Terror networks rely on 'hawala' By Vincent J. Schodolski Chicago Tribune LOS ANGELES -
Among the various ways the terrorists who attacked the World Trade Center and the Pentagon may have obtained funds to support themselves and their operations in the United States is an ancient system used to move money from country to country. Known as hawala, the system is thousands of years old and has its roots in the Indian subcontinent and the Middle East, where it is widely and openly used as a legitimate business practice. "It would have been culturally familiar" to the terrorists, said Jonathan Winer, a former deputy assistant for international law at the State Department. "It would have been a logical thing for them to use." The system is not illegal, said Rowan Bosworth-Davies, a money laundering expert for the London-based security consultancy firm Control Risks Group. "It only becomes illegal when the money is used for terrorist activities, or when it violates currency laws." The hawala system provides almost complete anonymity to those involved and essentially leaves no paper trail for those seeking to trace the movement of funds. Hawala is the Hindi word for "trust" and aptly describes a system that relies upon business ties between brokers that frequently go back through many generations. A typical transaction begins in one country, for example India, where an individual makes contact with a so-called hawala broker. The individual gives the Indian broker a sum of money and asks that the same amount be delivered to an individual in another country, the United States, for example. The broker gives the person depositing the money a receipt, usually nothing more than a small scrap of paper. "There is no standard for these receipts," said Bosworth-Davies. "It (the receipt) could be almost anything." The broker then makes contact, these days the Internet and e-mail are used frequently, with a fellow hawala broker in the city where the money is to be delivered, and instructs that broker to deliver the money to a certain individual. The person for whom the money was intended then contacts the U.S. broker and the money is delivered. There is no record of the transaction that links the money to the individual who received it and no money is returned to the place where the transaction originated. "There is no reverse settlement," said Bosworth-Davies. "The broker who delivers the money knows that sooner or later he will need the services of the broker who initiated the business. The broker in India and the broker in the United States trust each other and there is no record of the transaction." The brokers make money by charging a fee for their services. The State Department has long been aware of the hawala system and of its use in international money laundering. In fact the system is examined each year in an appendix to the department's annual International Narcotics Control Strategy Report. The latest report, issued in March, noted the role the system plays in the illegal movement of funds. "Dubai, India and Pakistan form a `hawala triangle' responsible for significant international money laundering activities that go far beyond South Asia," the report said. Winer, who investigated international money laundering when he was at the State Department, said the U.S. government knew that the hawala system was used to help finance terrorist activity on the Indian subcontinent. The Web site of India's Central Bureau of Investigation contains several reports on the links between money moved using the hawala system and militant separatist activity in the Muslim-majority Indian state of Kashmir. Four years ago Interpol launched a concerted effort to crack down on money laundering and singled out the hawala system. Bosworth-Davies explained that in the Middle East, India, Bangladesh, Pakistan and increasingly in Europe and the United States, legitimate, established businessmen act as hawala brokers. Hawala transactions are often used to move money into and out of countries with strict currency controls, he said. In the United States, these brokers are frequently people who own high- volume, primarily cash businesses like restaurants and specialty grocery stores that cater to immigrants from parts of the world where the hawala system is a traditional means of moving money. "The vast majority of these (brokers) have no idea that they are involved in (helping) terrorism," Bosworth-Davies said. Winer said efforts to control the hawala system have been largely ineffective, but that Hong Kong recently began trying to control brokers by forcing them to register with the government. "It will be interesting to see how that works," Winer said. Distributed by Knight Ridder/Tribune Information Services.
Squeeze the Lifeblood -
The President said that money is the lifeblood of terrorist operations, and the coalation against terrorism are going to starve the terrorists by cutting off their cash supply. Controlling this flow of lifeblood will be far more difficult than controlling airport and stadium security here at home. The flow is heavily dependant on an Islamic concept called Hawala. The rules under Shi'a Islamic law are described here by Grand Ayatollah Lankarani. Hawala creates a sort of extranational extranet of money transfer that evades currency exchange laws (and fees) and capitalizes on the devaluation of smaller countries' currencies. Basically, Hawala is an indirect method of transferring money, where you give money to a Hawala dealer on the promise that the Hawala dealer will have his buddy in another country make an equivalent gift to your buddy in that country. Of course, you would think that the Hawala dealer would eventually have to even up with the guy in the other country. And that would require a traceable international transaction of money, right? Rashmin Sanghvi explains why not. The Hawala dealers could go through the banks to transfer the debt, but then how could they offer a better exchange rate? No, they are smart; they just smuggle across something that has equivalent value to the accrued debt between their branch offices and is easier to transport. Obviously gold, diamonds, and drugs fit the bill. Consumer goods and especially electronics now fit the bill as well (either by straight smuggling or fudging invoices). The Economic Times describes how places like Nepal have recently become hubs for Hawala financing of terrorists. Especially in the case of Afghanistan, the link between Hawala and Terrorists would be very strong. Afghanistan is historically a smuggling-based economy, and the Taliban's earliest ally was the powerful Afghan smuggling mafia that moves opium, weapons, and other goods between Iran, Pakistan, and Russia. Before Osama, the Taliban were able to make money only off of taking toll taxes from the smugglers. Al Quaeda's international sprawl permitted a perfectly complimentary new product offering -- Hawala networks in other countries that could simultaneously bring in much more revenue and keep the smugglers more heavily employed.
The power of the Halawa dealers and smugglers to make money is immense; it is estimated that nearly a trillion US dollars per year is moved through these networks. The profits come not only from avoiding international exchange fees and scrutiny, but in taking advantage of steadily devaluing currencies. And since Halawa is such a good deal for the customers (who can remain blissfully ignorant of how the Halawa dealers can offer such low prices), the demand will always be very high. The supply is basically constrained by the amount of valuable goods that can be smuggled across international borders. The sealing of the Iran and Pakistan borders seen in this light was a very good move, because the "flow" of smuggled goods is directly proportional to the "flow" of cash into Al Quaeda and Taliban coffers. On the other hand, attempts to control the flow of smuggled goods that fuel an insatiable public demand seem uncannily familiar. This is roughly identical to the situation that is faced in the "war on drugs", and we all know who is losing that one. It is hard enough to train marijuana-sniffing dogs, let alone diamond-sniffing dogs. Certainly there are some differences, but our failure to control smuggling of drugs or people's consumption of drugs should be evidence that we are biting off a huge task in attempting to control smuggling of all types and people's consumption of tax-free financial services. In fact, this relates to one of the reasons often given for the U.S. government's opposition to strong crypto. Strong crypto enables the growth of extranational banks that could exist beyond IRS (or FBI) scrutiny, and eventually deplete all income to the treasury as risk-free tax evasion becomes accessible to everyone. Controlling the flow of "small but valuable" goods is the other half of being able to collect taxes. So the two-pronged effort to gain more visibility into people's bank accounts while restricting the smuggling of contraband has the happy coincidence of having a two-pronged payoff. We squeeze off the lifeblood of terrorists (and other afficionados of small, expensive things like stinger missiles) while simultaneously clearing the arteries for the life-blood taxes of world governments. When you look at it that way, it's their blood or ours, and we clearly have no choice but to fight.
Halawa is not the only name for this type of extranational banking. These are pretty much the same techniques used by money launderers who have no knowledge of Islam. The difference in this case is that Halawa across borders is endorsed by many of the Islamic banks, because the Quran sees the combined mass of believers (Ummah) as being a nation that takes precedence over political nations. Halawa between Muslims is not subject to national laws or taxes. This wouldn't be such a threat to western governments, except for the fact that Islamic banks are becoming large enough to register on the radar of the Japanese and European Banks. The Islamic banks' use of Halwa creates a 200 billion dollar official international banking system that is free from Western meddling and taxes, and is useful to people like Bin Laden. And the Islamic banks are now big enough to resist pressure from the United States. Stating his confidence that the U.S. will be unable to crack into the Islamic banks in the wake of the WTC attacks, a banker in Bahrain says "If they touch Islamic funds, their own economies will be affected, and we know that economic considerations are top priority for Western countries".
Rules of Hawala (Transferring Debt) Lankarani
2390. If a debtor directs his creditor to collect his debt from the third person, and the creditor accepts the arrangement, the third person will, on completion of all the conditions to be explained later, become the debtor. Thereafter, the creditor cannot demand his debt from the first debtor.
2391. The debtor, the creditor and the person to whom collection is referred, should be adult and sane, and none should have coerced them, and they should not be feeble-minded, that is, those who squander their wealth. Also, if a bankrupt person is barred from the right of discretion over his property by a fully competent Mujtahid, cannot be asked to get his debt from others and others cannot transfer their debt to him, but he may transfer his debt to a person who does not owe him anything.
2392. As an obligatory precaution, transferring the debt to a person who is not a debtor will not be correct, unless he accepts it. And if a person wishes to affect a transfer to a debtor for a commodity other than that for which he is indebted (for example, if he transfers the debt of wheat while he is indebted to him for barley), the transfer will not be in order, unless he accepts it.
2393. It is necessary that a person should actually be a debtor at the time he transfers the debt. Therefore, if he intends taking a loan from some one, he cannot transfer the prospective debt in advance to another party, telling the would-be creditor to collect the debt from the party.
2394. The debtor must specify exactly the category and the quantity of the debt he transfers to another party. For example, if his debt comprises of ten kilos of wheat and 100 t. owned to one person, and he tells him to go and collect either of the two debts from a certain party, that transfer will not be valid.
2395. If the debt is fully identified, but the debtor and the creditor do not know its quantity and category at the time of assigning the transfer, the transaction is in order. For example, if a person who has recorded the debt he owes to someone in his books, assigns a Hawala or transfer of debt before referring to the books, and later, after consulting his records, informs the creditors about the quantity of his debt, the transfer is in order.
2396. The creditor may decline to accept the transfer of debt, although the person in whose name the assignment has been given may be rich, and may not fail to honor the Hawala.
2397. If a person accepting the Hawala is not a debtor to the person giving the Hawala, he can demand the amount of the Hawala from the person who gave it, before honoring the Hawala. And if the creditor compromises for a lesser amount, the person honoring the Hawala should demand only that sum which he has paid.
2398. When the conditions of the transfer of debt or Hawala have been fulfilled, the person affecting the Hawala and the person receiving it cannot cancel the Hawala, and if the person receiving the Hawala was not poor at the time the Hawala was issued, the creditor cannot cancel the Hawala even if the recipient becomes poor afterwards. The same will apply if the recipient of the Hawala was poor at the time it was issued, and the creditor knew about it. But if the creditor did not know that the person to whom Hawala has been issued is poor, and when he comes to know of it, the recipient is still poor, then the creditor can abrogate the Hawala transaction, and demand his money from the debtor himself. But if the recipient of Hawala has turned rich, then canceling the Hawala cannot be substantiated.
2399. If the debtor, the creditor, and the person to whom the Hawala is assigned agree among themselves that all of them or any one of them has a right to cancel the Hawala, they can do so in accordance with the clause of the agreement.
2400. If the person issuing a Hawala pays the creditor himself, at the request of the person in whose name the Hawala was issued, who was also his debtor, he can claim from the recipient of Hawala what he has paid to the creditor. And if he has paid without his request, or if he was not his debtor, he cannot demand from him what he has paid.