Alberto Prego Moreno says that, "This happens because, sometimes they are not declared money, that is, they are not completely legitimate. Sometimes (the user) avoids paying tax. Whereas when he remits this money to another country." He wants to ensure that the commission as middleman keeps at least the money."

This happens because if a person wants to send money from America to his family located in another country in the traditional way, then for this he has to fulfill many demands.

If you use the banking system then you must have a certain amount. For you to open an account, you need some documents like your identity, your legal status there, etc.

Other money transfer services may charge you up to 20% commission for international transactions. Whatever the case, the user has to go through a number of controls to avoid activities like money laundering.

But nothing like this has to be done in hawala.


 Changing and evolving technology can make money transfer easier than non-traditional methods

Prego Moreno says, "It is so much more effective because the money reaches the recipient relatively quickly and the commission has to be paid less."

"It is very important for the middleman to have a good network. The more contacts you have, the better your business will run. So you charge very little and give maximum profit."

"The middleman should try his best to be trustworthy. Earlier, usury and interest were less prevalent and it was difficult for the middleman to make a lot of money. This was the reason why this system spread more in the Middle East and Asia than in Western countries where banking transactions But there is strict monitoring and control."

"In some places, people trust these middlemen more than banks because it is the family and ancestral business of middlemen that they believe to be more reliable than banks," says Moreno.

Marina Martin, coordinator of the Department of Legal History for South Asia at the Max Planck Institute in Frankfurt, Germany, says, "Hawala and similar bills were a very popular concept in the past, and today its understanding has changed as they become a part of modern banking. work differently."

How big is hawala business?

The biggest advantage of the traditional hawala system is that who is doing the money transactions, it remains out of the grip of the government or international institutions.

The fact that there is little or no record of transactions is a deterrent in detecting these money manipulations.

Terrorists in the 9/11 attacks in New York are also believed to have been financed in these unconventional ways.

With the introduction of new and stricter rules, not only in the US but all over the world, international transactions of a few thousand dollars have become even more complicated.

"After the 9/11 attacks, the US has come to see hawala as a possible means of financing terrorists," says Martin.

"Hawala (and other non-traditional methods) have been linked to a range of criminal activities over the years, from money laundering and political corruption to human organ trafficking," she says.

An investigation by the Organized Crime and Corruption Reporting Project in 2018 said that a large number of foreign workers in Dubai have been sending money to their families in countries like India, the Philippines, using untraditional systems like hawala. It was told that this amount is more than 240 crores.

In February 2016, the US Drug Enforcement Office (DEA) uncovered links between Colombia and the Hezbollah organization for money laundering and drug trafficking through Europe, reporting that millions of euros and drugs had been traded.

According to DEA documents, drugs worth millions were transported to the Middle East via Lebanon and in return were sent to Euro Colombia via hawala.

In East Africa, especially Somalia, arms smugglers use hawala to move millions of dollars around.  According to the World Bank, there has been an increase in the number of migrant workers in developing countries sending money to help their families through remittances.

Despite the impact of the Kovid-19 pandemic, according to official figures, remittances sent to low- and middle-income countries stood at around Rs 400 trillion in 2020. This amount is just 1.6 percent less than in 2019. In 2019, this figure was Rs 406.31 trillion.

However, the World Bank also clarifies that "the actual size of remittances, which are delivered both by conventional and non-traditional means, is much larger than the official figure."

With a possible global recovery in the economy, it is expected that the amount of remittances sent to low and middle income countries through traditional and non-traditional means such as hawala will increase even more in 2021 and 2022.