Xawaaladaha Report

[N.O.R.F]

US-Led Campaign Against Hawala Meets Success and Resistance

 

International efforts to crack down on hawala banking resulted in the first successful prosecution in Boston, but elsewhere the authorities have cast doubt on the US list of proscribed individuals and organisations. In Somalia, the UNDP stepped in to rescue the country's money transfer industry from the effects of the US campaign. In Abu Dhabi a meeting of experts acknowledged the positive aspects of hawala. Pakistan hailed the success of its legal alternative to informal money transfers.

 

Following the attacks of September 11 the US government has urged an international effort to regulate the informal banking system known as hawala which, it is alleged, routes funds to the Al Qaeda organisation (see Traces #16,17). Two hawala networks were singled out, Al Barakaat and Al Taqwa. The former was a major financial lifeline between Somalis abroad and their homeland, leading to fears that the crack down would have severe consequences for an already impoverished country.

 

In April the United Nations Development Programme came up with an action plan to help Somali money transfer companies meet international financial rules and thereby avoid closure. Following the shut down of Al Barakaat by US pressure, Somalia's next-largest hawala bank, Dahabshil, faced closure of its accounts with Wells Fargo Bank until the UNDP stepped in. The UNDP said it would consult with international regulatory bodies on behalf of the hawalas, and in the meantime provide technical assistance for bookkeeping, auditing and reporting. It will ensure that firms meet the requirements of the Financial Action Task Force (FATF), which has issued guidelines for how countries should reform their banking systems to counter money laundering. With no regular banking services, thousands of Somalis would be cut off from family remittances from abroad. Dahabshil is particularly important to the break-away republic of Somaliland, where it is the largest employer. The country's three largest money transfer firms used to handle 750,000 transactions a year, worth $500 million to the local economy. Since September 11 and the clamp down on informal remittance channels, Somalia's economy has slowed down significantly.

 

At a convention held in the United Arab Emirates in May, the Abu Dhabi Declaration on Hawala was adopted by representatives of the region's governments, police and financial industries. The Declaration recognized the value of the hawala system as a low-cost and efficient way of transferring funds, but also spoke of the need to balance its utility with regulation to avoid criminal abuse. The Declaration called on countries to accept the eight FATF recommendations on money laundering and terrorist financing, (which most G8 countries had failed to do). It said:

 

the international community should continue to work individually and collectively to regulate the hawala system for legitimate commerce and to prevent its exploitation or misuse by criminals and others.

 

It called for "effective but not overly restrictive" regulations. Juan Zarate, a deputy assistant secretary at the US Treasury Department, said the conference represented "another step in international cooperation to combat terrorist financing through abuses of the financial system".

 

The convention brought together 300 delegates from the Gulf region as well as experts and officials from abroad. There were representatives of European and US central banks. The organisers were satisfied that the meeting had dispelled some of the myths around hawala and served to remind the world community of its positive aspects. Mohammad al-Qorschi, a senior economist with the International Monetary Fund, explained that hawala was particularly significant in the Indian subcontinent, the Gulf, the Philippines and, unusually, Japan. Qorschi heads the IMF investigation into hawala launched after 9/11. He told delegates that countries should regulate hawala in the same way as the UK and Germany, instead of trying to stamp out the practice. He reminded them that many legitimate organizations used hawala to send money to places where there was no formal banking, such as Afghanistan.

 

After the convention, the UAE announced that it would establish a system for regulating and supervising hawala by the end of July. US investigators think that most of the funding for the September 11 attacks was routed through UAE.

 

Following the US clamp down on hawala operators in the USA, a US District Court in Boston found a Somali businessman from Dorchester guilty of running an unlicensed money transfer firm. It was the fist successful prosecution under the USA-PATRIOT Act. After three days of hearing, the jury convicted Mohamed Hussein, who could face up to five years in gaol. He is a Canadian citizen and could eventually be deported. His brother, who is also wanted in connection with the same offences, is facing extradition from Canada. The prosecution alleged that Hussein had run Al Barakaat offices in Dorchester since September 2000, wiring $2.8 million from Somalis in the Boston region to Somalia, Kenya and Uganda. It charged him with failing to file the relevant paperwork with the state banking commission. The defence countered that Mohamed was merely running the office for his brother, Liban Hussein. There was no evidence brought to the trial that any money passed from the office to Al Qaeda or any terrorist organization. But the Justice Department suspects that money passing through the firm's accounts in Dubai was skimmed off to fund terrorism.

 

During the trial, witnesses explained how the system worked. Richard Sempebwa told he jury that he started sending cash to his relatives in Uganda. Later he collected money from friends to send. He deposited the cash he collected from about a dozen people three times a week in a bank branch in Waltham, Massachusetts. He received $2 commission on each deposit. Sempebwa then faxed a list of names to the Husseins, who made sure that the funds arrived. They did so successfully each time, the witness said.

 

In Oslo, Norway, the authorities indicted two Somali-born businessmen for money laundering and tax and accounting violations. One man ran the Norwegian branch of Al Barakat. The two suspects are believed to have sent the equivalent of $7.5 million a year.

 

But elsewhere the authorities found that evidence against Al Barakaat operatives and other money transfer firms was less compelling and that there was little sign of links to terrorism. There are also serious reservations about the list of names and organizations provided by the US authorities in October. Arab names were misspelt, basic details omitted and deceased people included. Some of the organizations listed, such as the Revolutionary Armed Forces of Colombia, have been removed from the list at the request of Switzerland and France. In May Canadian courts threw out a case against a man listed by the USA. Sweden has appealed for three names to be removed from the list of suspects. It froze their assets as requested but now believes there is no evidence against them. The Swiss government has doubts that a man listed as linked to another hawala company, Al Taqwa, is guilty of any wrongdoing.

 

There is no sign that the flow of funds to Al Qaeda from Saudi charities has slowed down. The UN reported that the network is using gold and diamonds alongside the hawala system to secure funds, and that weapons continued to enter Pakistan and Afghanistan to replace those lost in the war. The UN monitors reckon that $75 million of funds destined for Al Qaeda has been frozen, but that this is a small fraction of the amount of money laundered illegally around the world.

 

Pakistan's forex reserves rose from $ 1.7 billion in September 2001 to $ 5.4 billion in April. Among the causes was an increase in expatriate remittances, which were projected to total $2 billion for the financial year. This increase is thought to be due, in part, to the shift of transfers from the hawala system to formal banking channels. According to a statement from the Pakistani government, its scheme to encourage legal transfers has been a major success. The scheme includes incentives, prizes and benefits according to different levels of remittances.

 

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