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International money laundering and Hawala

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One of the great challenges of catching money launderers today is the global nature of the crimes. For example, international money service bureaus can appear legitimate but are often fronts for those who need money laundering. Sophisticated international networks have been established such as Hawala that fall outside easily traceable transactions. Discuss how money service bureaus and Hawala can be involved in money laundering. Do they serve any legitimate purpose? How do we know when they've crossed the line to illegal activity?

How does the current national and international strategy by regulators and other international organizations help track global money laundering? Which of the states and international regulators are involved? Do you think that enough is being done to coordinate and catch money launderers? What other technology and methods do global money launderers use besides money service bureaus and Hawala?

What sort of electronic surveillance and reporting tools would be helpful to banks and corporations to meet regulatory requirements?

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One of the great challenges of catching money launderers today is the global nature of the crimes. For example, international money service bureaus can appear legitimate but are often fronts for those who need money laundering.

Sophisticated international networks have been established such as Hawala that fall outside easily traceable transactions. Discuss how money service bureaus and Hawala can be involved in money laundering. Do they serve any legitimate purpose? How do we know when they've crossed the line to illegal activity?

Hawala is a virtual legitimate money transfer system. It attracts people and organizations of its services because of efficiency and minimal paper works.

ChĂȘne (2008) of U4 Anti-Corruption Center admits that:
a.) The system is cost effective. Hawala brokers take a small commission and usually practice more advantageous exchange rates than the official rates. Hawala operators have low overheads, and generate profit through small commissions and exchange rate speculations.
b.) The system is safe. In countries plagued by political insecurity such as Afghanistan, it is one of the most convenient, safe, reliable and inexpensive ways to move funds within the country.
c.) The system is efficient. A Hawala remittance transaction takes place within one or two days.
d.) The system is reliable. The system is based on trust and there are no reported instances of customers being cheated in the literature. A breach of trust would keep the customers' way.
e.) The system is flexible and not bureaucratic. The informal nature of the transactions makes them very attractive to users with tax, immigration or other legal concerns. For example, illegal migrants do not have adequate identification and couldn't use the formal banking system to send money home.
f.) The system is anonymous. It facilitates transfer of money without records or documentation. The system doesn't leave a paper trail. As it is rare that Hawala brokers keep records after the transaction is completed, it is unlikely that the transaction will be identified or detected.
g.) The system is culture friendly. For migrant workers, ethnic or kinship ties with the Hawala brokers make this system particularly convenient and easy to use.

Razavy (2005) discovered that the informal, paperless, anonymous, and less bureaucratic processes, makes Hawala "a haven" of money launderers. Even terrorists favor money transfer through Hawala.

What is worrying is that Hawala's services are famous around the world, even in the poorest region. Consider this report from U4 Anti-Corruption Center:
Hawala is traditionally associated with South Asia and the Middle East. Its primary users are members of the ...

Solution Summary

This solution looks at how international money laundering is done using Hawala (a virtual money laundering conduit) and what measures are done to curve this.

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