October 3, 2001
ANCIENT SECRET SYSTEM MOVE MONEY GLOBALLY
By DOUGLAS FRANTZ
http://www.nytimes.com/2001/10/03/international/03LAUN.html
UETTA, Pakistan, Oct. 2 - With nothing more than a telephone and a
fax machine, Tarir Khan transfers money almost anywhere in the world
- no questions asked, no names used and no trail for law enforcement
to follow.
Mr. Khan is a small cog in a far- reaching network of informal
banking known as hawala, the Arabic word for trust. Although it is
illegal in most countries, including here in Pakistan, authorities
estimate that billions of dollars flow unseen by regulators through
the hawala system worldwide.
A senior government official in Pakistan said law enforcement
authorities were certain that Osama bin Laden's network used hawala
to transfer money to agents outside Afghanistan, along with
conventional means. But the nature of hawala will make tracking those
particular exchanges almost impossible.
In the Kandahari bazaar here, many hawala dealers are concentrated in
a five-story concrete building that resembles a bunker, its interior
dark and its offices lighted by dim bulbs.
Outside, donkey-drawn carts vie for space with Toyota Land Cruisers,
and three-wheel motorized rickshaws dodge bangled buses and
pedestrians.
The absence of women, save a couple of beggars, is striking. In
Pakistan and Afghanistan, money business is men's business.
Anyone can walk into a hawala shop in Quetta or a thousand other
cities in southern Asia, put down a stack of cash and ask that the
sum be transferred to a recipient in another country.
Mr. Khan and his associate, found sitting cross-legged on the floor
of their sparse office and sipping tea, keep transactions in a brown
notebook on Mr. Khan's desk. When he receives a telephone call or a
fax to confirm that money has been picked up elsewhere in the world,
the relevant page is torn out of the notebook.
Even the new scrutiny prompted by the terror attacks on Sept. 11 is
highly unlikely to disclose all the details of how Mr. bin Laden's
money moves through the ancient system. Mr. Khan, for one, refuses to
divulge the cities where he has associates, saying he fears the
authorities.
"This system is made for transferring enough money to get a pilot's
license or make a deposit on an apartment without raising an
eyebrow," Prof. Nikos Passas, an expert on transnational crime at
Temple University and a consultant to government agencies, said in a
telephone interview.
Finance Minister Shaukut Aziz, a former executive vice president of
Citibank in New York, said $2 billion to $5 billion moved through the
hawala system annually in Pakistan, more than the amount of foreign
transfers through the country's banking system.
Pakistan is trying to draft laws to regulate the industry. But for
now it thrives illegally in places like the Kandahari bazaar.
A United States Treasury Department study identified hawala as the
principal means of money laundering from drug trafficking and other
crimes in Pakistan. The report said Pakistan, India and Dubai on the
Persian Gulf form the "hawala triangle" to move money secretly
worldwide.
In hawala, sums large and small are sent halfway around the world on
a handshake and a code word. Records of transactions are kept just
until the deal is completed. Then they are destroyed.
No cash moves across a border or through an electronic transfer
system, the places where authorities are most likely to spot or
record the transaction.
The sender does not have to provide his name or identify the
recipient. Instead, he is given a code word, which is all the
recipient needs to pick up the same amount of cash from an associate
of the original trader. The transaction can occur in the time it
takes to make a couple of phone calls or send a fax.
The system was in place long before Western banking. The ancient
Chinese used a similar method called "flying money," or fei qian.
Arab traders used it as a means of avoiding robbery along the Silk
Road.
Millions of Pakistanis, Indians, Filipinos and other people from
southern Asia working in foreign countries use the system to send
money home to relatives.
"They don't feel comfortable walking into a bank," Mr. Aziz said in
an interview.
"It's very dangerous to talk about this, because it is illegal," Mr.
Khan, who arrived in Quetta from Afghanistan many years ago, said
this afternoon as a colleague shook his head and told him to keep
quiet. "I can't tell you much."
Trust, he said, is the essential quality of a hawala trader. Most of
his customers are from the same part of Afghanistan. So there is an
innate sense of trust.
He said transfers were usually sent among family members and involved
a few hundred dollars. Sometimes transactions are for as little as
$50.
He provides a five-digit code word, a letter and four numbers, that
the recipient takes to one of Mr. Khan's associates as far away as
the United States, Germany or Russia. The same associates accept
money for transfer to relatives in Quetta.
"They tell the code word, and we hand over the money," he said. "Then
we tear up the records on both ends."
Most hawala merchants charge a small commission, usually $5 for
transfers up to $500 and $10 for up to $1,000.
Their main profit comes from currency fluctuations and extra fees for
moving money for big clients.
The system is used for far larger sums, often by drug traffickers,
corrupt politicians and black market traders, according to local
experts and law enforcement.
"The drug dealers, the politicians who get kickbacks and others with
black money use this system," said Kamran Mumtaz, editor of The Daily
Mashriq, a newspaper in Quetta.
Authorities have found evidence that hawala has been used for
payments by smuggling rings and militant groups in the disputed
territory of Kashmir and the Tamil Tigers in Sri Lanka, Professor
Passas said. "This is the most convenient, common and cheapest system
of moving money," he said. "It is also one of the most difficult to
track."
This archive was generated by hypermail 2b30 : Sat May 11 2002 - 17:44:11 MDT