Tunnel funds

Iran appears to have used a type of "Hawala" system to transfer tens of millions of dollars to Hamas in an effort to help it dig new terror tunnels

By JOHNNY YAROM
June 2, 2015 21:20
Afghan money lenders trade Iranian rial for dollars

Afghan money lenders trade Iranian rial for dollars. (photo credit: REUTERS)

 
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Accelerated globalization has constituted a force of significant weight in a variety of realms in recent years. One of the most prominent has been the realm of finances. A good illustration is the current ability of any individual, located almost anywhere in the world, to transfer a sum of money to another individual located on another continent by means of the Hawala system – using nothing more than a courier and a password.

Iran appears to have used a similar method to transfer tens of millions of dollars to Hamas in an effort to help it dig new terror tunnels to replace the tunnels that were destroyed by Israel during Operation Protective Edge. According to published information, Tehran is also helping fund the replenishment of Hamas’s stock of missiles. The method of money transfer may not be well known, but anyone who is well versed in finances knows that there is more than one way of doing it.

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Money transfer is of critical importance to terrorist organizations, as without it they cannot exist. The banking system offers various methods of money transfer (transfers between computers), the most prominent of which is the international SWIFT system. But transfers can also be made via less technologically sophisticated non-bank systems, such as Western Union. The non-bank systems are not subject to international money transfer standards such as the recording of payment and defrayal, documentation and the ability to trace prohibited transfers.

One of the most prevalent systems of money transfer in the Muslim world is the hawala (“transfer” in Arabic) system.

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This network is based on trust and connections between many different brokers around the world. Each broker of this kind is called a hawaladar, or a hawala courier. The money transfer system is extremely simple; it involves no computers and no documentation and is performed in the blink of an eye, all based on trust. The cost of transferring money using this system is less than the bank-based system, as it requires neither currency conversion nor opening a bank account. Hawala couriers are located everywhere and necessitate no advanced technology. They can operate in remote villages that have no banking infrastructure whatsoever. The system is widespread among expatriates working in host countries who transfer money back to their families in remote villages in Third World countries.
 


Despite widespread legal money transfer activity, the special nature of the hawala system – in which no receipt is provided for the transaction, for which there is no documentation – makes it especially conducive to illicit activity. The network is believed to be used for drug transactions, money laundering, terrorism, smuggling, bypassing local currency conversion laws, tax evasion and other such purposes. As evidence, the American government has focused special, systematic attention on the hawala system since the attacks of September 11, 2001, and has instructed countries to regulate the network’s activity by requiring state licensing of all money transferring businesses.

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Only recently, the US Treasury imposed sanctions against the Taliban and hawala network operators in Pakistan and Afghanistan.

For some time now, Iran has also been making use of this network. According to a January 2013 assessment of the US Treasury, the informal money transfers conducted via the hawala system helped enable the Iranians to bypass the international sanctions. This was achieved through use of private clearing houses and trading companies in other countries, fabricated identities and the hawala system.

According to a 2014 US State Department report on the war on drugs which also relates to the West Bank and the Gaza Strip, the Palestinian economy is financially based primarily on cash. In light of the impossibility of transferring millions of dollars in cash from Iran to the Gaza Strip in suitcases, the easiest method of actualization is the hawala system. We must also not rule out the possibility that Iran and Hamas are currently making use of this system for the transfer of funds to finance the digging of tunnels.

In conclusion, the hemming-in of the hawala network by enforcing regulations is not serving to block the financers of terrorism. The solution which the West can dictate to this network is complex and requires the integrated use of a number of elements: The first is the ability of Western countries to initiate a change through cooperation with the international banking system by expanding the SWIFT system and constructing a legal, Internet-based technological infrastructure that operates according to the principles of the hawala system but that is organized and documented. At the same time, the use of any other means besides this system must be prohibited by law.

The second is the expansion of the SWIFT system into an informal payment system, which will facilitate an expansion of the infrastructure of solutions offered to its diverse customers, based on an expansion of the international standard.

It will also enable all banks around the world to be significantly active partners on the Internet in the transfers of private customers, based on the already existing reliance on cloud-based solutions.

The third is work to be conducted by the US Treasury to promote and institutionalize the establishment of an international hawala system that will operate in accordance with the rules of the existing system but use the proposed infrastructure, and in this way build legal systems based on the rules of informal payment systems.

The author worked at Bank Leumi as the head of International Finance Trade and Payment manager in the corporate division, S.W.I.F.T chairman of the Israeli user group for 10 years and today owns consulting firm Insight Art Ltd and consult banks and software houses.

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