How does the hawala system for moving money actually work?
Payments
Asked by Question Bot01/Apr/20151 answer
1 Answer
F
Faisal Khan
Answered 01/Apr/2015
Hawala is a much debated issue. In addition to the answer given by Vrinda Kumar you also need to be cognizant that Hawala's basic definition is something that many regulators debate and often disagree on. Something that may be illegal in one country, becomes legal in another. Strictly speaking, even the Financial Action Task Force in its various meetings has debated this subject to a large disagree without coming to a global consensus as to what Hawala is. (See Financial Action Task Force (FATF))
Most agree that at its basic premise Hawala is the undocumented transfer of money. Most of the hawala done now is based on net-off basis. If someone wants to send $1000 from US to Bangladesh and vice versa, the hawala system would net off the transaction and provide money to both parties.
Liquidity is the main issue here for those operating on net off basis. Besides this, one-way transfers work in a huge manner. If someone I can accept the $1000 in the US (under the radar), and payout in Pakistan (also under the radar), then the transaction is treated as a hawala. It is all about not getting the money in the documented field, so that taxation or source of funding is not questioned. In many countries, there are inherent tax benefits by surrendering your foreign currency and getting paid in local currency (Pakistan for example has this law), which is used a lot - legally, for hawala purposes.
For any hawala transaction to work, you need a demand for the currency in both the countries.
Most agree that at its basic premise Hawala is the undocumented transfer of money. Most of the hawala done now is based on net-off basis. If someone wants to send $1000 from US to Bangladesh and vice versa, the hawala system would net off the transaction and provide money to both parties.
Liquidity is the main issue here for those operating on net off basis. Besides this, one-way transfers work in a huge manner. If someone I can accept the $1000 in the US (under the radar), and payout in Pakistan (also under the radar), then the transaction is treated as a hawala. It is all about not getting the money in the documented field, so that taxation or source of funding is not questioned. In many countries, there are inherent tax benefits by surrendering your foreign currency and getting paid in local currency (Pakistan for example has this law), which is used a lot - legally, for hawala purposes.
For any hawala transaction to work, you need a demand for the currency in both the countries.