How Hawala Works ?

"Hawalas" is an ancient, unregulated, and little-known systems of exchanging money. A hawala (derived from the Arabic word for "a bill of exchange or promissory note") is a system of brokers that provides paperless banking transactions and enables individuals to transfer large sums of cash from one country to another without the funds ever crossing borders or being recorded. The hawala system predates conventional banking by thousands of years and is prevalent in India, Pakistan, the Middle East, and parts of Asia.

Here we explain to make you understand How a hawala system might work: In Afghanistan, or any other South Asian nation, a man finds a hawala dar (a broker who has inherited the job from his family through several generations) and gives him a certain amount of money to be transferred to a relative, friend, or cohort in America. The broker then contacts by phone, fax, or e-mail a fellow dar who is set up — usually in association with a legitimate business — in an American city. He then asks that broker to pass on an equivalent sum of money to the intended recipient. Thousands of dollars can be moved in a matter of minutes, with no questions asked and no record of any kind. The two brokers even their balance over time, usually through a reverse transaction (when someone in the United States wants to send money to a counterpart in the same city in Afghanistan, for example). However, because the system is based on a long-standing trust among hawala dars, there is no need to balance accounts at the end of each day, or even at the end of each month, as with conventional banking. This makes transactions even more difficult to track.

While much of the money that flows through the hawala system in the United States is used for legitimate purposes — a son sending money home to his parents, for example — hawalas also allow terrorists and drug dealers to smuggle money into the country, undetected by the global banking system. The State Department has long been aware of the challenges posed by hawalas and reported them in its annual International Narcotics Control Strategy Report.

Congress, too, has recognized the danger of hawalas and moved to regulate their activities in 1994, when it passed a law requiring check-cashing businesses and informal financial enterprises like hawalas to register with the government and report transactions greater than $3,000. Unfortunately, the regulations implementing this statute remain unpublished, while hawalas continue to operate in the United States without supervision. Now Congress is moving toward further regulation and oversight of hawalas, including passage of my legislation requiring hawalas to register with the U.S. government.

The recently proposed bills on record-keeping and account-monitoring, for example, would expedite the publication and enforcement of hawala regulations and give U.S. law enforcement and intelligence authorities the tools they need to intercept terrorist financing before it is too late. Targeting the financial network of terror groups like al-Qaida will not, by itself, strike a deathblow to international terrorism. But it will disrupt the criminal financial network supporting terrorism, and it will give U.S. law enforcement and intelligence communities a better chance of detecting and preventing terrorist activities.