Military

DATE=11/07/01

TYPE=BACKGROUND REPORT

TITLE=TERROR FUNDING / HAWALA

NUMBER=5-50452

BYLINE=LINDA CASHDAN

DATELINE=WASHINGTON

CONTENT=

/// EDS: THIS IS A REVISED AND UPDATED VERSION OF AN EARLIER BACKGROUNDER ///

INTRO: U-S authorities have frozen the assets of several Islamic money exchanges suspected of being used by Osama bin Laden to finance terrorist activity. U-S affiliates of an ancient, informal banking system have been under scrutiny for weeks. But as Linda Cashdan reports, investigators have been given new tools to help them monitor what are called Hawalas.

TEXT: In China its name means "flying money." In the Middle East and southern Asia its name means "trust."

The Cato Institute's money laundering expert Jacobo (pron "ha'-ko-bo")Rodriguez says both translations are apt because this is a system that depends upon trust and transfers money so quickly it seems to fly.

/// RODRIGUEZ ACT ///

The money is not transported. The way it works is a person goes into an office and deposits money there, and the person depositing the money receives a code, and that code is passed on to the recipient of the money at another location.

/// END ACT ///

The Hawala operator then transmits the code and information on the money amount by phone or fax to the location where the money is to be picked up.

Transnational crime expert Nikos Passas says the recipient then goes to the Hawala office in a distant country, offers up the five digit code, and receives the money.

Since the two operators of the Hawala system both send and receive orders, Mr. Passas says, they may well balance their accounts after a few transactions.

/// PASSAS ACT ///

If I do have a balance after a certain period of time with my counterpart in, say, India, what I may want to do is purchase some gold here, smuggle it to India, and then the proceeds are used in order to balance the account.

/// END ACT ///

Once the two Hawala operators balance their accounts, Jacobo Rodriguez says, all ledgers are torn up.

/// RODRIGUEZ ACT ///

So there is no paper trail left behind because the custom, especially in Middle Eastern countries is to destroy all records of the transaction after the transaction has been completed.

/// END ACT ///

The lack of records has made Hawala an appealing money transfer vehicle for drug smugglers or terrorists like Osama Bin Laden. But in general, Mr. Rodriquez says, criminals make up a tiny proportion of those who use Hawala.

/// RODRIGUEZ ACT ///

The majority of people who use the Hawala system are people with very limited means who do not have access to the formal banking system. The majority of those people are law abiding citizens.

/// END ACT ///

Hawala's appeal for criminals as a means of hiding money transactions - may end soon. The new anti-terrorism law just passed by Congress, brings U-S Hawalas under the supervision of the Treasury Department, like regular banks. (signed)

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