WHY HAWALA IS DETRIMENTAL FOR OUR FINANCIAL SAFETY?

I believe that the UK is at the forefront in the battle against economic crime, having a better understanding of the ever-increasing financial threats facing nations than most.  The awareness of the UK authorities and the improving anti-money laundering framework in the UK ensures it must be at the top of the Financial Action Task Force’s assessment of the effectiveness of all countries’ measures. 

However, similar to the way that the Government has dealt with, and continues to deal with, the Coronavirus pandemic, its approach to regulating Hawala can sometimes seem to be a little hesitant.

The argument that most people will obey the rules is somewhat weak, especially when it comes to matters of finance.  Unless there is a very visible enforcement of rules, whether to stay safe from the pandemic or to avoid using unregulated financial services, people tend to please themselves.

The sooner that businesses and individuals operating in the UK are fully aware that not many other countries employ the stringent money laundering prevention and detection policies as can be seen in the UK, the sooner they will stop falling foul of the UK regulators when interacting with these foreign countries.

I am, of course, talking about the massive use by our migrant population of the alternative money transmission service commonly referred to as Hawala.  Hawala is an overused term, referring to the historical method for money movement developed in Asia in the Middle Ages.  It is now applied to various money service businesses operating sometimes separately to, and sometimes in conjunction with, the mainstream banking organisations that we all recognise from their presence on the high street…and increasingly on the Internet.

Despite being perceived by the authorities as an extremely high area of risk in relation to money laundering, I do not see TV advertisements warning of the danger of unregulated Hawala being run alongside the regular health warnings to stay safe and avoid social contact.

An Indian businessman wishing to import his wealth into the UK may employ a local Money Service Business in India to avoid the currency controls imposed by his country’s administration.  In the UK, such an equivalent business may be at the back of an Asian supermarket, or in a tiny first floor flat above a travel agent, but the hope is that it will be properly regulated by the FCA and HMRC.  However, any money deposited in India and many other countries abroad may be transferred through the Hawala system that is generally unregulated before it arrives in the UK.

Entering the unregulated system in India, any money transfer stands a very high chance of becoming entwined within an organised money laundering network such that when it arrives in the UK it will not be settled by the regulated agent whose small office is located in the local shopping arcade, but by a stranger handing over a bag of cash in a car park.  The unsuspecting individual who decides to use a local Hawaladar in India to send the proceeds of his property sale to the UK doesn’t appear to know any better and is mystified when having been asked to collect his money in cash from a man in his local Tesco carpark, he is pounced upon by the police who seize the cash!

It is impossible to precisely gauge the scale of the money transferred around the world, much of it being unregulated and unrecorded. The proportion sent by Hawala type businesses is estimated to be the equivalent of certainly hundreds of billions of pounds every year.  For a large part, the transfer methods are legitimate.  The unregulated deposits in India may find themselves being distributed by a legitimately regulated Hawala agent in the UK.  However, the organised criminals are able to hijack some of the massive volume of legitimate transfers in order to “layer” their own criminal proceeds, thus laundering a very large quantity of criminal street cash within in the UK.

The UK authorities continue to perceive the risk of both money laundering and terrorist financing to be very high in respect of these “money service businesses” (MSBs).  In the recent National Risk Assessment carried out by HM Treasury and the Home Office published in December 2020, the ability of MSBs to easily interact with a wide number of jurisdictions is seen to be attractive to terrorists and organised financial criminals alike.  However, this was also the finding of the Financial Action Task Force (FATF) within its October 2013 report looking at the role of Hawala and other similar service providers in money laundering and terror financing.  From the number of cases that I see, I would say that the money laundering industry using Hawala has grown somewhat since then!

The cases I deal with tend to reflect the movement of money using alternative transfer methods over a number of years, going back sometimes a decade or so.  Therefore, it is not always easy to see how any recent changes might impact the ease with which criminals seem to be able to exploit Hawala.  I am noticing an increase in the cases involving applications for forfeiture by the UK authorities, for money sourced from eastern European countries, China and Iran.  However, there still appear to be plenty of “car park cash” seizures representing recent hijacked legitimate transfers from places like India and Pakistan.

I accept that the financial playing field is getting bigger and more complicated every year, which makes the task of policing it even harder.  The difficulties of dealing with complex fraud and economic crime, the almost incomprehensible scale of the associated money laundering “pandemic” and the real dread of terrorist financing must make the task of the regulatory authorities easily the hardest within the public sector today.

In the end, there will always be those that are either ignorant of the dangers of using non-mainstream systems or those that eagerly exploit them for criminal purposes.  This is unfortunate for the economy and makes life hard for the authorities trying to police the flow of money.  Fortunately, it ensures a constant stream of work for the forensic accountant specialising in fraud and money laundering!

About Mark Jenner

Mark Jenner is an experienced forensic accountant specialising in fraud and white collar criminal matters. He provides independent financial investigation and expert accounting witness services to police forces, fraud regulators and criminal defence lawyers, also providing assistance and solutions to organisations embroiled in financial disputes.

One Response to WHY HAWALA IS DETRIMENTAL FOR OUR FINANCIAL SAFETY?

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