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hawala banking hawala system

Modern Hawala

by Bill Rounds Esq. on September 24, 2009

Reading time: 6 – 10 minutes

HAWALA SYSTEM FOR HAWALA TRANSACTIONS VIA A HAWALADAR

That’s hawala, not koala and there are many hawala benefits.  For those unfamiliar with a hawala system, a hawala money transfer is a way to send money via a hawaladar or hawaladars, usually across long distances, at a far lower cost than sending money by wire or bank transfer.  Hawala banking with hawala transactions and hawaladars have been used for thousands of years, mostly among African, Asian and Middle Eastern cultures. Although the advent of modern banking has made hawala banking less common than before, the introduction of severe restrictions to banking privacy through legislation and enforcement has made a hawala system via a hawala network is a very attractive option again for privately transferring money.

The transfer of money via a hawala banking system is extremely private and is unlikely to be reported or discovered by anyone other than the hawaladar, the transferor and the tranferee. In a world where bank privacy is increasingly hard to find, this is a welcome feature of hawala banking.  In the hawala system, hawaladars are the brokers or facilitators of the transaction.  This transactional privacy has made hawala banking an evil villain for enemies of personal privacy and financial privacy. False and exaggerated allegations of money laundering and terrorism funding through hawala money transfers and hawala transactions have incorrectly characterized the hawala network while hawala banking is actually the most efficient and ancient of all money transferring systems.

THE MECHANICS OF HAWALA BANKING SYSTEM WITH HAWALADARS

The most common use for a hawala system is to send hawala money transfers to another person who is at a great distance from you.  For hawala transactions, the money sender contacts a local hawaladar and gives him the money he or she wants to send. The hawladar then contacts another hawaladar in the destination city for the money and arranges to have the hawaladar in the destination city turn over the money to the recipient, minus a small fee.  In the hawala transactions no money actually physically travels the distance at that time but the hawaladars keep a tally of the total owed and then settle the difference at a later date. The exact methods can differ greatly from hawala network to hawala network but this is the general overview of how hawala banking works.

BENEFITS OF A HAWALA SYSTEM OR HAWALA NETWORK

The hawala system can exist outside of the traditional legal system because hawaladars generally engage in hawala transactions with other hawaladars based on a long relationship of mutual trust, often built up over generations of hawaladars. Thus with hawala banking there is no need for formal legal protection, which is expensive, and there is a very low risk of default when you transact with such well known individuals.

This hawala system is by far the most private form of transferring money. The entire hawala transaction can occur over a couple of phone calls, emails, text messages, or instant messages. Although the United States requires registration of these kinds of hawala banking services, it is very hard to enforce such a requirement because of the difficulty detecting the hawala transactions. No formal records of the individual hawala transactions are usually kept after the hawala transaction has occurred. All that exists is usually a running tally of what is owed, often encrypted or coded by the hawaladars in the hawala network. This is far different from the extensive disclosures required by banks for a similar transaction.

The hawaladars also have the benefit of being able to settle accounts in a hawala transaction with something of value other than a currency. These non-cash hawala transactions can be used to avoid currency controls, official exchange rates, import or export duties, or other undesirable tax effects through the hawala system. These legal, privacy and economic advantages allow the hawaladars to perform the service of a hawala money transfer at a much lower cost than is usually available through bank money transfers.

CRITICISM OF HAWALA BANKING SYSTEM AND HAWALA TRANSACTIONS

There are many who strongly criticize the hawala system as dangerous because the hawala transactions are extremely private.  The privacy invading aardvarks want to stick their nose in everyone else’s business.  Although there have been no conclusive findings that hawala transactions through hawaladars have contributed significantly to terrorism or organized crime, some argue that such hawala transactions are likely to occur.

These critics wish to either ban hawala systems (there are strict laws in some states regarding these hawala transactions) or subject the hawala network to rigorous reporting requirements similar to how the banks currently operate. The reasoning appears to be something along the lines of, criminals eat food therefore we need to outlaw the private exchange of food unless there is a paper trail. Reporting requirements as they are currently constructed not only offend the notion of justice which requires that there be probable cause that there is criminal activity afoot or evidence of a crime, based on articulable facts, before a search can be conducted but also greatly invade privacy when individuals can use a hawala system with hawaladars for a hawala money transfer.  If you want to engage in hawala transactions, you will want to consult with a privacy attorney before hand to make sure that you are not in violation of any of these arbitrary laws.

The search may only occur after a neutral judge finds that there is probable cause and then issues a valid warrant. Although the banks are subject to invasive reporting requirements, they also require large amounts of capital to operate and thus are not easily overlooked by enforcers of such policies. Hawaladars can easily operate undetected with hawala transactions through the hawala system and it is likely that many will do so. Catching a hawaladar will be harder than catching a drug smuggler that never smuggles any drugs across the border.

FUTURE OF HAWALA BANKING AND THE HAWALADAR

Because of the dramatic benefits that a hawala system offers via hawala transactions through a hawaladar it is only a matter of time before it becomes widely used in many more hawala transactions throughout the world. Individuals that act as hawaladars and are well known in their niche or community will grow in influence as they are able to provide  hawala banking services at a much lower cost than may be found elsewhere. People who have strong relationships with others in their field of work or in their social life, who have the means to help others with such hawala transactions, will become hawaladars, if just for a family member as a one time hawala transaction. In addition, the hawala banking services provided by these modern hawaladars will benefit the privacy of individuals.  Hawala transactions will also help you avoid tax liability when you are traveling outside of tax free states.  To further protect your privacy when engaging in hawala transactions, look to the book How To Vanish, Legally Protecting Your Personal and Financial Privacy to show you lots of tools and tips.

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11 comments

ABOUT THE AUTHOR: Bill Rounds, Esq. is a California attorney. He holds a degree in Accounting from the University of Utah and a law degree from California Western School of Law. He practices civil litigation, domestic and foreign business entity formation and transactions, criminal defense and privacy law. He is a strong advocate of personal and financial freedom and civil liberties. This is merely one article of 123 by .
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{ 11 comments… read them below or add one }

1 Chris June 15, 2010 at 12:00 pm

Could you recommend any hawala banks that will open accounts to U.S. citizens over the internet?

2 Bill Rounds J.D. June 25, 2010 at 5:29 pm

I am not really aware of any established hawala networks working over the internet offering formal accounts. There are of course informal hawala transactions occurring all the time. Part of the problem may be the requirement for hawaladars to register with the federal government to carry on hawala transactions as a business in the US. Another problem is the informal nature of hawala networks means they rarely advertise their services. You might try looking in some of the communities where hawala transactions are common to see if you can be introduced to people who can help you. Those communities might be an immigrant community, or communities from the place where you want to send money.

3 David December 12, 2010 at 9:32 am

Anyone with any sense would never trust the Feds with any information. So if you happen to know or find such a network you should never post it or name anyone. That’s for their and your own sakes. What “they” don’t know won’t kill you.

4 Joe January 14, 2011 at 12:54 am

Does me no good if I can’t find them or use them….

5 Nate January 31, 2011 at 4:48 pm

This system relies heavily on trust and strong relationships, things which are both in decline in our modern society (at least in the West).

6 Freedom Offshore Services March 4, 2011 at 1:09 pm

http://globalfinancialsecurity.com/?page_id=24

I can recommend the above as a system that gives you as much privacy as the Hawala system. It can be used all over the world and your transfers are done and held in complete privacy and anonymity. Using gold and silver as transfers into this system also has some other legal benefits. The person who operates this system is the person I trust the most out of all my contacts on the internet.

7 George Friedli June 22, 2011 at 4:33 pm

Sir, with all due respect, I believe any and all money transfer schemes will eventually be victim to the bureaucracy. Here is a recent article of a crack down on a Hawala Broker: http://indiatoday.intoday.in/site/story/ed-seizes-rs-9-cr-from-hawala-dealer-in-connaught-place/1/142318.html

There are claims that Bitcoin.com may beat the system but who really knows.

8 Military MREs For Sale July 7, 2011 at 10:03 pm

I just stumbled upon this site and I am fascinated by what Bill Rounds has put together and how different from what we have been hearing in the newspapers and on the TV this all is. I am dumbfounded and amazed. I am thinking about purchasing this book: How To Vanish, Legally Protecting Your Personal and Financial Privacy that was written by Bill Rounds. You can purchase it right on this web site. I will not implement what is in it but I will read it for how interesting it must be. All I can say is WOW !!!

9 Jon April 28, 2012 at 9:41 pm

It would need to be rapid method of transferring the money, and that is where fiat currency has you beat.

eGold was actually a viable option, but they had some of their operations in the USA and that led to their eventual decline when the FBI raided their facility. The correct implementation is just as important or more so than the concept.

10 Ludwig von Measles December 2, 2012 at 6:48 pm

Bill,
First, I LOVE this line: “The reasoning appears to be something along the lines of, criminals eat food therefore we need to outlaw the private exchange of food unless there is a paper trail.”
Now a question: I’ve read that in Minnesota there’s a big problem because the local banks stopped serving the hawalas, on the grounds that doing so would be too complicated under AML rules, and as a result the hawalas can’t do what they do and the local Somali immigrants who live in this community can’t send money to their families back home. In terms of sheer mechanics: 1) Why would a hawala need a bank account to conduct his/her business? 2) Why would AML rules make banking such businesses difficult? (I suspect it’s got to do with the “no formal records” thing, but would appreciate your insights on this.)
Thanks Bill, and keep it up!

11 lsadanand May 1, 2013 at 8:02 am

iam intrested to join in hawala because i need money so if any agencies in india please send me deatails.
thank u
ls

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