A Banking System Built for Terrorism

  • Share
  • Read Later

'Hawala' bankers in Yemen could provide al Qaeda an easy way to move money

In the labrynthine depths of old Delhi, where the lanes are too narrow even for a rickshaw, men drink tea and chat in shabby offices. Nobody seems to be doing any work, until the phone rings. Then, numbers are furiously scribbled, followed by some busy dialing and whispered instruction. Although it's far from obvious in the innocuous setting, these men are moving money — to exporters, drug traffickers, tax evaders, corrupt politicians. And terrorists.

Welcome to the world of hawala, an international underground banking system that allows money to show up in the bank accounts or pockets of men like hijacker Mohammed Atta, without leaving any paper trail. There are no contracts, bank statements or transaction records, and yet those who use the hawala networks can move thousands of dollars around the world in a matter of hours.

404 Not Found

404 Not Found

nginx/1.14.0 (Ubuntu)

In a smoke-filled, empty office in Delhi, Ali — who would not give his real name — explains his trade. "All it needs is a good network of trustworthy people," he explains. "If today you want to me to arrange a delivery of cash anywhere in the world — Hong Kong, Johannesburg, New York, Paris — it will be done in, maximum, eight hours."

To move money to New York, for instance, Ali will accept payment in Indian rupees from a client in Delhi. Then he'll call associates in Dubai, who in turn contact their man in New York. The client in Delhi is given a code, usually the numbers from a currency note, which is passed on to the recipient. When the phone rings in New York, both messenger and recipient will read back alternate digits from the password. Identity thus established, the recipient will be paid in dollars.

Not only is there no paper trail, Ali's system avoids bank charges, transmission delays and foreign exchange regulations. All that hawala requires is trust. And that, ironically, is why it thrives in the underworld. No one cheats, Ali insists. And if they do? He looks a little shifty. "The small gain will not be worth the bigger price," he says. "You will lose respect, and for a man, honor is his most important asset." How about his life? Ali laughs. "Yes, if someone is very upset, he might want to kill the thief," he says. "But it seldom comes to that."

Although Indian authorities have found Kashmiri militants making extensive use of the hawala system, funding terrorism is not a priority for the hawala dealers. The big money comes from defrauding trade regulations: An importer arranges with a supplier to charge a fraction of his real prices on an invoice, and pays the difference via hawala. Drug traffickers and corrupt officials also use the system for money laundering. "Hawala dealers don't care about where the money comes from or what it is being used for," says Ali. "They only concern themselves with the deal."

The industry's hub is the oil emirate of Dubai, home to many gangsters from both India and Pakistan who maintain legitimate enterprises there but also operate hawala networks. Dubai is a free trade zone with no limitations on the movement of goods or currency. In the absence of laws expressly prohibiting the practice of hawala, it is difficult to track and arrest the offenders. And since hawala does not affect the Dubai economy, and it's not a priority for local law enforcement.

Hawala hurts the national economies of developing countries desperate for foreign exchange deposits, but every individual in the chain has the incentive of earning a commission. And that's what keeps the networks going. "People know that salaries cannot buy the good things," says Ali, one of thousands of operatives in an underground banking world that stretches from New York to Tokyo. "You need a little extra." Even at a cost of enabling crime and terrorism.