Hawala
Definitions:
Hawala
is also known as Hundi.
- Hawala is an informal method of transferring money without any physical money actually moving.
- Hawala is an alternative remittance system which was evolved to conduct legitimate remittances. But launderers took advantage of this channel and started using remitting illegal funds across nations.
- Interpol's definition of hawala is "money transfer without money movement." Another definition is simply "trust."
There
are two different cases being explained in the figure:
First
case:
o
Worker
in Country “A” wants to send money to his family in country “B"
o
In
order to avoid huge service commission, exchange rate fee and various other
hidden fees charged by banks he approached a Hawaladar in his country.
o
Worker
has handed over the money to Hawaladar in country “A”for which Hawaladar has
given some remittance code.
o
Remittance
code is used as a verification tool before money changes hands. Now this
remittance code is shared by Worker in country “A” to his family in country
“B”.
o
Hawaladar
in country “A” contacts Hawaldar in country “B” gives him the remittance code
and informs him about the money that is required to be remitted to the desired
party.
o
Now,
the Hawaladar in country “B” pays the required amount to the worker’s family
after verifying the remittance code.
This
is how the transfer takes place. Hawaladar in country “A” charges some
commission for doing so. And there would be a common understanding between both
hawaladars and also both maintain accounts of each other.
Second
case:
The
second case also explains the same in which the money is transferred through
Hawaladar
from Father in Country “B” to Son in Country “A”
Terminology related
to Hawala System
There
are two terminologies related to hawala system. They are termed as:
- White Hawala
- Black Hawala
White
Hawala :
If
hawala is used as a remittance system to transfer legitimate funds, then it
is
called as white hawala system or also termed as social hawala.
For
eg, A father sending money through hawaladar to his son staying in a different country.
Black
Hawala:
If
hawala is used as a remittance system to transfer illegitimate funds, then it
is called as Black Hawala system or also termed as criminal hawala.
For
eg, income generated through narcotics trafficking, transferred through
hawaladars comes under black hawala system.
Advantages of
Hawala
Below are the
reasons in using hawala as an alternative remittance system instead of
traditional remittance system.
- Cost Effectiveness
- Efficiency
- Lack of Paper trail
- Tax Evasion
- Lack of Bureaucracy
- Exchange rate speculation
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