23 October 2016
Migrants pay for their journeys through hawala, a centuries-old system that enables users to transfer money entirely on the basis of trust, without the need for paperwork. Photo: WSJ
Migrants pay for their journeys through hawala, a centuries-old system that enables users to transfer money entirely on the basis of trust, without the need for paperwork. Photo: WSJ

Migrant money trail: How it moves but stays invisible

In an unmarked office in a teeming Istanbul immigrant neighborhood, Hawez Zaman moves money the same way his predecessors did in the Middle Ages.

Zaman uses an off-the-books transfer system critical to today’s spiraling migrant crisis in Europe.

The centuries-old system known as hawala enables users to transfer money from one point to another entirely on the basis of trust, largely without a paper trail and often outside the law, according to the Wall Street Journal.

It is the dominant way migrants flooding into Europe pay for their journeys, used for 90 percent of the transactions in a people-smuggling trade valued at around US$2.5 billion a year in Europe, European security officials and researchers said.

It is used for a further US$390 billion a year migrants send back home as part of an informal but widely accepted financial system used across the developing world.

The money flows are also drawing renewed attention among terrorist finance investigators, who since the Sept. 11, 2001, attacks have tried to monitor hawala systems.

They are concerned that some of the same hawala systems flourishing from the business of moving migrants could also be tapped by would-be attackers as a source of financing.

“Given what we’ve seen so far, we have very strong suspicions terrorists receive money via hawala,” said Calogero Ferrara, a Palermo-based prosecutor heading a large pan-European people-smuggling investigation.

“After the Paris attacks, we have intensified investigations on this front.”

Investigators haven’t found evidence that hawala was used to move money in the Nov. 13 attacks in the city, which killed 130.

Western security officials from nations involved in the US-led coalition against Islamic State have warned that the jihadists are using hawala to transfer money from the group’s headquarters in Syria and Iraq to its affiliate in Libya and possibly other regions.

A United Nations report in November echoed that warning.

“We are very concerned about hawala being used by ISIS inside and outside of the territory it dominates,” one Western security official said, using another term for the militant group, adding the payment mechanism is an important “part of the ISIS financial infrastructure.”

In Istanbul each day, Zaman, a stocky 32-year-old Iraqi Kurd, said he receives up to 200 cash payments of 1,500 euros (US$1,600) on behalf of migrants from Syria, Iraq and Afghanistan who are paying smugglers for the first leg of the journey from Turkey to Greece on the way to the European Union.

He also moves money every day unrelated to migrant smuggling in amounts from a few hundred dollars to the thousands.

When migrants reach their destination in Greece, Germany or beyond, Zaman said he makes a virtual transfer to an associate hawala dealer, or hawaladar, who releases the money at the other end to the smugglers.

For each payment, Zaman said he charges roughly 5 percent — or a bit more than half the percentage typically demanded by established money-transfer agents.

He saves money by not having to pay compliance, infrastructure and other costs that licensed agents have.

Hawala is also often quicker — a transfer can be almost instantaneous — and can easily reach people in remote areas.

Customers include those with low levels of literacy, no bank accounts or credit cards and sometimes no identification documents.

Criminals, meanwhile, like the absence of transaction records, which eliminates the money trail officials use to discover and prosecute crimes.

In the traditional system, short-term records are destroyed when transactions are settled, and the use of Skype, Viber and WhatsApp to organize the payments helps elude detection.

“The ‘follow the money’ method doesn’t apply here,” said Andrea Di Nicola, a lecturer in criminology at the University of Trento.

“This is a very serious problem because the movement of money tells you a lot about how the criminal organization works.”

But few brokers become licensed in EU member states such as the UK or Germany, according to a 2013 report by the Financial Action Task Force on money laundering.

“It’s a big problem for the police,” said Patrik Engström, head of Sweden’s border police, which has detected cases of migrants there using hawala to pay for relatives in Italy, Libya, Turkey and Iraq to join them.

“Transactions are much harder to trace — where they came from and where they went, who made them and who received them.”

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