1. Origin of the term and nature of the system
Already legally introduced by Islam in the 8th century [1], at least formally the instrument of hawala respects the cardinal principles of the Shari’a, the Islamic law. The Arabic term means ‘transfer’ [2] or ‘payment order’ and indicates a traditional and fiduciary way of money transfer, not very different from the obsolete ‘letters of exchange’[3].
The etymology of the term suggests that it evolved over several centuries before reaching its present meaning. Hawala comes from the root H-w-l which means ‘transform’ or ‘change’. Later, the word gained the additional meaning of ‘trust’ and ‘benchmark’, until it became synonymous with ‘guarantee’ once it was passed into French (-Aval)[4].
The most relevant element is the informal character of hawala: the lack of a contract - i.e. a written and regulated agreement between parties - explains why this financial instrument has been included in the casuistry of alternative remittance systems or so-called ‘underground and parallel systems’, thus distinct from conventional methods, typical of banking circuits[5]. According to the Greek scholar Nikos Passas[6], the most suitable expression for this system and others related to it is ‘Informal Funds Transfer Systems’ (IFTS)[7], whose generic character seems to have been shared by the circle of professionals.
To better clarify the matter, unlike conventional banking circuits - where only the two parties to the agreement are involved as sender and receiver of the agreed sum of money for the transaction - and the banking institution as a legal entity, in hawala there are four physical entities involved: the so-called originator, i.e. the one who intends to transfer the money, the first hawaladar (intermediary) who has the task of contacting the second hawaladar, i.e. the one who subsequently liquidates the money to the recipient, the fourth and last actor in the process, who is the beneficiary of the sum[8].
2. Operational method
The practice is the following one: the originator resident or domiciled in country A contacts the trusted hawaladar to transfer the money to him, including a small fee for the service, plus some personal information about the recipient and a security identification code; the latter contacts the second hawaladar resident in country B asking him to deliver to the recipient the equivalent of the amount agreed between the parties concerned. The second hawaladar reaches the recipient of the sum on the basis of the personal information received from the other intermediary and, after certifying the identity of the latter and subjecting him to some questions aimed at assessing his knowledge of the identification code, hands over the money[9]. Because of this modus operandi, the system in question not only falls into the category of informal money transfer models, as mentioned above, but is also labelled money transfer without money movement [10]: precisely to underline the non-existence of a direct transaction from the sender to recipient. Moreover, due to the lack of control by the authority, this system also falls into the category of informal ‘peer-to-peer (P2P) channels[11].
3. The element of trust as a conditio sine qua non for starting a transaction
Considering the abovementioned issues, the transfer does not take place directly from the sender to the recipient. Logistical and security reasons are said to be at the basis of this: about the former, it may be that the recipient of the money has a certain urgency to receive it and the advance of the second hawaladar may satisfy this need, unlike the real sender who is often resident in a distant place. As far as security aspects are concerned, the long distances to be travelled with large sums of money represent a serious risk due to theft and robbery and it makes sense to separate the transfer of money into different stages and at different times.
Hence the importance of trust, which is possible firstly if the actors involved belong to communities supported by the same commonly shared rules [12]. It is no coincidence that most intermediaries are from the same ethnic group, or even from the same family or clan [13]. The certainty or awareness that others respect the same principles, values and cultural models thus seems in itself to constitute a strong guarantee of trustworthiness, prompting all subjects to give what the political scientist Francis Fukuyama has called “prior moral consent”[14].
4. The anonymity of transactions: a good ally for terrorist organisations
The anonymous character of transactions needs to be clarified. The anonymity guaranteed by the system in question relates to the non-existence of standard documents for clients using the services and the non-accessibility of third parties to the records kept by intermediaries. The latter thus have records of the transactions in which they are involved, the keeping of a register has an eminently practical purpose, namely to maintain a track of their activity and the sums to be received from the sender or paid to the second intermediary. The register is therefore not a contract with legal value, but merely a personal document for the management of one's finances and portfolio, without any obligation to be checked by external auditors[15].
Because of its informal, ‘transparent’ or even ‘invisible’ character, the hawala system has raised increasing suspicions about its alleged links with criminal and terrorist organisations. The tragic attack on the Twin Towers on 9/11 marked the beginning of Western hostility towards this form of financing, which is the main, if not the only one, capable of guaranteeing anonymity and making it possible to operate clandestinely and illegally in the global market and finance, so much so that it has also been given the further names of ‘underground’, ‘shadow’ or ‘black channel’[16].
What has just been analysed helps to explain the US reaction. Following the information gathered by the intelligence community, President G. W. Bush stated that many money traders in the United States were ‘legitimate businesses’ only in appearance, but transferred a large part of the proceeds to finance terrorist acts “in the service of mass murderers” and constituted a heavy “foreign scourge” for the nation ‘with stars and stripes’[17]. The idea that “without money, there is no terrorism”, as “money is the lifeblood of terrorist operations”[18],made the hawala system part of the lexicon of world leaders and the media, in close connection with the theme of the so-called “war on terrorism”, whose ultimate aim was not only to search for the perpetrators of the incriminating attacks but also accomplices from the controversial and opaque world of Islamic finance[19].
5. Regulatory tightening after the tragic events of 9/11
Before 2001, accurate legislation on terrorist financing already existed in various parts of the world, providing for explicit sanctions and penalties. However, a not indifferent element of novelty and a harbinger of heated debates was their extension from the area closely inherent to the activities carried out by terrorists and related organizations to the one referred to private activities of individuals and companies, if they were accused of supporting terrorism, even if indirectly. Moreover, the evidence was gathered from classified sources, it was not presented in an open manner and therefore was not easily refutable. The approval of Executive Order 13224 [20] and the launching of Operation Green Quest[21]were clear examples of this regulatory tightening[22].
Conclusion
Many scholars in the field of terrorism have often missed the point of combating terrorist financing in the past, focusing more on high-tech and organised external economic support. Instead, the core of terrorist financing was and still is constituted by the so-called ‘local ring’, a support structure represented by mosques, religious leaders and community networks, and by the sending of remittances (certainly external, but lacking formality and high-tech circuits), which guarantee long-term support for all logistical and operational needs. Nonetheless, shortly after the events of 9/11 Osama Bin Laden stressed the jihadists' awareness of the ‘cracks’ in the conventional financial system, of which the remittance business metaphorically (and indeed) represented a “Grand Canyon”[23]. Although transactions via hawala are not traceable and cannot be reliably and satisfactorily estimated, it is believed that the use of this system by terrorists is far from negligible[24].
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References
[1] Note that reference is about the Islamic version of hawala. Some scholars believe that this system was created in the Middle East during the Middle Ages, while others assume that it was first used in South Asia. As Scacht observed: “Islamic law was created by Islam, but the raw material from which it was formed was largely un-Islamic”, da J. SCHACHT, Pre-Islamic Background and Early Development of Jurisprudence, in M. KHADDURI and H.J. LIENBESNY (eds.), Law in the Middle East, Vol. I, Middle East Institute, Washington D.C, 1955 (pp. 28-56), p. 28. [2] A. QUATTROCCHI, La rilevanza penale del sistema di pagamento hawala nelle condotte di favoreggiamento dell’immigrazione clandestina - Nota a Trib. Palermo, sent. 22 marzo 2018 (dep. 18 settembre 2018), n. 400, G.U.P. Ferro, Diritto Penale Contemporaneo, Fascicolo 2/2019, ISSN 2039-1676, p. 36. [3] http://www.bankpedia.org/index.php/it/105-italian/h/20418-hawala. [4] D. M. REDIN, I. FERRERO e R. C. CUADRADO, Cultural Financial Traditions and Universal Ethics: the Case of Hawala, Working Paper 08/2012, Universidad de Navarra - Facultad de Ciencias Económicas y Empresariales, 2012, p. 5. [5] A. QUATTROCCHI, La rilevanza penale del sistema di pagamento hawala nelle condotte di favoreggiamento dell’immigrazione clandestina - Nota a Trib. Palermo, sent. 22 marzo 2018 (dep. 18 settembre 2018), n. 400, G.U.P. Ferro, Diritto Penale Contemporaneo, Fascicolo 2/2019, ISSN 2039-1676, p. 26. [6] Professor of Criminology and Criminal Justice at Northeastern University in Boston (USA) and co-director of the Institute for Security and Public Policy at the same faculty. [7] N. PASSAS, Demystifying Hawala: A Look into its Social Organization and Mechanics, Journal of Scandinavian Studies in Criminology and Crime Prevention, ISSN 1404–3858, 2006, Vol 7 (pp 46–62), p.48. [8] G. PALUMBO, Hawala e Finanza. Le vie segrete del denaro nell’era dell’economia globale, Centro Interdipartimentale di Studi Strategici, Internazionali e Imprenditoriali – CSSII, 2011, p. 119.
[9]. L. BUENCAMINO and S. GORBUNOV, Informal Money Transfer Systems: Opportunities and Challenges for Development Finance, Economic and Social Affairs, ST/ESA/2002/DP/26 DESA Discussion Paper No. 26, November 2002, p. 2. [10] A. QUATTROCCHI, La rilevanza penale del sistema di pagamento hawala nelle condotte di favoreggiamento dell’immigrazione clandestina - Nota a Trib. Palermo, sent. 22 marzo 2018 (dep. 18 settembre 2018), n. 400, G.U.P. Ferro, Diritto Penale Contemporaneo, Fascicolo 2/2019, ISSN 2039-1676, p.28. [11] S. D’AURIA, Riciclaggio e Terrorismo, in Rivista GNOSIS, “Intrecci criminali”. gnosis.aisi.gov.it/gnosis/Rivista34.nsf/ServNavig/34-05.pdf/$File/34-05.pdf? [12] R. FELDMAN, Fund Transfers – African Terrorists Blend Old and New: Hawala and Satellite Telecommunications, Small Wars and Insurgencies Vol. 17, No. 3, 356–366, September 2006 (Routledge Taylor and Francis Group), p. 357. [13] J. CASSARA, Managing Terrorism Financing Risk in Remittances and Money Transfers, Center on Sanctions & Illicit Finance – Foundations for Defence of Democracies, Washington, 18 Luglio 2017, p. 4. [14] R. FELDMAN, Fund Transfers – African Terrorists Blend Old and New: Hawala and Satellite Telecommunications, Small Wars and Insurgencies Vol. 17, No. 3, 356–366, September 2006 (Routledge Taylor and Francis Group), p. 357. [15] D. LAURETTA, “Without money, there is no terrorism”. The methods of Jihad financing (amistades.info), AMIStaDeS – Fai Amicizia con il Sapere. Centro Studi per la promozione della cultura internazionale. [16] “Underground”, “Shadow” or “Black hawala”. E. THOMPSON, Misplaced Blame: Islam, Terrorism and the Origins of Hawala, Max Planck Yearbook of United Nations Law Online, 2007, p. 279. [17] Bush Announces Al-Qaeda Crackdown: Transcript of an Address to the White House, The Washington Post, 7 November 2001. http://www.washingtonpost.com/wpsrv/nation/specials/attacked/transcripts/bushtext_110701.html#bush. [18] J. CASSARA for COMMITTEE ON HOMELAND SECURITY, Terrorist Financing Since 9/11: Assessing An Evolving Al-Qaeda And State Sponsors Of Terrorism, House Hearing - 112 Congress (from the U.S. Government Publishing Office), 28 May 2012. https://www.govinfo.gov/content/pkg/CHRG-112hhrg78153/html/CHRG-112hhrg78153.htm. [19] E. THOMPSON, Misplaced Blame: Islam, Terrorism and the Origins of Hawala, Max Planck Yearbook of United Nations Law Online, 2007, p. 284. [20] Issued by President George W. Bush on 23 September 2001, this document provides a new strategic, policy and regulatory framework on terrorism in response to the attacks on the Twin Towers perpretated a few days earlier. [21] US investigative unit established in October 2001 in cooperation with the US Customs Service. Engaged in surveillance and interdiction of sources of terrorist financing, it was disbanded in June 2003 under an agreement between the Department of Homeland Security and the Department of Justice. [22] J. CASSARA for COMMITTEE ON HOMELAND SECURITY, Terrorist Financing Since 9/11: Assessing An Evolving Al-Qaeda And State Sponsors Of Terrorism, House Hearing - 112 Congress (from the U.S. Government Publishing Office), 28 May 2012, p. 284. [23] Il panorama comincia a mutare con l’introduzione dei bitcoin, all’interno del circuito Fintech, ma si è ancora lontani dall’avere un traffico consistente di attività illecite a fini terroristici. [24] J. CASSARA, Managing Terrorism Financing Risk in Remittances and Money Transfers, Center on Sanctions & Illicit Finance – Foundations for Defence of Democracies, Washington, 18 Luglio 2017, p. 4. [25] C. HORST and N. VAN HEAR, Counting the cost: refugees, remittances and the ‘war against terrorism”, in Older displaced people: at the back of the queue?, Forced Migration Review, Vol. 14, 2002 (32-35), p. 34.
Bibliography/Web References
- A. QUATTROCCHI, La rilevanza penale del sistema di pagamento hawala nelle condotte di favoreggiamento dell’immigrazione clandestina - Nota a Trib. Palermo, sent. 22 marzo 2018 (dep. 18 settembre 2018), n. 400, G.U.P. Ferro, Diritto Penale Contemporaneo, Fascicolo 2/2019, ISSN 2039-1676.
- C. HORST and N. VAN HEAR, Counting the cost: refugees, remittances and the ‘war against terrorism”, in Older displaced people: at the back of the queue?, Forced Migration Review, Vol. 14, 2002 (32-35).
- D. M. REDIN, I. FERRERO e R. C. CUADRADO, Cultural Financial Traditions and Universal Ethics: the Case of Hawala, Working Paper 08/2012, Universidad de Navarra - Facultad de Ciencias Económicas y Empresariales, 2012.
- E. THOMPSON, Misplaced Blame: Islam, Terrorism and the Origins of Hawala, Max Planck Yearbook of United Nations Law Online.
- G. PALUMBO, Hawala e Finanza. Le vie segrete del denaro nell’era dell’economia globale, Centro Interdipartimentale di Studi Strategici, Internazionali e Imprenditoriali – CSSII, 2011.
- J. CASSARA, Managing Terrorism Financing Risk in Remittances and Money Transfers, Center on Sanctions & Illicit Finance – Foundations for Defence of Democracies, Washington, 18 Luglio 2017.
- J. CASSARA for COMMITTEE ON HOMELAND SECURITY, Terrorist Financing Since 9/11: Assessing An Evolving Al-Qaeda And State Sponsors Of Terrorism, House Hearing - 112 Congress (from the U.S. Government Publishing Office), 28 May 2012.
- J. SCHACHT, Pre-Islamic Background and Early Development of Jurisprudence, in M. KHADDURI and H.J. LIENBESNY (eds.), Law in the Middle East, Vol. I, Middle East Institute, Washington D.C, 1955 (pp. 28-56).
- L. BUENCAMINO and S. GORBUNOV, Informal Money Transfer Systems: Opportunities and Challenges for Development Finance, Economic and Social Affairs, ST/ESA/2002/DP/26 DESA Discussion Paper No. 26, November 2002.
- N. PASSAS, Demystifying Hawala: A Look into its Social Organization and Mechanics, Journal of Scandinavian Studies in Criminology and Crime Prevention, ISSN 1404–3858, 2006, Vol 7 (pp 46–62).
- R. FELDMAN, Fund Transfers – African Terrorists Blend Old and New: Hawala and Satellite Telecommunications, Small Wars and Insurgencies Vol. 17, No. 3, 356–366, September 2006 (Routledge Taylor and Francis Group).
- S. D’AURIA, Riciclaggio e Terrorismo, in Rivista GNOSIS, “Intrecci criminali”. gnosis.aisi.gov.it/gnosis/Rivista34.nsf/ServNavig/34-05.pdf/$File/34-05.pdf?
- WASHINGTON POST, Bush Announces Al-Qaeda Crackdown: Transcript of an Address to the White House, 7 November 2001.
http://www.washingtonpost.com/wpsrv/nation/specials/attacked/transcripts/bushtext_110701.html#bush.