Bottom Line: For terrorists, moving money covertly through hawala networks to circumvent institutionalized banking systems remains one of their leading methods of avoiding detection. The U.S. has managed to unearth and even sanction certain illicit hawala networks, but terrorists continue to exploit this centuries old, nearly untraceable practice to finance their operations around the world.
Background: Hawala, which means “transfer” in Arabic, is an informal transaction system based largely on mutual trust.
- The system works as follows: An individual in country A gives money to a hawala broker, known as a hawalader, in country A. That hawalader then contacts a hawalader operating in country B and informs that hawalader to give a certain amount of money to a specific individual in country B. Codes are provided by all parties to ensure that the money is delivered to the proper recipient. The hawaladers themselves do not send physical money; instead, they maintain records of payments and settle debts at a later point, often through the exchange of valuable goods or even through wire transfers. During the transaction, hawaladers charge a fee for their service.
- A major reason why hawala networks are appealing to terrorist groups is because they do not leave paper trails. Record keeping amongst hawaladers is not uniform and can be grueling to interpret. This reality presents challenges for law enforcement agencies that are aiming to uncover and crack down on individuals or organizations operating illicit hawala networks.