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<i>Hawala</i> May Have Helped Bin Laden Transfer Money - 2001-10-07

Authorities believe Osama bin Laden's network may use an ancient, informal banking system known as "Hawala" to transfer money to operatives outside Afghanistan without leaving any paper trail. Hawala has been used for many centuries in Asia, Africa and the Middle East, and it makes tracking illegal money flows difficult.

In China its name means "flying money." In the Middle East and southern Asia its name means "trust." The Cato Institute's money laundering expert Jacobo Rodriguez says both translations are apt because this is a system that depends on trust and transfers money so quickly it seems to fly. "The money is not transported" he says, "The way it works is a person goes into an office and deposits money there, and the person depositing the money receives a code, and that code is passed on to the recipient of the money at another location." The Hawala operator then transmits the code and information on the money amount by phone or fax to the location where the money is to be picked up.

Transnational crime expert Nikos Passas says the recipient then goes to the Hawala office in a distant country, offers up the five digit code, and receives the money. Since the two operators of the Hawala system both send and receive orders, Mr. Passas says, they may well balance their accounts after a few transactions. "If I do have a balance after a certain period of time with my counterpart in, say, India," he explains, "what I may want to do is purchase some gold here, smuggle it to India, and then the proceeds are used in order to balance the account."

Once the two Hawala operators balance their accounts Jacobo Rodriguez says, all ledgers are torn up. "So there is no paper trail left behind," he adds, "because the custom, especially in Middle Eastern countries is to destroy all records of the transaction after the transaction has been completed."

The lack of records makes Hawala an appealing money transfer vehicle for drug smugglers or terrorists. But Mr. Rodriquez believes criminals make up a tiny proportion of those who use Hawala. "The majority of people who use the Hawala system are people with very limited means who do not have access to the formal banking system," he says. "The majority of those people are law-abiding citizens."

Hawala is the simplest, cheapest means of moving money in the developing world, according to Mr. Rodriguez. It is also, he acknowledges, the best way to hide transactions.