Research proposal
Investigating Hawala Remittance System and its Crucial Role in Money Laundering
Background of the Study
One of the issues faced by different industries or perhaps a government is about financial issues, specifically money laundering. Throughout the years, the government is considering different initiatives and alternatives to solve these kinds of financial issues, but there are some systems which prevents government systems to solve money laundering issues. One of the financial practices which is very common in different countries all over the world is Hawala. Accordingly, Hawala referred to informal financial networks which originate on its Arabic roots that which indicates to change or to transform (Passas, 1999, page 11). It is believed that Hawala network were first used by Asian countries to provide safe money transfers for traders which travel along the Silk route. The contemporary development of this approach is connected to the partition between Pakistan and India in 1947, when exchange controls made it illegal to transfer money between nations and this approach filled the gap for this issue (Miller, 1999). This remittance approach aims on arranging for the transfer of money internationally or domestically Hawala networks arrange for the transfer of money domestically and can also use to arrange credit. Even if there are talks about the black market and underground economy, Hawala transactions are not deemed as illegal in most nations except for India (Cottle, 2001). Specifically, Hawala transaction have some similarities with international money transfers done by normal financial organizations and those Hawala brokers in Western regions do not operate underground and advertise openly to press about the ongoing transactions (advertise in the local press (Passas, 1999, page 20). It can be said that the informal money transfers such as Hawala remittance system paves the way for having a system that escape the formal accounting procedures of the national government and other international organizations. Because of the 9/11 terrorist attack, Hawala remittance system has been in the critical issues because of its connotation of being a banking systems which is built for terrorism (Ganguly, 2001). Hawala is has not only been attached with terrorism but other illegal financial activities such as money laundering.
Primarily, the main goal of this proposed research is to identify the role played by Hawala remittance system in money laundering.
Research Objectives
The issue of Hawala remittance system has made some hot topics in the financial system, specifically for forensic accounting. With the aim of most government to solve illegal financial issues, Hawala’s legality has been questioned; specifically it’s connection with money laundering. In this regard, the main goal of this proposed research is to identify the role played by Hawala in money laundering. In particular, this paper aims to achieve the following objectives:
1. To identify how Hawala works as a remittance system.
2. To determine how Hawala is being attached with money laundering.
3. To know how Hawala remittance systems become appealing as a remittance approach.
Significance of the Study
This study is very significant as it will provide clear analysis for the context of Hawala and how it is attributed to the money laundering issues. This research is also deemed important because it will help the reader to have a clear view of the Hawala remittance system. With the growing issues of money laundering all over the world, most organizations and interested parties are trying to find how this works and what contributes to the growth of this financial issue, hence analyzing Hawala as an alternative remittance system is very essential.
Literature Review
Hawala Remittance System
Hawala Remittance system also regarded as the alternative remittance system by Financial Action Task Force are known to be an informal banking arrangements and transactions which allow transfer of funds for international and domestic remittances without considering formal financial companies like banks. It is well recognized for having the cheapest and also the fastest and most reliable transfer approach which has been used by overseas workers sending remittances for their families. Though it is very hard to accurately quantify the volume of funds transferred yearly to the developing world through such avenues, remittances are very essential sources of income for different impoverished households and may also play an essential role in promoting development and growth. Nonetheless, in the aftermath of September 11, there has been growing issues on the potential role of Hawala in money laundering. This thought was due to the fact that remittances through Hawala system are anonymous and only require minimal documents, that it can be easily misused by criminal organizations or the terrorists groups to cover the proceeds of criminal operations or corrupt government officials to launder the proceeds of their corruptions (El-Qorchi, 2009).
According to some studies, Hawala is considered to be a safe, fast and cost-effective transfer funds approach. It runs independently from the formal banking approach and was originally developed to assist trade between distant regions at a period of time or in regions where traditional banking medium were not available, weak or considered as unsafe. Alternative remittance systems such as Hawala are being defined by the FATF as a system used to cover any system utilized for transferring funds from one region to another and universally operates independently from the banking channels. Alternative remittance systems services range from those administered by large multinational firms to small local networks. They can be of illegal or legal nature and make use of different methods and tools to transfer the money.
In some countries, Hawala remittance systems is not considered as illegal, however because of some irregularities of the system and its limited documentation, authorities are considering this as an illegal form although they are having difficulties to oppose it because it has been promoted and advertised through internet and ethnic media. Furthermore, brokers of Hawala usually run legal business in line with the remittance services that they offer, which further post some challenges to detect its irregularities.
Hawala Remittance Process
The Hawala remittance process is very simple: the customer has a quantity of funds which he wants to provide from his nation of abode to his family in his original country. He gives such money to a Hawala banker and the banker calls his contact, which is another Hawala banker, in the second nation and asks this to release such cash to the family of the client. On the other hand, the Hawala banker gives the client with a remittance code which he will give to the member of the family. His family member visits their contact who will give the money on the presentation of the correct remittance code. Such entire process can take less than 24 hours. The Hawala banker as well as his counterpart in the client’s country of origin keep a tally of how much each owes the other party and settle their accounts on several times of a year. Hawala bankers mostly have import/export firms and may utilize goods to settle accounts such as they can export a specific amount of good to the other at a decreased rate to cover the amount that he owes from Hawala exchanges.
Research Methodology
To achieve the objective of this proposed research, the author of the research opted to use descriptive method of research. The purpose of considering this type of research design is to describe the nature of a condition or topic, as it takes place during the time of the study and to explore the cause or causes of a probable condition. The researcher opted to use this kind of research considering the desire to acquire relevant data from relevant documents (Creswell, 1994). For this research, content analysis will be done to the information in order to answer two levels of questions – the descriptive and the interpretive. Descriptive questions focused on what the communication contains. Interpretative questions focused on what the contents was likely to mean. The process entailed searching through one or more information to answer questions that an investigator brings to the search (Brubaker & Thomas, 2000).
Analysis of the gathered secondary data will be considered in this research as well. Herein, data about money laundering and its connection with Hawala will be given emphasis. The Hawala remittance system and how it works will also be an important highlight of this proposed research.
References:
A-Books
1-Regulatory Frameworks for Hawala and Other Remittance Systems (Paperback)
by Monetary and Financial Systems Department (Editor), Stefan Ingves (Foreword) "The First International Conference on Hawala, hosted by the government of the United Arab Emirates under the leadership of the Central Bank of the U.A.E
2-Transnational organized crime perspective on global security
Edited by adam Edwards and peter Gill.
3-The money exchange dealers of Kabul: a study of the Hawala system in Afghanistan
By Samuel Munzele Maimbo
B-Web sites
1-http://www.interpol.int/Public/FinancialCrime/MoneyLaundering/Hawala/default.asp
2-http://www.gdrc.org/icm/hawala.html
3- http://www.gdrc.org/icm/hawala.html
Cottle M, 2001, ``Hawala v. the war on terrorism: Eastern Union'' The New Republic 15 October,
http://www.tnr.com/101501/cottle101501.html, accessed September 2, 2009.
Ganguly M, 2001, ``A banking system built for terrorism'' Retrieve September 2, 2009, http://www.time.com/time/world/article/0,8599,178227,00.html
Passas N, 1999 Informal ValueTransfer Systems and Criminal Organizations: A Study into So-called Underground Banking Networks Dutch Ministry of Justice, http://www.minjust.nl:8080/b_organ/wodc/publications/ivts.pdf. Retrieve September 2, 2009.
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