The money changers: international police are investigating a complex drug-money laundering operation based on the ancient hawala money transfer system, which has links in Dubai, Turkey, Afghanistan and Italy.

Author:Jones, Rhys
Position:BUSINESS & FINANCE
 
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AS EUROPEAN AND US authorities continue their investigations into the apparent presence of an international money-laundering ring based in Dubai, the issue of cash laundering and its connections to the Gulf has once again reared its ugly head.

In late 2006, as part of a global sting operation--the Italian tax police arrested several Pakistanis living in Carpi, a town near Modena in northern Italy. They also issued an arrest warrant for an Indian, Kumar Jain Naresh, commonly known as Patel, who lives in Dubai and allegedly runs what authorities call an informal bank, where deposits come in from drug sales around the world, and transfers go out to drug barons in places like Turkey.

The investigation, dubbed 'Operation Khyber Pass', began as a typical drug bust but led authorities to a Dubai-centred international financial organisation spanning from South America to Australia. In Italy, it marks the first time authorities have found proof of the hawala system, rather than couriers, being used to move drug money.

Hawala, which means 'transfer' in Arabic, is an alternative or parallel remittance system, which exists and operates outside of, or parallel to 'traditional' banking or financial channels. The system works by transferring money without actually moving it. Interpol defines hawala as "money transfer without money movement".

The system has been used for hundreds of years to move money across distances and around legal and financial barriers in South Asia and the Middle East. Billions of dollars flow through this informal and anonymous system. It is mainly used by low-income Asian workers to remit money to their home countries but US security officials believe that Al Qaeda is still using the system to move money to its operatives around the world.

Typically, a transaction begins with a visit to a hawala broker, known as a hawaladhar. The person wanting to send money gives the broker the sum of money (in dollars or another convertible currency) to be transferred, plus a fee and the name and location of the person he wants the money delivered to. The hawaladhar in turn contacts a counterpart in the receiving country to make payment to the beneficiary.

No money actually crosses any borders and no money necessarily enters the conventional or official banking system. Transactions rest upon a single communication between hawaladhars and is often not recorded or guaranteed by a written contract. The trust between the two hawaladhars secures the...

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