Hawala, a centuries-old old custom that has found some new uses

HAWALA has existed for centuries as an informal method for transferring money.

“It is used to transfer funds from one location to another through service providers, known as hawaladar, regardless of the nature of the transaction and the countries involved,” according to an International Monetary Fund report.

Requiring no documentation, it is an anonymous way of moving money in Muslim communities in the Middle East, North Africa, the Horn of Africa and India although its use is not limited to Muslims.

Illegal in the US, and some EU member nations, the practice is allowed in the UK, where the hawala system must comply with regulations set in England and Wales, register with HMRC and comply with UK money laundering.

Although routinely used by legitimate businesses, hawala’s anonymity and minimal documentation make it vulnerable to abuse by individuals and groups transferring funds to finance illegal activities.

Misuse of the system has been linked to the financing of terrorism and money-laundering, although it is also used to bypass sanctions against Iran.

“If I’m transferring money to or from the US, I send it through Turkey,” a Teheran developer named Shah­rom told the Financial Times in a 2008 interview on the understanding that his surname was not revealed.

Much more recently, Valdis Dombrowskis, the European Commission’s Executive vice-president admitted in 2020 that hawala system was regarded as a matter for concern.

“Its exact scale in the EU is unknown,” he said. “Tracing the value flow is virtually impossible for law enforcement agencies.”