Updated: Feb 2
From hawala to the Fintech innovation
(by Davide Lauretta)
“Follow the money”. Although this statement became famous in the 70s due to one of the greatest scandals of American politics , it represents an important pillar for all intelligence activities related to counterterrorism: to follow the movement of money is the conditio sine qua non to identify terrorist groups and the related threats, as well as the development of effective methods to counter and prevent them. At the same time, the reconstruction of such economic-financial flows proves that any terrorist organization cannot be separated from money as well as their ability to obtain, transfer and use it. Therefore, the analysis aims to offer a general overview of methods of jihadist terrorism financing, from the traditional method of hawala to the more innovative operations involving the so-called cryptocurrencies, within a new financial space known as Fintech. The use of practices and tools to carry out financial transactions dates back to the dawn of Islamic fundamentalism. It should be pointed out that most of the resources needed by terrorist organisations are not used to implement the attack itself (operational costs) but to maintain the cell and its development in the long-term (maintenance costs). This process of money transfer for terrorist purposes is not essentially illegal ab origine. There are two procedures: money laundering, i.e. the movement of money which already originates from illicit activities and needs to be ‘cleaned’ in order not to arouse suspicion; and money dirting, a group of transactions that originate from lawful activities, but which subsequently converge in carrying out of criminal activities.
2. 1. The bipolarity of Islamic hawala: an ethical instrument of informal money transfer and means of terrorism financing
The first financing method under analysis is hawala, a term that in Arabic means “transfer” or “payment order”. This “peer to peer” (P2P) money transfer system involves the following practice: the orderer residing or domiciled in country A contacts his trusted hawaladar (intermediary) to transfer the money on his behalf, including a small service charge, plus some personal information about the recipient and a security identification code; the intermediary contacts a second hawaladar who is resident in Country B and asks the latter to deliver to the recipient the equivalent of the amount agreed upon between the parties involved. The second hawaladar reaches the recipient of the money based on the personal information received from the other intermediary and delivers the money, after certifying his identity and and, after certifying his identity and asking him a few questions to assess his knowledge of the identification code, hands over the money. Unlike conventional banking circuits, where only the two parties to the agreement are involved as sender and receiver of the agreed amount of money for the transaction, and the banking institution as a legal entity, in hawala there are four physical parties involved.
What is interesting here is the anonymity of the transactions. There are no legal documents to certify the transaction between the parties. Intermediaries keep records of the transfers in which they are involved, but the keeping of a register has only an eminently practical purpose to keep track of their activities and the amounts to be received by the sender or paid to the second intermediary. Considering its informal, 'transparent' or even 'invisible' nature, the hawala system has raised increasing suspicions about its alleged links with criminal and terrorist organisations. The tragic 9/11 attack has marked the beginning of the West’s hostility towards this form of financing, as it can operate clandestinely and illegally in global market, so much so that it also uses the further denominations of ‘underground’, ‘shadow’ or ‘black’ channel, confirming once again the idea that “without money, there is no terrorism”.
3. The Fintech digital revolution: technology at the service of terrorism
The current global diffusion of Jihadism has meant that terrorist organisations need to exploit new technologies to accelerate and increase the chances of finding and transferring resources, as well as to increase the speed and cost-effectiveness of the operations. With the affirmation of Web 2.0 and the so-called ‘Internet of Things’ (IoT), opportunities provided to terrorism have multiplied, facilitating both the propaganda action and the use of new methods of electronic money transfer: a phenomenon that can be summarized with the term FinTech. The result of the crasis of words ‘technology’ and ‘finance’, represents the space where all technological innovations applied to financial services are enclosed. These consist of Artificial Intelligence and Big Data, smart contracts, mobile internet access and Distribution Ledger Technology (DLT), including Blockchain, the most important