Moving money without really moving
it By Indrajit Basu
KOLKATA - Emerging from his damp cubbyhole
office in one of the labyrinthine lanes in
Burrabazaar, Kolkata, the busiest trading hub in
the eastern part of India, Champalal Bubna mopped
his brow. It was a sultry morning and ordinarily
he would have hated walking up the long road ahead
- too narrow for a car to enter - carrying the
heavy grocery bag he had with him.
But
that day, he didn't mind, for the bag, looking
like nothing more than a wheat-flour bag, didn't
contain ordinary stuff; it was full of hard cash,
and he had to hurry to deliver the consignment to
his
associate's office about 3
kilometers of winding lanes ahead.
The
money had to move through informal channels that
day for a payment in US dollars to a marble
exporter in Cairo. Soon thereafter, he had to rush
to meet a new client who also wanted to move money
informally to an iron-scrap supplier in Georgia.
"It's getting hectic these days," said
Bubna. "I think I will bring in my son to look
after the textile brokerage after all." Bubna, an
erstwhile hawaladaar who turned into a
textile-broker about four years back, is back at
his former profession again. "Moving money by
hawala is getting very difficult these
days," he said, "but thank God it is, because
that's why demand is booming and my knowledge of
the tricks of this trade and the contacts are
coming in handy."
Indeed. the Indian
government may have intensified its "war on
terrorism" and its financial channels including
hawala or hundi and angaria,
but that has only resulted in a burgeoning demand
for "informal value transfer systems", because in
the pursuit to regulate money-laundering in the
wake of renewed terrorist attacks, the government
is also clamping down on regular or formal
money-transfer systems, which is making life
difficult for the numerous small-business people
in the country.
"For any transaction above
as little as Rs50,000 [$1,100], Indian banks ask
for a host of documents these days, ranging from
proof of residence to income-tax clearance
certificates and even reference documents to
ascertain that my supplier in Egypt, because he is
from a Muslim country, is a legitimate dealer of
marble," said Santosh Rathi, who imports marble
from Cairo. "Even a money transfer for a simple
thing like rent payment through the banking
channels requires reams of documentation."
Until the fateful day of September 11,
2001, moving money abroad or within was easy.
Terrorists hadn't struck the twin towers of New
York's World Trade Center, and money-transfer
channels were not areas of suspicion. But after
the assault on the US and a series of terrorist
attacks in India over the next five years, all
money-transfer systems including SWIFT (Society
for Worldwide Interbank Financial
Telecommunications) came under suspicion of being
conduits for transferring terrorist funds - more
so for "informal value-transfer systems" such as
hawala, hundi and angaria -
all gray-channel transfer systems that hardly
leave a trail behind them and had worked
efficiently for decades.
Hawala
and/or hundi and the angaria - which
involves movement of cash within the country - are
alternative remittance systems that operate
outside of, or parallel to, traditional banking or
financial channels. Although no one exactly knows
how and where these systems originated - some say
they were developed in India, others say
Afghanistan - according to Interpol, the world's
largest international police organization, these
systems developed before the introduction of
Western banking practices and gradually
proliferated to emerge as major remittance systems
around the world.
Several other such
systems such as "chop", "chit" or "flying money",
all indigenous to China, are also used around the
world, but hawala, despite being an
"underground banking" system, remains the most
popular because of its components of trust and the
extensive use of connections such as family
relationships or regional affiliations. Unlike
traditional banking or even the chop system,
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 hawaladaar, or
hawala dealers.
Hawala and
its kind work by transferring money without
actually moving it. A fax, e-mail or telephone
call communicates to the counterpart overseas the
amount, name, address and telephone number of the
recipient. Pools of cash are maintained at both
ends of transactions and payments are made
reliably, fast, cheaply and conveniently in places
where banking services are unavailable or
inefficient. Therefore when compared with
traditional means of remitting money, such as
obtaining a check or ordering a wire transfer,
these systems are much simpler, cheaper and "tax
efficient", since transactions can easily be kept
outside the domain of revenue officials.
This is why hawala and
angaria have been a part of the Indian (and
Pakistani, Bangladeshi and Philippine to name a
few) money-transfer systems for decades. They
thrived on the plethora of restrictions that
India's erstwhile closed economy imposed on
transactions such as the import of gold and
foreign-exchange remittances, and also by the high
tax rates.
But it did not matter because
the Indian authorities realized that the system
was too big and ubiquitous for cost-effective
monitoring. Moreover, not all hawala
transactions were illegal, and it helped business
in remote areas, such as enabling a farmers deep
in the hinterland to make and receive payments.
However, things changed after September
11, when governments across the world realized
that hawala and its cousins were being used
extensively for money-laundering and, most
important, transferring terrorist funds. According
to Interpol, almost all terrorist attacks the
world over in the past five years have used
hawala and other informal value-transfer
systems to fund their operations.
Therefore, like the US and many other
countries, India started clamping down on
hawala and even the regular transfer
channels. For instance, regular raids are carried
out at all known hawala dens - although new
dens and operating areas crop up every day - and
Indian banking laws have been tightened to make a
plethora of documents necessary for simple
transactions, while no payments above Rs20,000
($430) are allowed to be made in cash.
Consequently, even as authorities claim they
have been able to check hawala transactions
drastically, according to Bubna, its demand has
increased manifold. "I quit this business a few
years back because I was scared of the clampdown.
But now I get a new query almost every other day,"
said Bubna. "We have to be very careful too, so my
service charges are three times what [they] used
to be five years back."
But Bubna insisted
that all his clients are straight: "Please note,
all my clients are just businessmen; no terrorism
or drug dealers," he said. According to him,
hawala's biggest users are jewelry traders,
the construction, tourism and transportation
sectors, and large companies that need to move
cash in a hurry.
"I do not know how much
money moves in India through hawala
channels these days but my guess is 40% of the
Burrabazaar's [literally, Huge Market] businesses
depend on hawala and angaria," said
Bubna. "In Delhi and Mumbai it could be even
more."
Yet not everything about
hawala and its operators is shady;
hawala operators also come in handy in
gathering information about terrorist outfits at
times. For instance, it is reported that in its
attempt to crack the source of foreign funding for
the July 11 train bombings in Mumbai, the
country's Anti-Terrorism Squad is seeking the help
of hawala operators to track a
Lashkar-e-Toiba module (affiliated to al-Qaeda)
that is suspected to have engineered the blast.
It appears that the squad had successfully
dug out the fact that an LeT functionary arrested
in connection with the blast had received funds
through the hawala route. The squad is now
taking hawala operators into confidence,
assuring them of immunity against prosecution, to
trace foreign funds in connection to the blast,
the report said.
Note: Names and
other identifiable details have been changed for
obvious reasons.
Indrajit
Basu is a Kolkata-based journalist.
(Copyright 2006 Asia Times Online Ltd.
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