Posted on 10/16/2001 8:33:51 PM PDT by Roebucks
Tuesday October 16 1:11 PM ET
Paperless Money May Help bin Laden
By LAURA KING, AP Special Correspondent
PESHAWAR, Pakistan (AP) - In the twisting alleyways of this ancient trading post on the Pakistani frontier, illicit business of every kind has thrived for centuries.
But one of the most secretive enterprises is carried out in plain view, in the guise of routine transactions that take place dozens of times a day behind the city's uncounted, nondescript storefronts - an import-export office, or a trading mart.
It's called ``hawala,'' and investigators believe Osama bin Laden (news - web sites)'s terrorist network may be using this traditional brokering system to move mountains of cash around the world - without leaving an electronic fingerprint or paper trail.
Taking its name from the Urdu-language word for ``reference,'' this low-tech method of money transfers is widely used in south Asia, the Middle East and beyond.
It works like this: a customer walks into an office with a wad of cash and tells the broker where to send it.
A day or two later - or as quickly as an hour, in a pinch - the faraway recipient, identified by name or just a code number, goes to an affiliated broker and walks away with that same amount of money, minus currency-conversion costs and perhaps a nominal fee. Sometimes the money is even home-delivered.
The actual cash, of course, hasn't gone anywhere. Reimbursement is based on a system of trust among the network of hawala brokers, who are often blood relatives. They generally use a running tally of debt and repayment to settle up, rather than any money actually changing hands.
Hawala is almost universally outlawed, but financial experts believe many or even most of the transactions are innocent, involving customers who can't afford high banking fees or simply want to avoid long waits and cumbersome paperwork.
The system blossomed in the 1970s, when huge numbers of laborers from the Indian subcontinent began working in wealthy Persian Gulf states and needed a way to get their wages home.
Ordinary people - including several middle-class Pakistanis interviewed in Peshawar - said they used it send tuition money to college-age children studying in the West, or cash gifts to relatives either living abroad or in the countryside.
But financial experts say the system's relative anonymity and lack of any legal record keeping also makes it attractive to drug traffickers, weapons brokers, tax evaders, corrupt officials - or operatives of a shadowy network like that of bin Laden.
The amounts of money floating through the hawala system at any given time are huge. Analyst Shah Sahib of the Pakistan Allied Bank, the country's fourth-largest, estimates transactions in Pakistan alone could total $1 billion per day.
"It's very deeply entrenched in the culture, and because of that, it would be very, very difficult to eradicate," he said.
True to its name, the system requires most customers to come armed with a reference - an introduction from someone who is already a client.
``I would never deal with a stranger,'' said a Peshawar hawala broker who would only allow his last name, Khan, to be used. He described his company's structure: a head office in Dubai, branch offices in half a dozen Pakistani cities and a dozen foreign capitals.
The branch offices often engage in legitimate financial business as a cover: money changing, money lending, an import-export business, or currency trading. In small Pakistani towns, the local hawala broker might run a general store, or be a rug merchant.
Talking about the business, Khan sounds like any enthusiastic sales representative.
``What we offer our customers is good service,'' he says. ``We're fast, we're reliable, and we're efficient.''
In Peshawar alone, he estimated there are 200 hawala brokers, some large and some small.
His own company handles daily transactions ranging from a few hundred dollars to several hundred thousand. Bigger brokers, he said, are concentrated in the country's financial centers of Karachi and Lahore.
Khan's own associates have been in business for decades together, and come from the same clan. Asked whether he had full trust in his partners - the linchpin of the business - he laughed.
``We all know each other, each other's families,'' he said. ``The world is a small place.''
In the five weeks since the terror attacks on the World Trade Center and the Pentagon (news - web sites), Pakistan's hawala trade is beginning to feel the heat. One of the biggest brokers in the southwestern city of Quetta had his assets frozen as part of the U.S.-inspired drive to halt the flow of funds to groups suspected of having links to terror.
Quetta, like Peshawar, is close to the Afghan border. And like Peshawar, it is a stronghold of fundamentalist Islamic groups that are sympathetic to bin Laden and the Taliban. Khan thought his own business would easily survive any crackdown.
``We have seen this happen before, and it doesn't last long,'' he said. ``Besides, they will be going after the big fish. Fortunately for us, we are medium-sized fish.''
One Peshawar professional man, who did not want his name used, said he used hawala half a dozen times or so a year, mainly out of impatience over the monthlong lag of a bank transfer.
His only unsuccessful transaction came not long ago, he said, when he had arranged to send a gift via hawala to help a friend in Manila with school fees.
The next evening, the broker returned the cash, telling him: ``This isn't a good day for a transaction.'' It was Sept. 11.
Senate Panel Approves Money Laundering Legislation
'Hawala' May Defeat Efforts to Choke Terrorist Funds
Paper Trail Stops Dead at Hawala
Well, suppose one of the operators wanted to cheat the system(they are the only ones who could). There are only two ways he could do it, collecting money that hasn't really been sent or not dispersing money that has been sent.
Say Operator A fraudulently 'sends' $100 to be picked up at Operator B's place. Then A's compatriot goes to B and picks up the dough. Has Operator A made any money? No because They generally use a running tally of debt and repayment to settle up, rather than any money actually changing hands. In other words B is out a hundred bucks but he has also debited A for that amount, its a wash. If A's compatriot makes off with the money then it is A that gets shafted.
As for the other way, not dispersing money that has been sent, if I send money and it never gets to the intended recepient, Cousin Akbar will call me up and tell me so and I will go all over town telling people not to send money via Mid-Eastern Union. Only the honest money senders would survive in an industry so totally predicated on trust.
I guess there is a third way, thats quitting the business while I'm in the red on the running tally and not settling my debt before I run off to Fiji(and even then its only by that amount that you've benefited and even this risk you could minimize by never letting the tallies get too imbalanced). I suppose staffing the network with blood relatives would also cut down on the flight risk.
The article says that the faraway recipient, is identified by name or just a code number. A secret code could make fraudulent receiving of money impossible. Say for instance when Operator A sends Operator B the message to disperse X amount of money to me he sends it encrypted in my PGP public key block, only when I(the intended receiver) come along with my private key can the message be decoded and Operator B knows without a shadow of a doubt that I am the legitimate receiver.
When I read the article earlier, I was under the impression that there was an any-to-any exchange: any broker could communicate with any other and "send money" directly; I didn't (and still don't) see how such a system could work with very many nodes. Every agent would need to know how much every other agent owed him or vice versa, and every agent would have to be able to authenticate and trust every other. Neither of these concepts seems likely.
On the other hand, if the system were set up like FIDOnet, it could probably be made to work with each broker having to keep track of only a small number of other brokers. The brokers would have to know how to route funds through distant brokers, but would only have to vouch for the honesty of those they dealt with directly.
If the system were a many-to-many arrangement, it would probably be possible (and very useful) for the U.S. to infiltrate it and/or use SIGINT to create bogus transactions. Under the FIDOnet-style arrangement, however, this would be very much more difficult. Also, in a many-to-many system, capture and analysis of brokers' records would allow a certain amount of analysis of money flow. Even if the money flowing into and out of most nodes balanced out, most node-to-node links would not be so well balanced. Under a FIDOnet-style system, however, most of the links are going to balance incoming and outgoing money flows pretty well and analysis of money flow will yield very little information.
Gotta admit--sounds like a pretty clever system.
I think you are right it could only work with a small network. But don't all systems that rely on trust and reputation break down if there are too many participants?
The key is:
the faraway recipient, identified by name or just a code number, goes to an affiliated broker and walks away with that same amount of money
Not just any broker, but one that is part of the network of trust. Its Uncle Muhammad in Cairo, Cousin Muhammad in Paris and your other Cousin Muhammad in Little Rock. Keep it in the family and only do business with people from the neighborhood that you've known all your life and your vulnerability for being penetrated is insignificant(but still not zero).
MANILA (Dow Jones)--The Philippines will remain on an international blacklist of countries with insufficient safeguards against money laundering for the time being and still faces sanctions if a recently passed anti-money laundering law doesn't meet global standards. The Paris-based Financial Action Task force, or FATF, which is backed by most industrialized nations, told Dow Jones Newswires that it will assess legislation passed late last month "so that a final decision can be taken on the issue of counter measures and the Philippines."
"In any case, the Philippines remains on the...list," said FATF Executive Secretary Patrick Moulette. Moulette said the passage on Sept. 29 of the Anti-money Laundering Act of 2001 suspended the implementation of countermeasures by FATF members against the Philippines.
Manila had a Sept. 30 deadline to pass a long-awaited anti-money laundering bill. Russia and the Pacific island of Nauru also faced the same deadline. The FATF has told Nauru that it must beef up its anti-money laundering legislation.
With regulators around the world stepping up efforts to cut funds to terrorists following the Sept. 11 terror attacks on the U.S., failure to pass the bill would likely have led to swift counter measures from some countries.
Task Force Affiliated To OECD
The FATF has 29 country members and is affiliated to the Organization of Economic Cooperation & Development.
Moulette didn't say when the task force would reach a decision on whether the Philippine legislation would be sufficient to remove it from the blacklist.
Philippine officials are optimistic that the law meets international standards and - if it doesn't - time will be given to amend the legislation to avoid sanctions.
President Gloria Macapagal Arroyo has said new law will enable the government to chase down terrorist funds, including some of the millions of dollars the Abu Sayyaf Muslim rebel group has amassed by ransoming kidnapped tourists.
The key feature of the new law is the creation of an anti-money laundering council with the power to freeze suspicious funds of over 4 million pesos ($1=PHP51.742). Below that, a court order is needed to investigate suspect bank accounts.
Banks must also report suspicious transactions to the authorities.
Central bank Governor Rafael Buenaventura said in an interview with BusinessWorld Tuesday that the council will begin operations in November after the completion of the law's implementing rules. These, he said, "will spell out the way by which we will examine accounts, the frequency of reporting required, as well as the sanctions that will be imposed on erring institutions and parties."
-By Alastair McIndoe, Dow Jones Newswires; 632-885-0288; alastair.mcindoe@dowjones.com
But, it is also specialized depending on the route the money needs to travel. One broker may put out that he specializes in delivery to the S. American countries of Brazil and Columbia as an example and will handle many transactions for those destinations.
Lastly, when criminals use the system it seems that the paperless form of transaction plays an essential role in "laundering" the money. Thanks.
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