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This paper aims to illustrate the feasibility of circumventing the Swiss financial sector’s compliance mechanisms by financing terrorism through hawala networks.

Based upon a qualitative content analysis of 15 informal interviews with providers of illegal financial services and 15 formal interviews with compliance experts and law enforcement officers, the general suitability of hawala networks for the financing of terrorism was assessed and concrete methods of doing so were better understood. In addition, it is shown how terrorists can limit their risks in using the services of hawala bankers.

Hawala banking in Switzerland is extraordinarily useful for the financing of terrorism.

The findings are based on semi-standardized interviews limited to the perspectives of the 30 interviewees.

Law enforcement and intelligence agencies must be provided with additional tools, such as a broader scope of allowable activity for undercover police officers and the possibility of secretly conducting remote online searches of electronic devices. While this article focuses on Switzerland, its findings could be applied on a global level.

While the existing literature focuses on understanding the channels terrorists can use to finance their activities and on developing prevention mechanisms, this paper describes exactly how terrorism can be financed through hawala networks in Switzerland.

The purpose of this study is to explore the role of hawala in supporting Afghanistan’s business climate. It illustrates the use of hawala as credit and its importance for the local merchant community.

The empirical data presented in this article draws from more than 83 semi-structured interviews with Afghan merchants, business leaders, hawaladars and judicial officials, conducted between March and August 2017 in five major provinces of Afghanistan, namely, Kabul, Herat, Balkh, Nangarhar and Kandahar. These five provinces collectively represent half of Afghanistan’s economy, one-third of Afghanistan’s total population and more than four-fifth of Afghanistan’s urban population. The commercial courts that sit in these five provinces hear more than 90% of total commercial disputes in the country.

In Afghanistan, despite their reputation for being the bankers of terrorists and criminals, hawaladars primarily serve Afghan merchants – the overwhelming majority of their customers – helping them cope with an uncertain business climate. Within supply chains, Afghan importers rely on credit-hawala to protect themselves from the interruptions of cash flow that are prevalent throughout the Afghan economy.

Drawing on extensive field research, this article highlights how hawala stabilizes financing and markets in Afghanistan, arguing that while hawala regulations are necessary to counter abuse of hawala, regulators must be cognizant of how hawala is used in financing of legitimate businesses, or they will exacerbate the problems of access to credit.

While the historical studies of hawala reveal its inextricable link with trade financing, the current hawala literature completely neglects hawala systems’ contemporary financing role. Instead, the literature is completely dominated by the globalization trend of terrorism, money laundering and worker migration. Neglecting the trade financing role of hawala causes policymakers not to appreciate the impacts of hawala regulations on the trade fully. Overlooking hawalas’ role in financing transnational trade also results in the exclusion of an important group of stakeholders – namely, merchant-users of hawala services who are the main beneficiaries of hawaladars’ financing services – from the process of regulation of hawala systems. The main reason that hawala regulations have failed to gain tractions in countries such as Afghanistan is that these regulations have not been cognizant of the multifaceted functions of hawala markets and do not include all stakeholders in the regulation process.

The purpose of this article is to determine how terrorist financiers have continued to exploit hawala banking in German-speaking countries, despite regulations in place to prohibit this.

The first author interviewed compliance officers and suspected criminals on hawala banking mechanisms. Formal interviews with compliance officers were recorded, but interviews with suspected criminals were not, to maximize their potential forthrightness. The number of interviews totaled to 70 and a questionnaire was based on this that was sent to 200 compliance officers. The interviews were analyzed with a qualitative analysis and developed a system of categories that, in turn, was assessed by means of triangulation. These interviews enabled the first author to translate the empirical findings into his own recommendations for improving regulatory procedures prohibiting the financing of terrorism.

The paper finds that it is possible to circumvent compliance measures and exploit hawala banking to finance terrorism. Compliance officers consider the chances of detecting terrorist financing to be “low,” which is illustrated by mapping out the individual steps of the asset transfer. The conducted interviews enabled the first author to translate the empirical findings into his own recommendations for improving regulatory procedures prohibiting the financing of terrorism.

The scope of application of results was duly considered.

Whilst the existing literature sufficiently connects hawala banking to terrorist financing, this article details how existing compliance measures are circumvented. Emergent policies must consider the current vulnerabilities to improve their effectiveness.

This study aims to focus on how informal value transfer networks, Hawala business in particular, used social exchanges in their business dealings. More specifically, the conducted research looked into how social exchange theory was used in Hawala business relationship initiation and management.

Twenty-one depth interviews were conducted with Hawala Network members, and Hawala customers, in Qatar, Saudi Arabia and Pakistan. The collected qualitative data were analyzed through content analysis and NVivo 11 software.

The study outcome indicated that Social Exchange Theory was a principal relationship driver in Hawala Networks. Especially, trust had a pivotal role in evolvement and nurturing of Hawala Network business and social exchanges. Other relationship variables, namely, reciprocity, religious affiliation, reputation and information sharing had a significant part in relationship building as well. Results supported a prominent influence of time in carefully controlled and rigorously assessed transformation of Hawala relationships. This metamorphosis converted an exchange from short-term into a long-term orientation where limited amount transactions changed into large sum transactions and restricted information exchange moved to elaborate information sharing. In addition, findings revealed that monetary and non-monetary interactions between Hawala Network members took the form of a homogeneous club, with shared social, cultural, religious and ethnic values. In particular, financially constrained and illiterate social groups preferred Hawala services due to ease of servicing in the form of minimal bureaucracy, fast transfers and low service charges. These marginalized fractions of society had limited access to formal banking which made Hawala business their main (and in most cases only) source for sending and receiving financial remittances. Hawala Networks provided an effective alternative to formal banking for disadvantaged communities.

This study provided unique and useful insights into the nature of social exchanges within Hawala Networks. Especially, it provided clarification on how informal networked businesses used Social Exchange Theory to by-pass the need for legal protection and formal contracts. Furthermore, the study highlighted the role Hawala business played in providing essential banking services (e.g. transfer of money and micro-lending) to educationally and economically deprived individuals.

Since 9/11, hawala banking (financial service providers who carry out financial transactions whereby cash, cheques or other valuable goods are accepted at one location and a corresponding sum in cash or other remuneration is paid at another location) has attracted a great deal of attention. Much has been written on the subject, but so far little empirical research has been conducted into the misuse of hawala banking for criminal purposes. This paper aims to fill this gap.

The paper contains an analysis of 12 police files on the use of hawala banks by perpetrators of crime. The data gathered from these cases are compared to what has been reported on hawala banking in the existing literature.

The literature emphasises the importance of trust between client and banker, as well as between hawala bankers themselves. Trust is supposedly based on strong social ties (ethnic and family ties). The 12 cases studied (almost all of which concerned the misuse of hawala banking by drug dealers) put the significance of trust into perspective: the importance of ethnicity and personal trust should not be exaggerated. When the stakes are high, a common social background and shared ethnicity between bankers, as well as between bankers and their clients, seems to be less important than is often assumed.

The paper goes beyond the traditional focus on trust and strong social ties.

The purpose of this paper is to illustrate threefold how hawala banking poses a problem for Swiss banks implementing anti-money laundering (AML) and anti-terrorist financing (ATF) policies as a fulfilment of Switzerland’s UN commitment.

The first author interviewed compliance officers and suspected criminals on hawala banking mechanisms. The authors formally recorded interviews with compliance officers, but interviews with suspected criminals were not recorded to maximize their potential forthrightness. In total, the authors conducted 70 formal interviews and developed a questionnaire based on this, which was sent to 200 compliance officers. The authors subjected the interviews to qualitative analysis and developed a system of categories that the authors assessed by means of triangulation. By substantiating proposed theoretical challenges with empirical findings, future recommendations for regulatory procedures are based on analytical evidence.

This study finds that hawala presents significant challenges for AML and ATF policies. Whilst it is possible to mediate the first two challenges laid out herein, it is the third hurdle that proves insurmountable. Ultimately, tolerating hawala banking passively counteracts any active effort made by implementing AML and ATF policies.

Whilst the existing literature sufficiently connects hawala banking to terrorist financing, this study details how existing compliance measures are circumvented and the implications on the perceived commitment of Switzerland against financial crime.

The purpose of this paper is to describe how informal money transfer system known as hawala works in Somalia. The paper also intends to contribute to the current debate on the lawlessness and economics of governance.

The paper uses an institutional approach and a simple game theoretical model. The author interviewed agents and informants of the hawala system but mainly relied on surveying the literature.

To support economic relationships and increase the future cost of hold ups by their agents, the hawala companies, with the help of two main social institutions, use seven main strategies.

A research on contract enforcement should involve with the contract partners (i.e. firms and agents) and third part enfocers (i.e. social groups). However, the author findings are based on surveying the existing literature and interviewing on a small number of agents and other informants in the West. Further, research should examine the practical experience of owners/managers of the firms and the traditional/religious leaders.

Establishing future formal commercial laws in Somalia, currently functioning informal mechanisms should be taken into great consideration.

This paper is one of very few research studies on the hawala system. Further more, little if any attention has been paid on economic governance aspect of the system by these studies. According to the authors' knowledge the paper is the only one that considers economic governance with the case of complete picture of statelessness in our contemporary world.

The purpose of this research paper is to consider the unique and even positive nature of hawalas and other informal fund transfer systems (IFTs) in the developing world.

Reviewing primary and secondary reports from national regulators, international organizations, and academics, the paper questions the conventional view that IFTs should be subject to extensive regulation and scrutiny because they have been abused by some participants. Many positive characteristics of hawalas – speed, transaction cost, cultural convenience, and versatility – also contribute to their abuse. The paper examines the modern uses of hawalas, including legitimate – remittances from migrant workers, humanitarian and emergency aid, personal investments – and illegitimate – money laundering, terrorist financing, tax and customs evasion, circumventing exchange controls – applications. The paper then discusses legal issues involving IFTs in developing and developed countries, discussing factors the international community should consider when designing regulatory systems. The paper reviews developing world IFT regulation in the UAE, Afghanistan, Somalia, the Eastern and South African Anti‐Money Laundering Group, and Columbia, and developed world regulation in The Netherlands, the UK, and the USA.

The paper concludes that IFTs are robust in jurisdictions where formal banking systems are absent or weak, or where structural obstacles distort foreign exchange and other financial markets.

Looking forward, the paper considers, inter alia, licensing or registration requirements and the rationale for choosing one over the other, and the need for competent authority due diligence on IFT operators.

The purpose of this paper is to highlight criticism of attempts to impose regulations on hawala and other informal value transfer systems (IVTSs), in light of their importance in the lives of people in the most vulnerable sectors of global society.

Review of scholarly, public‐policy, and legal literature on hawala and other IVTSs.

Most attempts to regulate hawala and other IVTSs seem redundant of existing regimes, or, worse, unreasonably punitive when their social utility is considered.

A contribution to the debate on the supposed need to regulate hawala and other IVTSs favored by the poorest and most vulnerable sectors of global society.

The purpose of this paper is to examine the recommendations of an influential international advisory body, the Financial Action Task Force (FATF), towards regulation of Alternative Remittance Systems (ARSs).

The research design is a comparative analysis of Afghanistan and the United Arab Emirates, using available FATF documentation and external sources.

The analysis shows that FATF is right in pointing out that ARSs are useful vehicles for criminals to move operational expenses and launder the proceeds of their crimes. However, based on the cases of Afghanistan and the United Arab Emirates (UAE), it is argued that FATF's main approach of seeking to integrate these informal, traditional systems into the sphere and regulations of the formal banking system can be ineffective and even counterproductive in developing countries. Rather than taking a genuinely risk‐based approach, all ARS operators are required to be registered or licensed, conduct Customer Due Diligence (CDD) and fill out Suspicious Transaction Reports (STRs), just like commercial banks.

The impact of mandatory registration and requiring CDD and STRs has been negligible in Afghanistan and the UAE. Therefore, the article calls for new approaches to control money laundering in ARSs.

The paper is the first independent, comparative case study analysis of FATF regulations and implementation. It illustrates the limited knowledge/research in the field, and the inherent limitations of the current regulatory approach.