A hawala system is an informal network of facilitating money laundering and unauthorized operations across international borders. This ancient financial method has been an ancient technique used for international trading and commerce financing.
The hawala monetary operations are usually conducted outside the legal remittance, financial, and banking system. These old-fashioned financing techniques rely on the level of trust among the different hawala brokers. To further understand how the hawala system works, read further to analyze its operational activities.
Contents
- 1 Understanding Hawala Network – A Quick Overview
- 2 Role of Hawala Broker in Illegal Operations
- 3 The Idea Behind Hawala Money Transfer Process
- 4 Hawala Meaning and Unauthorized Transactions – An Analysis
- 5 Threats of Hundi Money Transfer Operations
- 6 The Harms of Hawala Banking Operations
- 7 Concluding Remarks
Understanding Hawala Network – A Quick Overview
Hawala is one of the most ancient methods of transferring funds across international borders without physical money movement being reported in legitimate finances. These operations are highly dependent on the values of utter trust within the different brokers. In spite of being an ancient transactional concern, these activities are still used by the developing country’s refugees to send remittances to other countries.
Due to the anonymity of the hawala operations, illegal entities find it convenient to use these channels for transferring illegally acquired funds and assets to different parts of the world. Since these platforms prevent the tracking of fund sources, legitimate businesses are unable to identify whether the transactional activities are conducted for legitimate or illegal operations. Additionally, some components of these activities include:
- The hawala dealers are assisted in keeping track of all the informal debit and credit operations in a journal.
- A hawala broker who fails to abide by the contractual deals regarding the financial transactions will ultimately lose their credibility and reliability.
Role of Hawala Broker in Illegal Operations
Hawala was known to be the most acute solution for countries with expensive banking structures. These informal financial operations are operated through low bank charge fees facilitated by the hawala brokers. These brokers play an essential role as they effectively connect various financial senders and receivers through different channels.
Due to the rise of these informal transactional operations, imposters and money launderers use these channels to conceal the original source of funds from exposure. Hawala operations are effective and illicit at the same time due to their separation from legitimate banking operations.
The Idea Behind Hawala Money Transfer Process
A hawala procedure functions effectively through a series of steps that require a thorough assessment to identify its scope. This process begins when a broker is approached by a sender who contacts the other broker in a different country. The first hawalader provides a security code to the sender to lock the agreement, which is not backed by any regulatory body, which opens the door for illegal transactional operations. Eventually, the hawala monetary transactions rely solely on trust-based financial settlements.
A hawala network, often disguised in nature, is the sole mediator of illegal activities among the different businesses. One of the most significant functions of the hawala operations is that they conceal illegal operations and use unauthorized funds for conducting illegal operations. It is also known as the underground banking operations, which allow the corrupt and high-profile entities to conduct anonymous operations to hide the proceeds of their illegally acquired wealth and assets.
The financial histories reveal that the Hawala networks were significantly used to finance terrorist activities. Due to the relaxed regulatory environment associated with these activities, the imposters are able to facilitate illegal operators without them being identified. Now, in today’s modern and regulated environment, such activities are required to be penalized.
Threats of Hundi Money Transfer Operations
The Hundi money transfer is an Indian way of facilitating the hawala operations. There are certain risks associated with these operations that impact the accessibility of the monetary funds. The non-regulated and mistrust of the Hawala financial operations leads the holders to lose their funds as these operations are conducted solely on the basis of word-of-mouth contracts. In case of identification by a government entity, entities involved in these operations are subjected to sanctions and regulatory fines.
The Harms of Hawala Banking Operations
Fraudulent activities, including money laundering and financing of terrorism, are the primary reasons why ancient imposters relied on hawala banking operations. Due to these operations, the entities may face fluctuations in various exchange rates, which allow imposters to further disguise the ownership of illegally accessed funds that are registered under their business titles. Due to these operations, businesses can significantly lose their funds due to the non-regulated transactional operations carried out in different countries.
Concluding Remarks
Hawala is an informal way through which imposters illegally transfer money across different borders. Due to these risky activities, businesses and several high-profile entities are able to conceal the source of their illegal operations while avoiding the regulations imposed by government entities. Therefore, the identification of such transactions through enhanced transaction monitoring operations is necessary to boost business credibility among the different entities.
