Hawala money transfers defy regulation efforts

The traditional system, linked with money laundering and terrorism financing, flourishes with illegal traders.

ABU DHABI // A traditional system of transferring funds linked with money laundering and the financing of terrorism is flourishing in the hands of illegal traders despite official attempts at regulation. Hawala is a trust-based system used to transfer funds across countries and continents. It is used legitimately by millions of people worldwide but has been identified by the US State Department and law enforcement agencies as a potential way for criminals to launder money and is illegal in some countries.

In the UAE, the money handlers, or hawaladars, are required to register with the Central Bank, keep records of the identities of their customers and alert authorities to any suspicious transactions. However, many continue to trade without registering. There are currently no specific penalties for running an unregistered hawala business and the traders who spoke on condition of anonymity said there was little incentive to register. "We are not registered, nobody is registered here," said one shop owner in the centre of the city. "Every textile shop is doing hawala. It is how people make most of their money."

Tens of thousands of dirhams change hands every day, traders say. Their customers are mostly taxi drivers and labourers and the average hawala user sends home between Dh1,500 (US$409) and Dh1,800 every month. Many customers also use the hawaladars as banks, making regular deposits and letting them know how much to send home at the end of the month. "It is the quickest, best way to send money home," said one labourer, who sends the bulk of his earnings to his family in Pakistan. "Up to Dh5,000 you can send home and they only charge Dh10, maximum."

The system can also be used to bypass official foreign exchanges and banks. Earlier this month, the Central Bank further tightened rules on money transfers by ordering financial institutions to register the details of anyone wiring or changing as little as Dh2,000. Abdulrahim Mohamed al Awadi, the head of the anti-money laundering and suspicious cases unit at the Central Bank, said the country was leading international efforts to regulate hawala. He said the registration system was preventing money laundering and terrorist financing, but still allowed workers to send money home cheaply.

Since 2002, when the UAE organised the first international conference on hawala, more than 260 traders have registered, and more than 100 applications are pending. "We are applying one of the basic criteria of due diligence in international finance - know your customer and know your business," Mr Awadi said. "The hawaladars go through an interview with the Central Bank and, once registered, they have to disclose the names of their customer, the purpose of the remittance, the name of the receiver on the other end and other details. They also have to disclose any suspicious transactions."

In a report on money laundering released in March, the US State Department said that there had not been any reports of suspicious transactions by hawaladars in the UAE since the registration scheme started in 2002. Mr Awadi said the UAE did not want to outlaw hawala completely, as Saudi Arabia and Qatar had done, as that would penalise the workers who relied on it. "Hawala business has existed in the world for years," he said. "It is designed for blue-collar workers, low-income people, especially those coming from remote areas where they don't have a banking infrastructure."

He confirmed, however, that there was no information available on how many hawaladars were trading without a licence. "I wish I knew," he said. "If they are not registered they are in violation. They have to fulfil the requirements. At this point in time, if someone persisted, that's a judicial matter." Hawaladars said it was relatively easy to continue their business under the radar. "It is easy to avoid scrutiny," one textile shop owner said when asked what happened to the large amounts of cash he collected through hawala. "The banks don't ask questions about deposits under Dh40,000. Over that amount, and they will ask where the money came from. You put the money in the account you have for your business and take it out when your customers ask for it."

Hawaladars said that inflation was cutting deep into their profits. "We're not making any money here," one hawaladar said. "Because the cost of everything is going up so much, nobody has any money left over to send back home." * The National