Hawala and Its Regulation: a South Asian Perspective

HAWALA AND ITS REGULATION: A SOUTH ASIAN PERSPECTIVE

Vishnu Chandran
(National University of Juridical Sciences, Kolkata, India)

Contents

INTRODUCTION 3

WHAT IS MEANT BY HAWALA? 4

  a. Definition 4

  b. Origin 4

  c. Illustration and Features 5

    Trust in Hawala 5

    Balancing of Debt 6

REASONS FOR THE POPULARITY 6

  a. Cost Effectiveness 7

  b. Efficiency 7

  c. Reliability 7

  d. Absence of Bureaucracy 8

  e. Absence of Paper Trail 8

ROLE OF HAWALA IN ILLEGAL ACTIVITIES 8

  a. Money Laundering 9

  b. Terrorist Financing 9

  c. Smuggling 10

  d. Tax Evasion 10

MACROECONOMIC IMPLICATIONS 10

CURRENT LEGAL AND REGULATORY REGIMES 11

  a. International Law 11

  b. Laws in South Asia 12

    1. India 12

    2. Pakistan 14

    3. The United Arab Emirates 14

ASSESSMENT OF THE LEGAL REGIMES 16

REGULATORY CHALLENGES POSED BY HAWALA 17

  a. Record Keeping Practices 17

  b. Mixing of businesses 18

  c. Cultural and Linguistic Barrier 18

  d. Lack of International Cooperation 19

PLAUSIBLE STRATEGIES FOR CURBING ILLICIT HAWALA 19

  a. Investigative Strategy 19

  b. Financial Strategy 20

  c. Sociological Approach 21

CONCLUSION 21

Introduction

      Hawala, a partial remittance system based on family or ethnic connections, continues to pose formidable challenges to formal banking system despite global efforts to regulate such informal financial institutions. These efforts come as a direct response to the perceived risks posed by these systems, primarily money laundering and terrorist funding. Yet one should not undermine the role played by them in the South Asian society. Hawala provides a cost effective, speedy, reliable, and trustworthy method for worker remittances, humanitarian relief and personal investment expenditures in South Asia. The paper analyses the hawala or hundi systems, reasons for their growing popularity and the difficulties they pose to... [continues]

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