Download Speech - Muhammad Baasiri

Alternative Remittance Systems
HAWALA
Presented by: Muhammad Baasiri
US-MENA PSD Chairman
SIC Secretary
Financial Operations of Money Laundering
Organized by EUROMED
Amman - Jordan
July 17-20, 2006
History of Hawala
Hawala originated in India.
It was born before the spread of
Western banking in the 19th and
20th centuries.
It has developed based on specific
ethnic, cultural or historical factors.
Definition of Hawala
 Involves the transfer of values between
countries, outside of the legitimate
banking
system,
an
called
“underground”, “parallel” or “shadow”
banking.
 Refers to mechanisms or networks of
people facilitating the transfer of funds
or value outside the regulated financial
channels.
Hawala Terms
Hawala = Urdi word meaning
“reference” , it is based on trust.
The Arabic
“transfer”.
root
“Hawaladar”
operator.
refers
h-w-l
to
means
hawala
How Does Hawala Work?
One-way stream:
 Sender provides money in cash.
 Funds remitted to the Hawaladar
counterpart through the Hawaladar’s
bank account(s).
 Hawaldar in the recipient country
receives and disburses funds to the
beneficiary
How Does Hawala Work?
Two-way stream:
 The sender visits a local Hawaladar and
provides the money in cash.
 The local Hawaladar contacts his
counterpart in the beneficiary’s country
with instructions to handover the
amount to the beneficiary.
 The two brokers rely on “netting” to
settle
their
balances
(reciprocal
payments,physical movement of money,
invoice manipulation, etc…)
Reasons for Existence
 Lack of access to formal banking system
(high costs, lack of experience with
institutions outside cultural traditions).
 Repatriation of immigrant income.
 Circumvent restrictive exchange controls
and regulations.
Why Do people Use
Hawala?
 Cultural,political,social reasons.
 Quick service & lower fees.
 Favorable exchange rate.
 Avoid taxes.
 High degree of anonymity
Why is Hawala attractive?
Hawala is attractive for ML/TF because
it:
 Leaves no paper trail which impedes law
enforcement investigations.
 Is not subject to external auditing,
control, or supervision by regulatory
authorities.
 Transfers
chain
money
outside
the
formal
INTERNATIONAL
INITIATIVES
Reason of Concern
Hawala has been exploited by drug
traffickers, smugglers and illicit arm
dealers.
Indications that Hawala have had a role
in moving terrorist related funds.
FATF Response
(SR VI)
Requires countries to take measures to
ensure that persons or legal entities that
provide a service for the transmission of
money through an informal value transfer
system are licensed and subject to all
the FATF Recommendations that apply to
banks and non-bank financial institutions.
FATF GUIDELINES
Registration: Declare business existence
to competent authorities.
Licensing:
Obtain
permission
from
competent authorities to legally operate.
N.B: Requirements enabling regulatory
and competent authorities to be aware of
the existence of the Hawaladar
FATF GUIDELINES cont.
Customer Identification.
Record Keeping Requirement.
Suspicious Transaction Reporting.
Compliance Monitoring:
Register or License
Maintain list of agents
Comply with FATF rec.
Sanctions For Non-Compliance
REGIONAL
INITIATIVES
MENAFATF
Committee on Hawala
 Convened in Jordan on Sep 11, 2005.
 Participants countries were:
Algeria and Egypt.
Jordan, UAE,
 Issued a working paper that includes risks
associated with Hawala and recommended
best practices for regulating it.
 Paper adopted by MENAFATF member
countries during the 2nd plenary held in
Beirut on Sep 26-27, 2005.
Best Practices
Licensing or registration of businesses
providing a service of money or value
transfer system.
Conduct educational and compliance
oriented programs in order to advise
these businesses of the necessity of
licensing, registration and reporting
requirements.
Provide the public with a list of
registered/licensed businesses providing
money transfer services
Best Practices
Inform law enforcement authorities of the
risks associated with the informal value
transfer system.
Target
informal
transfer
service
businesses through mass media in order
to inform them of the necessity of
licensing and registration.
Countries are recommended not
impose
restrictive
procedures
encourage
licensing/registration
money service providers.
to
to
of
Best Practices
Subject money service providers
effective AML requirements:
 Customer due diligence.
 Record-keeping.
 Reporting suspicious transactions.
 Compliance monitoring.
to
THANK YOU