HAWALA
What is Hawala?
Hawala is an illegal and informal fund transfer System used
for money laundering and transferring funds domestically and internationally. It is sometimes mentioned as “Underground
banking” because with hawala you can transfer money from one country to another
without the purview of any bank or government and without paying any tax.
“Hawala” is an Arabic term means trust and indeed the whole
system works on mutual trust and promise. Hawala is fast, simple and cheap and
that is why even though being illegal, over the years hawala has been used by
common citizens, smugglers, terrorists and politicians to transfer their black
money.
How does it work?
In hawala money is transferred without actually moving the
money. Let’s take an example and try to understand. Mr. A is a small time
factory laborer working in Dubai and his visa has expired. So, he can’t send
money to his family (which is in Kochi, Kerala) by bank or any other official
money transfer facility as he might be caught. So he will approach a
hawala-operator based in Dubai and give the entire amount that he wants to
transfer to that Hawala-operator. Hawala-operator will now call his counterpart
in Kerala and tell him to pay the amount to Mr. A’s family in Kochi.
Hawala-operator will charge a commission for that but money is transferred in
few hours without getting into the complexities and delay of banks. And this is
the reason why it is so popular.
Trivia: After 9/11 it was revealed that
many terrorist activities were funded by the money transferred by terrorist
through Hawala. In India “Jain Brothers Hawala Scam” came to surface in 1991-92
which involved many politicians including L.K. Advani.
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