Hawala, an ancient money transfer system, operates outside conventional banking systems.
Originating in South Asia and the Middle East centuries ago, it is still prevalent today, particularly in regions with significant diaspora populations or where formal banking is inaccessible or distrusted.
Hawala : Game of Black Money | How Black Money System Works | Financial Education | Aditya Saini
As its core, Hawala is a trust-based system where money is transferred without actual physical movement.
Here's a simplified step-by-step breakdown of a typical Hawala transaction:
1. Initiation: A sender in one country approaches a Hawala broker, known as a "Hawaldar," to transfer money to a recipient in another country.
2. Payment to Broker: The sender gives the equivalent amount in local currency to the Hawaldar.
3. Communication: The Hawaldar contacts another Hawaldar in the recipient's location, often through encrypted communication, codes, or trusted intermediaries.
4. Payout: The recipient is then given the money from the second Hawaldar, sometimes after providing a password or other identifier.
5. Settlement: The two hawaldars settle their accounts through various means: trade deals, goods transfer, or future transactions.
This process allows money to flow internationally without a single digital trace, making it appealing for those wishing to move funds discreetly.
Hawala's popularity stems from several factors:
* Anonymity: Unlike traditional banks, Hawala leaves no electronic record.
* Speed: Transactions are often instantaneous, unlike international wire transfers which can take days.
* Cost: Fees are generally lower than banks or money transfer services.
* Trust: In many communities, the Hawala system is built on deep-rooted trust and reliability.
While Hawala serves legitimate needs, such as remittances by expatriates, its anonymity and lack of regulation make it susceptible to misuse. Criminals, tax evaders, and terrorists exploit Hawala to:
* Launder Money: Convert illegal funds into clean money, undetected by authorities.
* Evade Taxes: Transfer money without government scrutiny.
* Fund Illegal Activities:
Provide financial support to terrorist organisations, drug traffickers, and other illicit operations.
Governments and financial regulators worldwide recognise the potential dangers posed by the Hawala system. Efforts to curb its misuse include:
* Regulations: Many countries have introduced laws requiring money transfer businesses to register and report large transactions.
* Technology: Advanced analytics and Al help detect unusual patterns indicating
Hawala-like operations.
* International Cooperation:
Countries share intelligence and collaborate to trace and disrupt
Hawala networks.
The Hawala system is a double-edged sword-offering a lifeline for many but also a channel for nefarious activities. Understanding how it works is crucial in the global fight against black money.
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