Angelika Hellweger of Rahman Ravelli outlines the reasons for the problem and the response so far
About £2 billion a year is being laundered by UK criminals through informal payment systems, according to HM Revenue and Customs ( HMRC).
The UK's tax, payments and customs authority has said that hawala is one of the payment systems favoured by criminals.
Hawala is a system devised in South Asia centuries ago that sees funds transferred via an international network of dealers who informally record all transactions and ensure they are settled using cash, property or services. It involves money being put into the system in one place by the person making the payment, with an equivalent payment then being made from another place to the person who is owed the money.
The majority of users use the service for legitimate purposes, including personal and business transactions and the sending of remittances by migrants and refugees to family members. But as the money does not physically move in hawala, it is difficult for the authorities to monitor payments and there is generally very little in the way of a paper trail.
HMRC has started a campaign to warn those providing such money transfer services that they must register with it in order to be subject to anti-money laundering supervision and operate legally – or face fines, prosecution or closure.
Bad actors are attracted to such payment systems as they tend to come under less official scrutiny than regulated financial institutions, such as banks, and offer a degree of anonymity to users. This appeals to those looking to disguise the criminal origin or destination of funds.
But the authorities in some countries have responded to the problem. Following the 9/11 attacks, the US passed the USA Patriot Act in 2001, which compelled hawala dealers to register their activities, report suspicious transactions and be subject to inspections. The same year, the UK introduced a new system of regulation for bureaux de changes and other money service businesses – including hawala – that required them to be registered, undertake customer due diligence checks, keep proper records and report suspicions.
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