Hawala – when trust moves money across borders

Before we come to hawala – lets test your knowledge on another item for cross reference:
When you hear Western Union – what do you think? And if you know it,  where did WU start?
what-is-hawala-system-of-remitting-money-is-it-legal
 
Most humans associate it with cash transfer across borders, as in humans sending money to another country for various purposes. Another association is with fraud, since the transfer is final – which for example can be used to take money from unsuspecting victims in the so called forward fraud – someone pays for goods in advance but never receives them. Fewer people know the origin of WU –  the 1856 born telegram company monopoly helped to create services and businesses around the fast transfer of information (by the stadards of the late 19th/ early 20th century.
Now take the word „hawala“. Asked on a typical western european street, most westerns  don’t know what it means – and if asked to guess, answers range from „some oriental dish“ to „a town somewhere in the middle east“. Few know its true meaning, fewer have used it: It means transfer, and it has an association with trust and most humans use it to send remittance back to their home country as it is a cheap and relatively frictionless informal money transfer system (short ITMS).
„So how can I use hawala?“ you might ask. Easy. You need to know two connected hawaladars, thats the name for the humans that are the endpoints in the transaction. You give money to your hawala broker and provide an identifier for the receiver at the other endpoint – most likely a password or pharse. You will not be involved in the transaction between the brokers, but you will provide the password/phrase to the receiver, which then approaches the other endpoint and gets the money minus a small commission – usually around 1 to 1,5 per cent. There is usually little trail of the transaction. And beween the two brokers the real exchange can take a number of forms apart form money transfer – ranging from natural goods and virtual goods, services through a third party to human resources provided.
Because of its heterogenous exchange system, it gives any regulating body a nightmare – and this makes it very hard to find an „official“ hawalar broker in Germany for example. The exchange of financial services across countries is heavily regulated and with 9/11 it has been tightened even more –  so hawala is in conflict with rules like proof of origin of money for specific sums, keeping transactional records and identity checks for recipients and senders.
Comparing hawala with Western Union as a reference, It it shares the endpoint to endpoint transfer, but with the differences that WU owns both endpoints, while in hawala they might be related (like belonging to an ethnic group, clan, family, etc …) but they don’t have to be. Instead of an accounting connection between two branches in WU it is a trust based link. Conflicts and abuse are rare because the relation and trust factor between to hawala brokers will directly impact them and their ability to operate in the future is based on ongoing transactions, while with WU (very rare) abuse can happen because of the involved reliance on digital technology and virtualisation of money. While the fees are lower in hawala so is the maintenance of the system – there is no standard for a specific branding, necessity of an representative office or the like. In terms of scale, hawala finds its individual limits on the agreement of the endpoints what kinds of transactions they can do – both micro payments (think cents and lower) and large transactions (think hundred thousands and more) do not work with hawala.
(I’ll resume later on this, I hope this is useful in context of tacit futures.)
Sources: Report by the Financial Crimes Enforcement Network (PDF: Link), Informal Money Transfer Systems (PDF: Link)
 

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