Modern Hawala

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by Bill Rounds: You
Have The Right To Remain Silent: FifthAmendmentExplained




That’s hawala,
not koala
and there are many hawala
. For those unfamiliar with a hawala system, a hawala
money transfer
is a way to send money via a hawaladar
or hawaladars,
usually across long distances, at a far lower cost than sending
money by wire or bank transfer. Hawala banking with hawala
and hawaladars have been used for thousands of
years, mostly among African, Asian and Middle Eastern cultures.
Although the advent of modern banking has made hawala
less common than before, the introduction of severe
restrictions to banking privacy through legislation and enforcement
has made a hawala
via a hawala
a very attractive option again for privately transferring

The transfer
of money via a hawala banking system is extremely private and is
unlikely to be reported or discovered by anyone other than the hawaladar,
the transferor and the tranferee. In a world where bank
is increasingly hard to find, this is a welcome feature
of hawala banking. In the hawala system, hawaladars are the brokers
or facilitators of the transaction. This transactional privacy has
made hawala banking an evil villain for enemies of personal privacy
and financial privacy. False and exaggerated allegations of money
laundering and terrorism funding through hawala
transfers and hawala
have incorrectly characterized the hawala network
while hawala banking is actually the most efficient and ancient
of all money-transferring systems.


The most common
use for a hawala system is to send hawala money transfers to another
person who is at a great distance from you. For hawala transactions,
the money sender contacts a local hawaladar and gives him the money
he or she wants to send. The hawaladar then contacts another hawaladar
in the destination city for the money and arranges to have the hawaladar
in the destination city turn over the money to the recipient, minus
a small fee. In the hawala transactions no money actually physically
travels the distance at that time but the hawaladars keep a tally
of the total owed and then settle the difference at a later date.
The exact methods can differ greatly from hawala network to hawala
network but this is the general overview of how hawala banking works.


The hawala
system can exist outside of the traditional legal system because
hawaladars generally engage in hawala transactions with other hawaladars
based on a long relationship of mutual trust, often built up over
generations of hawaladars. Thus with hawala banking there is no
need for formal legal protection, which is expensive, and there
is a very low risk of default when you transact with such well-known

This hawala
system is by far the most private form of transferring money. The
entire hawala transaction can occur over a couple of phone calls,
emails, text messages, or instant messages. Although the United
States requires registration of these kinds of hawala banking services,
it is very hard to enforce such a requirement because of the difficulty
detecting the hawala transactions. No formal records of the individual
hawala transactions are usually kept after the hawala transaction
has occurred. All that exists is usually a running tally of what
is owed, often encrypted or coded by the hawaladars in the hawala
network. This is far different from the extensive disclosures required
by banks for a similar transaction.

The hawaladars
also have the benefit of being able to settle accounts in a hawala
transaction with something of value other than a currency. These
non-cash hawala transactions can be used to avoid currency
, official exchange rates, import or export duties,
or other undesirable tax effects through the hawala system. These
legal, privacy and economic advantages allow the hawaladars to perform
the service of a hawala money transfer at a much lower cost than
is usually available through bank money transfers.


There are many
who strongly criticize the hawala system as dangerous because the
hawala transactions are extremely private. The privacy invading
aardvarks want to stick their nose in everyone else’s business.
Although there have been no conclusive findings that hawala transactions
through hawaladars have contributed significantly to terrorism or
organized crime, some argue that such hawala transactions are likely
to occur.

These critics
wish to either ban hawala systems (there are strict laws in some
states regarding these hawala transactions) or subject the hawala
network to rigorous reporting requirements similar to how the banks
currently operate. The reasoning appears to be something along the
lines of, criminals eat food therefore we need to outlaw the private
exchange of food unless there is a paper trail. Reporting requirements
as they are currently constructed not only offend the notion of
justice which requires that there be probable cause that there is
criminal activity afoot or evidence of a crime, based on articulable
facts, before a search can be conducted but also greatly invade
privacy when individuals can use a hawala system with hawaladars
for a hawala money transfer. If you want to engage in hawala transactions,
you will want to consult with a privacy
before hand to make sure that you are not in violation
of any of these arbitrary laws.

The search
may only occur after a neutral judge finds that there is probable
cause and then issues a valid warrant. Although the banks are subject
to invasive reporting requirements, they also require large amounts
of capital to operate and thus are not easily overlooked by enforcers
of such policies. Hawaladars can easily operate undetected with
hawala transactions through the hawala system and it is likely that
many will do so. Catching a hawaladar will be harder than catching
a drug smuggler that never smuggles any drugs across the border.


Because of
the dramatic benefits that a hawala system offers via hawala transactions
through a hawaladar it is only a matter of time before it becomes
widely used in many more hawala transactions throughout the world.
Individuals that act as hawaladars and are well known in their niche
or community will grow in influence as they are able to provide
hawala banking services at a much lower cost than may be found elsewhere.
People who have strong relationships with others in their field
of work or in their social life, who have the means to help others
with such hawala transactions, will become hawaladars, if just for
a family member as a one-time hawala transaction. In addition, the
hawala banking services provided by these modern hawaladars will
benefit the privacy of individuals. Hawala transactions will also
help you avoid
tax liability
when you are traveling outside of tax-free states.
To further protect your privacy when engaging in hawala transactions,
look to the book How
To Vanish, Legally Protecting Your Personal and Financial Privacy

to show you lots of tools and tips.

with permission from How to

11, 2010

Rounds, J.D. is a California attorney. He holds a degree in Accounting
from the University of Utah and a law degree from California
Western School of Law
. He practices civil litigation, domestic
and foreign business entity formation and transactions, criminal
defense and privacy law. He is a strong advocate of personal and
financial freedom and civil liberties. This is merely one article
of 73 by Bill
Rounds J.D.

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