Money Wars: Hawala and Its Use to Finance Terrorism

Table of Contents

1. Introduction

2. Informal Money Transfer Systems (IMTS)

2.1. Various Systems: An Overview

2.2. The Scope of Informal Money Transfers

3. The System of Hawala and Hundi

3.1. An Example of a Hawala Remittance

3.2. Bookkeeping and the Paper-Trail

3.3. The Institutional Framework of Hawala

3.4. Advantages of Hawala

4. Hawala and the Financing of Terrorism

4.1. Money Transfers: Terrorist’s Wish List

4.2. Hawala, Charities and 9/11

4.2.1. The Charities as a Money Generator

4.2.2. Legitimate Businesses as a Source of Money

4.2.3. The Transfer of Funds for the 9/11 Attacks

4.3. Future Terrorist Financing

5. Policy Options in the Fight against Terror Finance

5.1. The Regulations by the Unites States

5.2. The Regulations by the UN Counter Terrorism Committee (CTC)

5.3. The Regulations by the G-7 Financial Action Task Force (FATF)

5.4. The Abu Dhabi Declaration on Hawala

6. Conclusion

Objectives and Research Focus

This work examines the vulnerability of informal money transfer systems, specifically Hawala, to exploitation for terrorist financing. The primary research goal is to understand how these systems operate, why they are utilized by both legitimate migrants and terrorist organizations, and to evaluate the effectiveness of international policy interventions intended to disrupt terrorist funding flows.

• The historical and institutional evolution of Informal Money Transfer Systems (IMTS).
• The mechanics of Hawala transactions, including bookkeeping and risk management practices.
• The nexus between charitable donations, legitimate front businesses, and terrorist activity.
• An evaluation of current regulatory frameworks from the U.S., the UN, and the G-7/FATF.

Excerpt from the Book

Summary of Chapters

1. Introduction: This chapter contextualizes the research within the aftermath of the 9/11 attacks and outlines the scope of the study regarding informal money transfer systems and their potential for misuse by terrorists.

2. Informal Money Transfer Systems (IMTS): This chapter defines informal banking, clarifies common misconceptions about its nature, and provides an overview of various traditional systems, including the Chinese 'fei ch'ien' and the 'chop' system.

3. The System of Hawala and Hundi: This section details the history and mechanics of Hawala, focusing on how the system functions through trust and relational contracts rather than legal enforcement.

4. Hawala and the Financing of Terrorism: This chapter analyzes the requirements of terrorist financing, explores how charities and legitimate businesses serve as funding sources, and investigates the specific transfer methods used in the 9/11 attacks.

5. Policy Options in the Fight against Terror Finance: This chapter evaluates the regulatory responses implemented by the U.S. government, the United Nations, and the FATF, and assesses the impact of the Abu Dhabi Declaration.

6. Conclusion: The concluding chapter summarizes the main findings, reiterates the difficulty of regulating informal systems without eliminating their legitimate benefits, and offers a brief outlook on the future of terrorist financing.

Keywords

Hawala, Hundi, Terrorist Financing, Informal Money Transfer Systems (IMTS), Charities, Zakat, 9/11, Financial Action Task Force (FATF), Money Laundering, Hawaladar, Underground Banking, Regulations

Frequently Asked Questions

What is the primary subject of this academic work?

The work investigates the ancient, trust-based informal money transfer system known as Hawala and explores how its characteristics are leveraged by terrorist organizations for the illicit transfer of funds.

What are the central themes discussed in the text?

The core themes include the mechanics of informal money transfers, the role of cultural and religious trust in maintaining these networks, the intersection of charitable giving with terrorist fundraising, and the effectiveness of modern anti-terror financial policies.

What is the primary objective of this research?

The primary goal is to analyze whether current international regulations can effectively disrupt terrorist funding via informal channels without undermining the essential, legitimate financial services these systems provide to migrant populations.

Which scientific methodology is employed?

The author employs a descriptive and analytical approach, utilizing case studies, empirical estimates from various countries, and an institutional economic analysis of how self-enforcing contracts and "clubs" facilitate Hawala operations.

What topics are covered in the main section of the book?

The main sections cover a technical explanation of how Hawala transactions function, an analysis of the "terrorist's wish list" for financial transfers, a detailed look at how charities and legitimate businesses are exploited, and an evaluation of international counter-terrorism policies.

Which keywords characterize this publication?

The key concepts include Hawala/Hundi, Terrorist Financing, Informal Money Transfer Systems (IMTS), Charities, and international regulatory bodies like the FATF.

How is the anonymity of the Hawala system maintained?

Anonymity is maintained by the absence of formal paper trails, the reliance on verbal passwords for beneficiary identification, and the fact that most Hawala records are not kept for long-term audit purposes by external authorities.

What does the author conclude regarding the ban of Hawala?

The author argues that a total ban on the system is impractical and likely to fail, suggesting instead that a mixture of registration, increased due diligence, and making official financial channels more effective and accessible is the only viable path forward.