Follow the money: Obscure transfer system needs global attention

Outside Editorial

Posted: Friday, October 05, 2001

The following editorial appeared in Thursday's Dallas Morning News:

On any day, a terrorist somewhere in the Middle East could go to a hawala dealer with instructions to send money to an associate in the United States. The dealer, in coded communication, would contact his counterpart in the United States, who would provide money from his cache to a person here.

Often the transaction is more circuitous. Another series of coded, paperless transactions might take place among hawala dealers in Germany or Canada before the money is paid in New York. No money crosses borders. No questions are asked. No money enters the traditional banking system. Even if an outsider could listen and understand the transactions, which are usually conducted in foreign languages, the complexity of the network frequently hides the illegitimate purposes behind the transfers.

These operations pose serious flaws in the war against terrorism's pocketbook. William Wechsler, a former special treasury adviser on money laundering, recently told Congress that "U.S. law enforcement has done a very poor job over the years of understanding (hawala), of getting inside the system, of figuring out who uses the system."

Commonplace in the Middle East, India, Pakistan and China, this traditional money-lending system moves billions around the world. Remittances in the opposite direction, or transactions with other brokers, or illegal activities eventually settle the debt. Close family or ethnic ties and intimidation keep the system oiled, and the funds secret.

The government has known of these failings since at least 1993, when Congress tried to regulate these sorts of underground banking activities in the United States. The effort languished on the back burner in the Clinton and Bush administrations. Now it's getting renewed attention.

In testimony to a Senate committee looking into terrorism financing, Jonathan Winer, a former U.S. deputy assistant secretary of state, recommended that the U.S. register these services and hold them to the same anti-money laundering standards as traditional banks. Unregistered services could be shut down.

This is the right track, and if it had been more aggressively pursued earlier, it could have given the government not only a head start on fighting terrorist financing, but also on fighting drug trafficking and the crimes that are becoming more closely linked to terrorism.

Domestically, money-laundering laws must be updated to cover legitimately obtained money that is used for illicit purposes, such as money siphoned from legitimate charities for terrorist activities. Also, law enforcement officials and financial regulators must improve the on-the-ground intelligence needed to disrupt illicit hawala transactions.

International cooperation is crucial. To his knowledge, no country in the Middle East has ever brought a money-laundering prosecution, Mr. Winer said. Help must come from such nations as India, Pakistan, Saudi Arabia, Kuwait, Qatar and the United Arab Emirates.

As Congress reviews new laws to fight terrorism, the role of hawala as a potential conduit of terrorists' finances must not be underestimated.

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