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Date: Wed, 3 Dec 2003 08:43:48 -0800 (PST)
Subject: [libnetd] Fwd: [PT] UAE takes unprecedented action on hawala
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> Subject: [PT] UAE takes unprecedented action on
> hawala
> 
> UAE takes unprecedented action on hawala
> 
> Emirates license local operators in bid to control
> 'underground'
> banking system Informal means of money transfer has
> been under scrutiny as
> possible channel of funding to extremists
> 
> K. Raveendran
> Special to The Daily Star
> 
>       DUBAI: The custom in Arab-Western economic
> relations seems to be that
> when powerful Western agencies exert pressure on
> Arab financial institutions
> to change their systems and practices, the Arabs
> have little option but to
> oblige.
>       But what the central bank of the United Arab
> Emirates did the other
> day in relation to hawala - the ubiquitous informal
> money transfer system
> that the West links to much that is undesirable in
> banking and finance - was
> exceptional.
>       At a conference on money-laundering, UAE
> Central Bank Governor Sultan
> bin Nasser al-Suwaidi announced that licenses had
> been issued to more than
> 60 hawala operators in the country so that these
> dealers could carry on
> business within a legal framework. And more licenses
> were on the way.
>       Suwaidi has been a key campaigner against the
> international clamor to
> outlaw hawala by arguing that the age-old practice
> had a genuine economic
> role to play, particularly in third world countries
> where banking had only
> limited reach and that hawala was just as prone to
> abuse as was any other
> banking and financial channel.
>       As the governor of the central bank of a
> country that figured
> prominently in the trail of terrorist funding in the
> wake of the Sept. 11,
> 2001 attack, Suwaidi has shown remarkable grit to
> stay his ground.
>       No one knows how much money flows through the
> global hawala system,
> but estimates range from $2 billion to $5 billion a
> day - perhaps as much as
> $1 trillion annually.
>       Hawala is an informal, paperless money
> transfer system that is highly
> popular among Asian expatriate communities for its
> efficiency and
> cost-effectiveness. It is thought to have originated
> in India more than 200
> years ago, long before the western banking system
> was developed and has been
> in use ever since not only in India, but other parts
> of the world to move
> money across borders to remote areas and communities
> with limited access to
> modern banking services.
>       Hawala works on trust and is therefore founded
> on community and clan
> connections, which facilitate the transfer of money
> without moving it and
> yet the chances of default are virtually
> non-existent.
>       Hawala's variants include chop and fei-chien
> in China, padala in the
> Philippines,
>       hui kuan in Hong Kong and phei kwan in
> Thailand - all broadly referred
> to as "underground banking."
>       Hawala can be seen to represent the parallel
> economy, or black economy
> as in Europe and Asia and the underground or
> subterranean economy as in the
> US.
>       A Commonwealth Secretariat report in London
> quotes the size of the
> parallel economy to be up to 50 percent of the GDP
> in India (that would be a
> whopping $150 billion), 7 to 16 percent in the
> European Union and 4 to 10
> percent in the US.
>       Along with London and Switzerland, Dubai is
> considered a key point in
> the global hawala network. Dubai is a natural center
> due to the large
> presence of expatriate workers and businessmen and
> here hawala often takes
> the form of flight of capital resulting from
> exchange controls, regulations
> against outflow of funds and other policies followed
> by many Asian
> countries, including India. Dubai as a major
> re-export hub also helped
> hawala operators to move money against invoices.
>       But what really turned the spotlight on the
> UAE, and Dubai, was a wire
> transfer effected by some Al-Qaeda operatives,
> believed to be involved in
> the Sept. 11 attack. The money, transmitted from a
> Boston transfer facility,
> was received by a suspected Al-Qaeda functionary
> through a Sharjah exchange
> house.
>       The terrorist trail brought in a stream of
> investigators, including
> representatives of global regulatory watchdogs, to
> the UAE and the country's
> banking and financial system came under a cloud.
>       The months that followed, however, saw the UAE
> Central Bank initiate a
> series of moves, which not only helped the country's
> banking system get off
> the radar screens of global regulators, but earned
> it wholesome praise from
> international watchdogs for the forthright manner in
> which the authorities
> approached the issue.
>       A strict anti-money laundering regime was put
> in place, by
> incorporating rules and regulations that were up to
> the highest
> international standards to ensure that monies earned
> through illegal
> activities abroad were not channeled through the
> country's financial system.
>       The Paris-based Financial Action Task Force,
> which had the UAE on its
> watch list, has since given a clean bill of health
> to the country's
> financial system and noted that the UAE had made
> good progress. Similarly,
> an IMF report on UAE banking expressed confidence in
> the Central Bank's
> supervisory role and commended the anti-money
> laundering measures as a model
> for other countries.
>       And yet, a reference to the UAE and Dubai as a
> nodal point in the
> global hawala network in a report prepared by the US
> Financial Crimes
> Enforcement Network jointly with Interpol as well as
> a 1998 Commonwealth
> report on hawala kept the pressure on. It is in this
> context that one must
> see the Central Bank action in licensing the
> country's hawala operators.
>       Licensing is, of course, the opposite of
> outlawing, but by licensing
> the practice, the UAE authorities have brought the
> hawala operators under
> some system of surveillance.
>       The recognition paves the way for the Central
> Bank regulators to call
> reports from the operators whenever necessary and
> puts in place a system
> under which the hawala dealers can report any
> suspicious transactions to the
> authorities.
>       It was the anonymity and scant documentation
> that made the hawala
> system vulnerable to abuse by individuals and groups
> transferring funds to
> finance illegal activities.
>       Now, the regulators at least know who to ask.
> The country's money
> exchange houses are already required to record the
> identity of any person
> transacting amounts exceeding $600. The ceiling is
> much lower than those
> enforced by western authorities.
>       "We perform an important service," said one
> hawala dealer who,
> understandably, did not want to be identified.
>       J. Orlin Grabbe, a former professor at the
> University of Pennyslvannia
> 's Wharton School of Business - who also lives in
> Dubai - describes how the
> hawala system works:
>       A typical hawala transaction in Dubai, might
> go like this, Grabbe
> says. Iqbal, a Pakistani working in the Jebel Ali
> Free Zone, gets paid in
> cash, in UAE dirhams. He wants to send money to his
> family in Karachi, so he
> goes to a hawaladar and gives him 5,000 dirham
> (about $1,500). The hawaladar
> sends an email or a fax to his uncle in Karachi (who
> is also a hawaladar),
> along with an agreed code for collecting the money.
> Iqbal's wife picks up
> 80,000 rupees from the hawaladar in Karachi.
>       The transaction is simple and efficient by
> comparison to most of the
> alternatives, according to Grabbe. Iqbal pays on one
> day and his wife picks
> up the money the next day. Iqbal doesn't need a bank
> account, no one asks
> him to fill out elaborate forms or show a government
> ID number. Nor does he
> need to deal with an artificial exchange rate set by
> the Pakistani central
> bank - a rate of exchange intended to rip off (or
> tax) Pakistanis in foreign
> countries who are purchasing rupees with their
> repatriated earnings.
>       Instead, the local hawaladar in Karachi deals
> on the white market and
> gets a market-determined exchange rate. (The central
> bank calls the free
> market in currencies a "black market," but since the
> market involves
> voluntary exchanges between individuals, it should
> be referred to as a
> "white market" - or maybe not, depending on your
> psychological associations
> with colors, says Grabbe.)
>       Why does the system work? Grabbe's answer:
> "The hawaladars are
> reliable and trustworthy." As even Interpol
> observed, "the delivery
> associated with a hawala transaction is faster and
> more reliable than in
> bank transactions." And "the components of hawala
> that distinguish it from
> other remittance systems are trust and the extensive
> use of connections such
> as family relationships." It takes honest people to
> run this "illegal"
> business, says Grabbe.
>       At a conference on the sidelines of the recent
> IMF-World Bank annual
> meetings in Dubai last month, Suwaidi put up a
> spirited defense of hawala as
> a legitimate way of transferring money and asserted
> that it was recognized
> as such in 62 countries, including G7 nations "whose
> financial transactions
> control 80 percent of the world financial order."
>       He even challenged the US allegations that the
> UAE's financial system
> had been used to channel funds for terrorists. In
> fact, the suspicious
> transaction in question was done through US banks,
> which notified the
> authorities about their suspicion, but they failed
> to act, Suwaidi said.
>       In fact, two years ago, the US Congress and
> Senate panels had come
> down heavily on the American banks for helping
> dubious transactions of dirty
> money. American banks have been accused of
> "developing" elaborate policies
> for transferring such money to the US and then
> laundering these by
> investments in legitimate businesses as well as
> government bonds and
> securities. Half of the nearly $1 trillion of "dirty
> money" generated
> worldwide is estimated to flow into the US annually;
> funds that exceed the
> net profits repatriated from abroad by the American
> oil producers, military
> industries, and airplane manufacturers combined.
>       A group of French parliamentarians had in the
> past blasted London for
> being one of the key centers of dirty money and
> charged the UK watchdog for
> not doing enough to check the problem. It is widely
> recognized that the
> sheer size of London as a financial center made it
> highly vulnerable to
> money launderers.
>       If the focus is narrowed to Al-Qaeda, some of
> the big names in the
> European banking industry have figured in the
> network of banks, which the
> terrorist outfit has used to move its money.
>       The UAE, say analysts, has succeeded a great
> deal in highlighting the
> fact that the Western view of the problem suffered
> from a lack of
> appreciation of the historic perspectives of the
> practice of hawala and the
> inability of the law to touch it. Also, the West has
> to make a distinction
> between the use of hawala for criminal intent and
> its use for perfectly
> justifiable purposes.
>       The truth about hawala is that banking
> regulations cannot be applied
> to it because its domain is outside the banking
> system, and the users of the
> channel cannot be booked under the law because in
> many places they are not
> violating any law. So the important thing is to
> separate the issue of hawala
> being used by criminals and hawala as an alternative
> remittance system and
> approach the two issues independently.
>       In fact, by bringing hawala operators under
> the licensing system, the
> UAE authorities have established some control over
> the practice, a fact that
> strengthens the UAE argument.
>       The assertion that it is because of hawala
> that criminals and
> terrorists are able to move their money simply falls
> flat as the offenders
> have spared no channels and systems, according to
> several economists here.
> In fact, every money-laundering transaction has an
> interface with formal
> banking at some stage.
>       So, as one analyst in Dubai put it, to suggest
> that hawala networks
> should be cracked to prevent criminals from using it
> would be as senseless
> as proposing that the banking system be closed down
> because it is liable to
> be abused by terrorists and money launderers, or
> that all aircraft be barred
> from flying because some terrorists might plan to
> hijack one.
> 
> http://www.dailystar.com.lb/25_10_03/art27.asp
> 
>       The truth about hawala is that banking
> regulations cannot be applied
> to it because its domain is outside the banking
> system
> 
>       The autocratic bankster gangsters want to play
> G-D by knowing and
> seeing all....Do they not appear a bit paranoid
> these days as their fraud
> becomes unraveled???
> 
> 
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