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Money Laundering Research Related to Informal Value Transfer Systems Informal Value Transfer Systems and Criminal Organizations; A Study Into So-Called Underground Banking Networks With increasing regulation of the conventional banking sector in the Netherlands and elsewhere, a strong concern has been voiced about the actual or potential use of so-called "underground banking systems” by criminal organizations. Calls have been made for new measures to deal with this problem, some of them drastic. So, the chief objectives of this preliminary study were to find out whether 1) publicly available evidence supports this concern and 2) how are governments around the world responding to the issue. This would lead to policy recommendations to be considered by the Dutch government. Nikos Passas, LL.B., Ph.D. Professor of Criminal Justice
The Hawala Alternative Remittance System and its Role in Money Laundering This paper presents a description of the hawala (also referred to as hundi) alternative remittance system. Hawala is an ancient system originating in South Asia; today it is used around the world to conduct legitimate remittances. Like any other remittance system, hawala can, and does, play a role in money laundering. In addition to serving as a tutorial on hawala transaction, this paper will also discuss the way in which hawala is used to facilitate money laundering. Patrick M. Jost
Historical Traces of Hundi, Sociocultural Understanding, and Criminal Abuses of Hawala This article presents a comprehensive descriptive and exploratory analysis of issues related to Informal Value Transfer Systems (IVTS), including Hawala and Hundi, beginning with the historical traces of Hundi as rooted in the indigenous banking system in India. It discusses legitimate sociocultural and economic reasons, as well as political corruption and economic crimes that sustain Hawala. The article concludes with a discussion on abuse of Hawala by criminals, including terrorists, bringing to the fore the need to regulate the system. Some other well-known IVTS include fei ch’ien (Flying Money), Undiyal, casa de cambio (stash house), and phoe kuan (message houses) Chop Shop and Chits, but it is Hawala that gained global notoriety after the September 11, 2001, attacks on the United States. Divya Sharma
Underground Banking: Legitimate Remittance Network or Money Laundering System? Underground banking, where money is transferred through informal rather than formal banking sectors, is a recognised method by which legitimate remittances from overseas workers are routinely transferred. However, underground banking has also long been regarded as a conduit for money laundering by criminal organisations and arguably by terrorist networks. It is important to achieve a balance between regulating the underground banking sector in an attempt to reduce the flow of illicit funds, and permitting its continued use as a legitimate, alternative remittance system. This paper provides policy makers and others with an interest in underground banking matters with a concise overview of how underground banking systems work, along with the potential associated with such systems for criminal activity and the various regulatory responses that governments have employed to date. Rob McCusker
Approaches to a Regulatory Framework for Formal and Informal Remittance Systems: Experiences and Lessons Remittance flows are an important source of funds for many countries. Money transfers to countries with a large number of overseas migrants have become the largest component of remittance flows. A large proportion of remittance flows goes through informal remittance systems. Chee Sung Lee
The Regulation and Supervision of Informal Remittance Systems This paper is a review of recent efforts to strengthen the regulatory and supervisory framework for informal remittance systems. The authors argue that because there is insufficient theoretical and practical experience with formal and informal remittance regulation and supervision, the international and domestic policies currently being developed should not impose an overly excessive level of regulations. The development of remittance regulatory theory is still in its infancy and does not provide sufficient guidelines for policy makers faced with a highly innovative and growing remittance industry. Nikos Passas
Informal Value Transfer Systems, Terrorism and Money Laundering: A Report to the National Institute of Justice For many years, representatives of national, foreign, and international law enforcement agencies have been concerned about the role played by Informal Value Transfer Systems (IVTS) in the facilitation of serious crimes, including money laundering. Terrorism is now at the top of the list. Nikos Passas
Hawala Discourses and the War on Terrorist Finance In this paper I argue that the informal hawala money-transfer networks, which were made to take much of the blame for terrorist financing in the wake of the September 11 attacks, are not `underground' banking systems but are connected to Western banking in a myriad of ways. I argue that negative stereotyping of hawala in press and policy discourses has implicitly constructed Western banking as the normal and legitimate space of international finance and has deflected calls for regulation of Western investment banking. I discuss how hawala is connected to the financial exclusion of migrant workers in the West. In the war on terrorist finance, discourses of hawala have led to the underestimation of the complexity of cutting off terrorist funding, while criminalising remittance networks. Marieke de Goede
Hawala Since the September 11, 2001, terrorist attacks on the United States, public interest in informal systems of transferring money around the world, particularly the hawala system, has increased. The reason is the hawala system's alleged role in financing illegal and terrorist activities, along with its traditional role of transferring money between individuals and families, often in different countries. Against this background, governments and international bodies have tried to develop a better understanding of these systems, assess their economic and regulatory implications, and design the most appropriate approach for dealing with them. Mohammed El-Qorchi
Asian Underground Banking Scheme Less is known of underground banking in law enforcement circles and government regulatory agencies than any other form of money laundering or cash movement. The lack of understanding is largely due to lack of understanding of the cultures in which the systems operate. Many underground banking families/networks nowin operation predate the electric light and the horseless carriage. Their origins are buried in antiquity and they are part of traditional life in Asia. Given the current war on international terrorism, a better understanding of the operational methods of different Asian underground banking schemes would shed much light on money trails used by the Al Qaeda organizations. Larry Lambert
Informal Money Transfer Systems: Opportunities and Challenges for Development Finance This paper reviews the main types of informal money transfer systems (IMTS). Developed centuries ago as a way to settle financial obligations, IMTS remain today the preferred remittance vehicle among migrant communities. Characteristics, such as low transactions costs, speed, and little paperwork, render them more attractive than banking institutions. After September 11, IMTS were suspected of being used for terrorist purposes, leading some to call for their prohibition. The authors think such a response is too drastic and instead propose measures to make IMTS less prone to possible abuse by criminal elements and encourage the development of formal sector alternatives. Leonides Buencamino and Sergei Gorbunov
Hawala and other Informal Payments Systems: An Economic Perspective In the months since September, 2001, hawala has been in the news with greater frequency, often in alleged connection with terrorist activities or as some mysterious system for “moving money” without money moving at all, and without leaving traces or records. Such accounts leave impressions of some mysterious financial system that is both dangerous and beyond ordinary analysis. For better or worse, “hawala” has gotten a bad name and it has become an issue. In this context, Fund and Bank staff are presently working on a study of hawala, with primary emphasis on its economic context and mechanisms, which seem to be widely misunderstood. John F. Wilson
Hawala and Underground Terrorist Financing Mechanisms Hearing Before the Subcommittee on International Trade and Finance of the Committee on Banking, Housing, and Urban Affairs United States Senate
Hawala and Terrorist Financing While U.S. troops and allies stormed Afghanistan in the fall of 2001, millions of terrorist dollars were shifted to Dubai, the key location for money laundering in the United Arab Emirate (UAE). Taliban and al-Qaida operatives gathered money and gold taken from Afghanistan’s banks. These commodities were then transferred to Dubai by courier and a practically untraceable system known as hawala. Kristen Parker, MBA
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