Sunday, December 12, 2010

Modern Hawala: Do You Need to Transfer Money Privately?

By Bill Rounds, J.D.
Thursday, September 24, 2009


That’s hawala, not koala and there are many hawala benefits. For those unfamiliar with a hawala system, a hawala money transfer is a way to send money via a hawaladar or hawaladars, usually across long distances, at a far lower cost than sending money by wire or bank transfer. Hawala banking with hawala transactions and hawaladars have been used for thousands of years, mostly among African, Asian and Middle Eastern cultures. Although the advent of modern banking has made hawala banking less common than before, the introduction of severe restrictions to banking privacy through legislation and enforcement has made a hawala system via a hawala network is a very attractive option again for privately transferring money.

The transfer of money via a hawala banking system is extremely private and is unlikely to be reported or discovered by anyone other than the hawaladar, the transferor and the tranferee. In a world where bank privacy is increasingly hard to find, this is a welcome feature of hawala banking. In the hawala system, hawaladars are the brokers or facilitators of the transaction. This transactional privacy has made hawala banking an evil villain for enemies of personal privacy and financial privacy. False and exaggerated allegations of money laundering and terrorism funding through hawala money transfers and hawala transactions have incorrectly characterized the hawala network while hawala banking is actually the most efficient and ancient of all money transferring systems.


The most common use for a hawala system is to send hawala money transfers to another person who is at a great distance from you. For hawala transactions, the money sender contacts a local hawaladar and gives him the money he or she wants to send. The hawladar then contacts another hawaladar in the destination city for the money and arranges to have the hawaladar in the destination city turn over the money to the recipient, minus a small fee. In the hawala transactions no money actually physically travels the distance at that time but the hawaladars keep a tally of the total owed and then settle the difference at a later date. The exact methods can differ greatly from hawala network to hawala network but this is the general overview of how hawala banking works.


The hawala system can exist outside of the traditional legal system because hawaladars generally engage in hawala transactions with other hawaladars based on a long relationship of mutual trust, often built up over generations of hawaladars. Thus with hawala banking there is no need for formal legal protection, which is expensive, and there is a very low risk of default when you transact with such well known individuals.

This hawala system is by far the most private form of transferring money. The entire hawala transaction can occur over a couple of phone calls, emails, text messages, or instant messages. Although the United States requires registration of these kinds of hawala banking services, it is very hard to enforce such a requirement because of the difficulty detecting the hawala transactions. No formal records of the individual hawala transactions are usually kept after the hawala transaction has occurred. All that exists is usually a running tally of what is owed, often encrypted or coded by the hawaladars in the hawala network. This is far different from the extensive disclosures required by banks for a similar transaction.

The hawaladars also have the benefit of being able to settle accounts in a hawala transaction with something of value other than a currency. These non-cash hawala transactions can be used to avoid currency controls, official exchange rates, import or export duties, or other undesirable tax effects through the hawala system. These legal, privacy and economic advantages allow the hawaladars to perform the service of a hawala money transfer at a much lower cost than is usually available through bank money transfers.

Read the follow-up articles:

Hawala Banking And Currency Controls Part I, November 17, 2009
Hawala Banking And Currency Controls Part II, November 20, 2009

Bill Rounds, J.D. is a California attorney. He holds a degree in Accounting from the University of Utah and a law degree from California Western School of Law. He practices civil litigation, domestic and foreign business entity formation and transactions, criminal defense and privacy law. He is a strong advocate of personal and financial freedom and civil liberties.
This is merely one article of 75 by Bill Rounds J.D.

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