Add the ancient money-exchange method of hawala to the newfangled notions of bitcoin and other cryptocurrencies – courtesy of recent local courtroom drama.
Hawala dates back to Silk Road merchants active a thousand years ago, and is most commonly used today on the Indian subcontinent. The term comes from the Arabic word for “transfer,” and hawala agents typically work in pairs, with each holding sufficient capital to fulfill deliveries of money on the receiving end of transactions.
The agents never actually exchange money. They fulfill each other’s orders and keep a running tally. An agent might take an order to send out $5,000 to a recipient client on one day, then take in $5,000 from a sender client the next, counting on the corresponding agent to deliver the money to the recipient on the other end of that transaction. Both agents, in this scenario, will have laid out $5,000 and then made whole.
That leaves a small fee that each collects from their respective clients – and that’s the revenue generated by the working capital.
Hawala has been used in areas where conventional banking is not widespread, such as in rural villages in India and Pakistan. But it has also been used here in Southern California as a faster, cheaper way to transmit money across borders. Hawala agents typically charge fees totaling about 1 percent of the value of the money being transferred; Western Union Co. generally charges a base 1 percent transaction fee, not including currency conversion fees and other charges. Bank-to-bank transactions can take several days to clear, while hawala transactions can take just a few hours.
Hawala’s most common use here is for remittances: for example, a local small business owner sending $1,000 each month to relatives in a small village in India. It is also used by some import-export merchants, according to Don Semesky, an expert consultant in alternative money transmitting systems based in the Baltimore, Md. area.
Semesky said California law treats hawala agents like any other money transfer agents: they must register their business with the state, form a corporation or LLC, obtain a license and get insurance bonding. Failure to meet those requirements is treated as a felony offense.
Semesky said that helps explain why most hawala agents here operate in the underground economy.
Hawala has recently emerged here as a way to launder money. Monrovia resident Harinder “Sonu” Singh, 32, was found guilty in late January of laundering drug money proceeds using hawala agents. The federal court found Singh used a hawala network to transfer money he received from narcotics traffickers, including some associated with the Sinaloa Cartel based in Mexico’s Sinaloa province. Federal agents succeeded in wiretapping calls in the Punjabi language that allowed them to track the transfers and crack the case.
