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Home > Articles > 2019 archive

Hawala: why it is used and what family practitioners should know about it

Byron James, Partner and Head of Expatriate Law in Dubai, explains the challenges presented to family lawyers by anthe effective method of anonymous international money transfer system used around the world.; why and what family practitioners should know about it













Byron James
barrister, Expatriate Law (United Arab Emirates)


If you do not know about Hawala, then you should. It provides a mechanism for parties in financial remedy proceedings to transfer money abroad without any trace of the transfer or record of the recipient. Given the lack of awareness about it, Hawala offers an effective method of anonymous international money transfer that will usually go unchallenged in the proceedings.


What is Hawala?

Hawala is an Informal Value Transfer System based on trust. It runs through a vast network of money brokers throughout the Middle East, Africa and Asia, and with links to major cities across Europe and North America, that allows money transfer from one geographic location to another. It has numerous other names in various countries, hundi in some regions, but the central idea remains the same: money does not, in a formal/legal sense, cross borders. The Hawala system is composed of informal networks of spatially scattered diverse actors, with no specific centre, and stands in stark contrast to the normal extra/intra-national money transfers through banks or money exchanges.

The original intention of the Hawala system was to facilitate international trade with origins dating back to around the 8th century, used as a method of conducting international business alongside the growth of Islam and the spread of its influence throughout the Middle East and beyond. It is thought to have developed in India well before Western banking practices.

Hawala is still prevalent across the world because it facilitates migrant workers to send remittances to their home countries where access to banks and reliable financial services are either hard to come by or simply too expensive.

Every year billions of pounds are transmitted across continents and countries using this informal money transmission system and yet it is something rarely asked about in financial remedy proceedings. 


How Hawala is used in the modern day

"Hawaladar", is a term often used to describe a person operating such a casual money transmission business, dealing with other similar Hawaladars in different geographical regions to facilitate the exchange of money from one place to another. Hawaladars often run parallel businesses other than simply money transfer, including currency exchange, travel agencies or telephone shops. They often operate amidst migrant communities. Money transfers take place based on communication between network members. In modern times, such communication has improved the accuracy and speed of each transaction, with Hawaladars using fax, phone and email to communicate. Therefore, today a transfer can often be made on the same day as the order is placed, but generally, still takes one or two days.

The process is simple. Someone wishing to transfer funds only needs to approach a Hawala dealer and pay them the amount they wish to be transferred. There might be a small commission of about 1 per cent payable. The Halwalader agrees the amount payable in the other currency and then in one or two days the recipient in the recipient country will be able to attend at their local Hawaladar and collect the money in cash.

Migrant workers who regularly send remittances to relatives and friends in their home countries find the Hawala system beneficial. They usually trust the Hawala operators, who have a long standing and trusted connection with their local community, but it also has a number of practical and commercial advantages for those involved: the parties do not need bank accounts in the country in which the money to be transferred is held, or even bank accounts at all; they are not bound by the Western retail exchange rates, most Halwaladers offer much better rates of exchange and lower commission costs (Western Union, for example, charge up to 9 per cent) as they do not incur the same high transaction costs as a bank or exchange would; it is accessible as there are Hawala dealers all around the world; it is quick as there is no need to wait for any money to be physically transferred and it is anonymous, as no formal records of the transactions are usually kept by either party. There are also simply many countries, for example, parts of Africa and the Middle East, where banking is not advanced, people do not have bank accounts and cash transactions are necessary.
 
Where no formal records are kept by Hawala dealers, it remains common practice nevertheless for them to keep a journal to record all credit and debit transactions on account. A "Hawala slip" is usually provided to each client for each transaction. This would often contain a transaction code/number, the date of the transaction, the name and address of the sender and recipient, passport number or other identification number and name the Hawala dealers. This is of course subject to private practice.

To practise in England legitimately, Hawaladars must still comply with money laundering and tax rules and regulations, such as proper record keeping, identity checks, proof of source of funds, registering with HMRC and the FCA. Given the stringency of these requirements, some Hawaladars do not comply and perhaps would not be able to offer their customers the service they require if they observed the rules properly. The most common incarnation in England is alongside a travel agency, money exchange or phone shop, with said main business providing cover to the informal side business of being a Hawalador who are only known to trusted members of their local community.

Whilst mostly migrants use this system for legitimate purposes, for the benefits set out above and, in some cases, through necessity (if, for example, the recipient does not have a bank account), it can be also used to facilitate money laundering, tax evasion, and affords an opportunity to move funds virtually without any trace.


What should practitioners look for?

One should be aware of the possibility of Hawala in any case that involves countries in the Middle East, Africa or Asia and, especially where one of the parties to the case has family members in such a country.

The cause for suspicion will be increased where a party to the proceedings has access to cash in hand renumeration or where there have there been regular or sizeable withdrawals of cash from a bank account. As part of tracing those withdrawals or determining the full extent of cash earnings, one should initially ask whether Hawala has been used by the other party. This might be asked in combination with questions as to whether there are family members being supported abroad and, if so, how such support is provided, with evidence, if not Hawala.

Depending upon the material relevance of the amounts of possible sums involved, one could also make enquiries within the local community regarding Hawala and the Hawaladars who practise there. One might face resistance from those not operating in accordance with the proper rules and regulations, and they may fear that revealing their role in such transactions might shine a light upon their non-compliance.

As noted above, even where formal records are not kept, there will still usually be some form of trace: through the Hawala slip, through the Hawaladar's personal notes and records, the emails/texts/faxes used to place the transaction(s) which can all be obtained via a third party disclosure order.

Through these methods, one could either obtain the precise details of transactions hitherto not disclosed or give the Court sufficient basis upon which to find there has been a reviewable disposition, add-back or that a party earning in cash has more income, or capital abroad, than they say they do. There are certainly evidential challenges with Hawala but once one is aware of the practice, those challenges will only be easier to anticipate and then overcome.