Cash Flow

The ‘hawala’ route of illegal money transactions is being used to pay Somali piracy ransoms. This is according to the top global body setting standards for combating terror financing and money laundering has said in its latest report.

Organised Maritime Piracy and Related Kidnapping for Ransom, Financial Action Task Force (FATF) – has also found that almost US$8 Million  has been paid as ransom money to Somali pirates since 2006.

According to Interpol, “Hawala” is an alternative or parallel remittance system operating outside of, or parallel to ‘traditional’ banking or financial channels.

It was developed in India, before the introduction of western banking practices, and is currently a major remittance system used around the world.

The components of hawala that distinguish it from other remittance systems are trust and the extensive use of connections such as family relationships or regional affiliations. Unlike traditional banking hawala makes minimal (often no) use of any sort of negotiable instrument. Transfers of money take place based on communications between members of a network of hawaladars, or hawala dealers.

Hawala works by transferring money without actually “moving it”. In fact ‘money transfer without money movement’ is a definition of hawala that was used, successfully in a hawala money laundering case.

With piracy it can be seen that law enforcement approach of tracking the money cannot apply in a system in which by definition no money moves. It seems that only the relationships can be monitored and that new tactics will have to evolve to tackle the spread of ransom cash through trusted networks.

It seems in the same way that the rather rudimentary tactics of pirates have opened a gaping hole in the security of world trade, their “old school” payments system is also causing problems.

The asymetric elements of this struggle are seen in every facet, and deploying technology in the struggle against pirates and their network does not appear to be the answer.

See http://goo.gl/p3WdU for a more indepth view of the hawala process.

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