The use of formal methods to map, analyze and interpret hawala and terrorist-related alternative remittance systems

Steven D. Berkowitz
Lloyd H. Woodward
Caitlin Woodward, University of Vermont

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ABSTRACT:
Alternative remittance systems such as hawala derive from Eurasian systems of exchange and credit (banking functions) well established by the medieval period that worked by transferring money without actually moving it. In parts of Asia and the Mid-East, these systems move more money transfers than conventional banks, and arguably, more commodities. These systems are legal in the U.S. and many other countries unless they involve money laundering or some other illegal function, but are illegal in countries such as Pakistan and India where they would otherwise deprive the government of massive tax revenue because of the near untraceability of transactions. They persist because they are fast, relatively inexpensive, reliable, and enable mobility by servicing the needs of migrant labor. Modern communications have made them faster, less expensive, and more reliable. How these institutions work is explicated along with consideration of how they are used to launder money and transfer funds and commodities used by terrorist organizations. Typical characteristics of illegal transfers are identified.