1. A GLOBAL STUDY OF HAWALA TARGETING REGULATIONS
by
Karen Pamer
A Capstone Project Submitted to the Faculty of
Utica College
August 2016
in Partial Fulfillment of the Requirements for the Degree of
Master of Science in Financial Crime and Compliance

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3. ii
© Copyright 2016 by Karen Pamer
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4. iii
Abstract
This research focused on hawala regulations in multiple jurisdictions, strategies of international
bodies to mitigate illicit transfers, and implementation of a standardized approach to monitor
money remittances. Transfer mechanisms used to remit funds internationally appeal to
individuals, organized crime groups, terrorist financiers, and money launderers. Literature
reviewed consisted of government studies, financial body reports, media articles, and peer-
reviewed journals. Evaluation of different methodologies and the Financial Action Task Force’s
supervisory controls was completed. It was determined that economic pressure may impact
financial networks and encourage compliance if regional government bodies have the necessary
authority to enforce regulations. Research revealed recommendations for education programs to
aid jurisdictions in setting up financial intelligence units, developing statutes tailored to their
economies, and enforcement of supervisory controls. This report further suggested accountability
amongst jurisdictions to reduce the ability of criminals and terrorist financiers to move their
financial activities to areas with lax enforcement and corrupt governments that do not enforce
regulatory recommendations. It also encouraged tracking financial activity and implementing
licensing requirements to mitigate de-risking of high-risk customers with the provision of
education to customers and third-parties through formal financial institutions. Reduction of
unlicensed money remittances and mitigation of illicit funding benefiting organized crime and
terrorism is the ultimate goal. Keywords: Economic Crime Management, Financial Crime and
Compliance, Paul Pantani, Alternative Remittance Systems, Informal Value Transfer Systems.

5. iv
Acknowledgements
This capstone is dedicated to my father, Joseph Volovar, who created the person I am
today by providing a solid foundation and constant encouragement. His guidance taught me that
I have the ability to do anything I desire. He instilled a sense of discipline in me to conquer every
aspect of life. Thank you Dad for being my strongest proponent.
The utmost gratitude to my family and friends for the push to further my education. Love
and inspiration are always a true blessing. Especially my exceptionally gifted boys, Tyler and
William Pamer, for understanding higher education is time consuming but a worthwhile
endeavor. My mother and role model, Theresa Volovar, who taught me I am capable of
everything I can imagine and teaching me every step of the way while she lived her dreams. My
brilliant niece, Taylor Volovar, for proof reading this project and having an inspirational vision
beyond her years. And her amazing parents, Brian and Dianne Volovar, for their unwavering
support throughout my life.
Deepest appreciation to my cohort for imparting their wealth of knowledge and our
professors for guiding us on this path. Larry Bateman, for his constant encouragement incited by
racing me to the finish line on this capstone project. My subject matter expert, Thaedra Frangos,
for setting the bar in writing my capstone at the highest standards. Professor Paul Pantani, for his
incredible patience during my research. And last but not least, my editor, Jay Fawcett, for his
motivation, insight, time, knowledge, and connections that brought this project together.

6. v
Table of Contents
A Global Study of Hawala Targeting Regulations ..............................................................1
Purpose of the Study......................................................................................................1
Hawala ...........................................................................................................................2
Hawala and its Effects on the Economy ........................................................................5
The Legality of Hawala .................................................................................................6
Money Laundering.........................................................................................................8
Movement of Illicit Funds .............................................................................................9
Purpose Summary........................................................................................................10
Literature Review...............................................................................................................11
Financial Action Task Force........................................................................................11
U.S. Legislation, Regulation, Supervision, and Enforcement .....................................20
Legislation, Regulation, Supervision, and Enforcement by Country ..........................24
Case Study Examples...................................................................................................32
Scholarly Opinions and Recommendations.................................................................35
Discussion of Findings.......................................................................................................42
Supervisory Controls and Regulations.........................................................................43
Economic Pressure.......................................................................................................44
Enforcement Techniques .............................................................................................45
International AML/CFT Regimes................................................................................47
Warning Signs..............................................................................................................50
Limitations of the Study...............................................................................................51
Summary......................................................................................................................52
Recommendations and Conclusions. .................................................................................52
Education of Jurisdictions............................................................................................54
Accountability..............................................................................................................55
Alternative Remittance Methods .................................................................................55
Privatizing Hawala.......................................................................................................56
Public Education..........................................................................................................57
Law Enforcement in Ethnic Communities ..................................................................57
Financial Institutions....................................................................................................58
International .................................................................................................................58
Future Research ...........................................................................................................59
Conclusions..................................................................................................................60
References..........................................................................................................................62
Appendix A – Acronyms ...................................................................................................70

7. 1
A Global Study of Hawala Targeting Regulations
As the technological and financial industries evolve, the ancient method of hawala still
provides a fast, inexpensive, and convenient remittance method in areas where formal financial
institutions are unavailable, expensive, and unreliable (Maimbo & Passas, 2003). Numerous
attempts have been made to define hawala, which means transfer in Arabic. Peters (2009) noted
that hawala is crucial to the legal economies of millions of people with no access to bank
accounts. Jost and Sandhu simply defined hawala as “money transfer without money movement”
(2000, p. 5, para. 3). Watterson contended that hawala provides anonymity that makes the money
transfer system “susceptible to abuse by criminals trying to hide drug money and other illicit
funds” (2013, p. 712, para. 1).
Passas (1999) coined the term informal value transfer system (IVTS) to encompass the
variations of remittance systems in different regions of the world that mimic hawala. Passas
(2004) defined IVTS as networks of people facilitating the transfer of funds or value without
leaving a trail of entire transactions that take place outside traditionally regulated financial
channels. The secrecy of hawala encourages criminals, terrorist financiers, and money launderers
to capitalize on lax enforcement of varying regulatory regimes governing remittances (FATF,
2013).
Purpose of the Study
The purpose of this study was to examine the use of hawala for illicit funds transfers to
analyze the effectiveness of regulatory and supervisory controls in various countries. The study
analyzed whether loopholes and lack of enforcement enhanced past successes and failures of
regulations to mitigate the movement of illicit funds through hawala for the basis of improved
recommendations for illicit funds transfers. The challenge when addressing hawala, as noted by

8. 2
the governor of Afghanistan’s Central Bank, Noorullah Delawari, is separating the good from the
bad (Peters, 2009).
The analysis attempted to answer the following questions: Are the current regulations and
supervisory controls of hawala effective in the varying ethnic and geopolitical environments?
How can international bodies and governments assist in mitigating the use of hawala by
organized crime groups, terrorist financiers, and money launderers? Would a standardized
international approach of hawala regulation help with enforcement of supervisory controls to
mitigate illicit funds transfers?
The qualitative research methods used for this research were peer-reviewed, scholarly
journals, books, research articles, government notifications, and media sources. The diversity of
research attempted to provide a basis for unbiased research. The analysis conducted attempted to
determine typologies for the detection of illicit fund movement and arguments for and against
stricter statutes, regulations, and supervisory controls. The project will attempt to find
vulnerabilities in enforcement and effects on economies. The findings are intended to benefit
financial regulatory bodies, financial institutions, and enforcement agencies.
Hawala
The basis of hawala, trust and secrecy, is the reason it presents a problem to financial
institutions and law enforcement agencies. Hawala appeals to organized crime groups, terrorist
financiers, and money launderers. Passas (1999) noted that hawala is used for the facilitation of
tax evasion; capital flight; covert operations; corruption; intellectual property violations; ransom
collection; financial fraud; terrorism; smuggling of illegal immigrants; money laundering; and
illegal trade in drugs, body parts, or commodities. Regulations of hawala are difficult to
implement within certain geographic regions due to limited or no access to formal banking

9. 3
options or enforcement agencies. There is also concern that regulations will drive hawala
transmitters or bankers, referred to as hawaladars, further underground. Passas noted that the
goal is to find a balance point and encourage supervision of regulating hawala with
recommendations that do not hinder the economies of the countries involved.
According to the report by the Financial Action Task Force (FATF), The Role of Hawala
and Other Similar Service Providers in Money Laundering and Terrorist Financing, two distinct
aspects of hawala coexist. The first is an essential provider of financial services to the unbanked
in countries with limited access. The second contradicting view, even in some of the same
jurisdictions, is that it is a leading channel for terrorist financing and money laundering.
Familiarity, culture, international reach, ease of use, and speed of transfers make hawala
attractive to money transmitters. Criminals and terrorist financiers are also attracted to the lax
supervision, anonymity, and lack of political will enforcing regulations on transaction
information (FATF, 2013).
Hawala and IVTS go by multiple names including: alternative remittance system (ARS),
informal remittance system, fei chi’en (China), hundi (India), padala (Philippines), chit
(Thailand), and underground exchange (Li, Liu, & Ge, 2012). According to the 2009
International Monetary Fund (IMF) report, International Transactions in Remittances, a typical
hawala transaction involves the sender visiting the hawala operator in the sending country.
Hawala operators may operate from the following locations: grocery stores, ethnic stores, cell
phone stores, import/export businesses, or travel companies. The hawala operator in the sending
country receives money and a commission fee from the sender and advises the counterpart
hawaladar by telephone call, fax, or e-mail in the receiving country. The hawaladar in the
receiving country disburses the cash to the beneficiary in local currency after the provision of

10. 4
proper identification and a remittance code (Razavy, 2005). In theory, a hawaladar in the
receiving country would receive a remittance in order to balance the books; however, other
settlement methods are common due to varying amounts of inbound and outbound fund transfers
between hawaladars (IMF, 2009).
Not only is the initial hawala transfer prone to corruption, crime, and the funding of
criminal and terror organizations, the process of settling remittance imbalances offers gateways
to launder or move illicit funds. Razavy describes the settlement method as the two-pot system.
The two-pot system means hawaladars continue transfers without balancing their remittances
unless there is an unusually high transfer request or there is an imbalance after an extended
period. Another settlement process uses cash couriers or commodity (e.g. art, gold, and various
high-priced items) transfers to balance the outstanding debts (Razavy, 2005).
Other methods of settlement include wires or transfers through formal financial systems.
This typically occurs in U.S. dollar accounts in financial centers including but not limited to New
York, London, Dubai, Hong Kong, or Singapore (Passas, 2006a). Additional methods include
bilateral or multilateral financial liquidation, trade-based money laundering (TBML), smuggling,
and direct investment (Li et al., 2012). Physical transfers of commodities or currency makes it
difficult for authorities to follow or regulate the transactions (Razavy, 2005).
Ratha et al. (2016) reported in the Migration and Development Brief international
migrants from developing countries working abroad transferred remittances to their home
countries totaling $432 billion during 2015. The World Bank estimates that the informal
remittance sector represents at least 50 percent of the total remittances of the formal sector.
Formal banks de-risking (e.g. closing accounts) high-risk customers limit the options available to
migrants who want to send money to their families in their home countries. High-risk customers

11. 5
include immigrants and Money Service Businesses (MSB). The Financial Crimes Enforcement
Network (FinCEN) is the Financial Intelligence Unit (FIU) for the U.S. FinCEN noted in
Advisory 33 the following additional reasons for utilization of hawala and IVTS: political
instability, inadequate payment systems, lack of formal financial institutions, lower foreign
exchange rates, faster remittance, evasion of currency reporting controls, tax avoidance, and
anonymity (FinCEN, 2003).
Hawala and its Effects on the Economy
Money remittances affect the economy on multiple levels. The flow of currency out of
countries by immigrants back to their families reduces spending in the originating country and
the lack of revenue prevents improvements of services and infrastructure reducing economic
growth. Countries that receive illicit monetary flows may experience inflation as the inflows
enhance spending and increase demand. Distortions of trade statistics due to transfers of over or
under invoiced products reduce opportunities for legitimate business and encourage sanctions
violations, tax evasion, money laundering, and fraud (Passas, 2006b).
Dynamic forces of capital controls and the effects of the black market exchange rates
have the ability to topple the infrastructure of countries in political and economic transition,
turmoil, or war. Tax evasion by money launderers also diminish government revenues. Fixed
exchange rates and capital controls encourage the use of the black market peso exchange and
hawala, which encourages large premiums on black market foreign exchange rates. Black market
exchange rates doubled recently in parts of Africa due to controls; yet, the market thrives since
the government restricts transfers through the legitimate system further reducing the
transparency of illicit transfers (Stevis, 2015).

12. 6
The Legality of Hawala
The legality of hawala and remittance systems in regions around the world range from lax
regulations to strict enforcement. The U.S. Bank Secrecy Act (BSA), enacted in 1970, attempted
to fight money laundering and other financial crimes by enacting record keeping requirements
for currency transactions in the U.S., foreign bank account transactions, and transportation of
currency across U.S. borders. The goal was to create paper trails regarding certain transactions,
support law enforcement, and to provide U.S. policymakers with strategic analysis of money
laundering trends and patterns (FinCEN, 2009).
In 1997, FinCEN added MSB to the definition of financial institutions for reporting
purposes (2003). The change provided transparency to IVTS that register as money transmitters
in the U.S. MSBs conduct money transmissions, sell money orders, and exchange currency.
Currently, MSBs are required to file Suspicious Activity Reports (SAR) and Currency
Transaction Reports (CTR), implement anti-money laundering (AML) programs, and maintain
records to facilitate financial transparency similar to banks (Jost & Sandhu, 2000).
The Netherlands enacted similar remittance system laws including the Money
Transaction Offices Act, the Identification of Services Act, the Disclosure of Unusual
Transactions Act, and the Sanctions Act. The Dutch Central Bank, tasked with compliance of
these laws, has enforcement powers including rights to comply with law enforcement. The law
specifically outlaws hawala and informal money remittance systems. The clarification in legality
is dependent on registration of the money remittance system. For example, if the hawaladar
registers, the hawala is a formal remittance business and legal. This provides reporting
requirements needed to track money transfers (Bokkerink, 2005).

13. 7
Per Maimbo (2005), Da Afghanistan Bank (Central Bank) regulates money service
businesses including money transmission and currency exchange and providers must register as a
MSB. This is very difficult considering the economic and geopolitical turmoil in the country.
Afghanistan’s endemic corruption and suspected involvement of high-ranking officials increases
support for terrorist groups and makes it difficult to shut down the flow of illicit funds
(Rosenberg, 2010).
In Brazil, all lawful transfers must go through formal banks including money order
transfers due to the illegality of informal value transfers. Financial institutions must report
suspicious transactions to their FIU. In addition, Brazil implemented strict enforcement
measures. For example, the Brazilian Federal Police Department is responsible for mitigating the
foreign exchange black market (Goncalves, 2005). According to the report by the U.S.
Department of State, International Narcotics Control Strategy Report, Brazil signed Law
#13.170 to confront terrorist financing by freezing assets connected to terrorism. However,
Brazil has not criminalized terrorism or terrorist financing. It is difficult to evaluate the
effectiveness of Brazil’s enforcement because they do not maintain comprehensive statistics on
prosecutions and convictions of crimes related to the anti-money laundering and combating the
financing of terrorism (AML/CFT) regime (U.S. Department of State, 2016).
Per Uribe (2005), even though hawala is illegal in Colombia, regulations were relaxed in
1991 with Law 9-91, which eliminated the strict government monopoly of foreign exchange.
Colombia’s Foreign Exchange Statute mandates foreign exchange operations, channeled through
licensed money remitters, have permanent governmental supervision and severe sanctioning
rules. The elimination of the government monopoly liberalized the foreign exchange market

14. 8
resulting in improved transparency and allowed for competition with the foreign exchange
houses. The foreign exchange houses are called Casa de Cambios in Latin America.
The World Bank and the IMF refer to hawala as informal funds transfer (IFT) systems
and provide monetary, fiscal, and financial sector supervisory policies to monitor global money
transfers. IFTs reduce statistical data available to policymakers limiting their ability to control
economic issues, monetary policy, exchange rate operations, and tax revenues. IFT or IVTS are
money laundering tools utilized by organized criminals and terrorist financiers (El Qorchi,
Maimbo, & Wilson, 2003).
Money Laundering
Hawala can utilize the three-step process of money laundering including placement,
layering, and integration to assist criminals in evading regulations and scrutiny. Placement
consists of breaking up the currency into small deposits into the financial system or purchasing
monetary instruments to evade currency reporting requirements and unwanted attention. The
second stage, layering, is the movement of funds away from the source. The layering
methodology includes account transfers, wire transfers, and the purchase and sale of investments
or insurance policies. The final stage is integration where criminals use the funds to invest in the
legitimate economy. This can include real estate, luxury assets, or business ventures. Criminal
organizations benefit from hawala because it assists with financing their illicit activities by
providing the appearance that illicit funds originated from a legitimate source. However, terrorist
financiers utilize similar methodologies to move funds that are actually from a legitimate source
into the possession of terrorists (FATF, 2016a).

15. 9
Movement of Illicit Funds
The following examples outline the negative effects of organized crime and terrorist
financing on a global scale. Between 2007 and 2010, more than $3 billion in declared cash
moved via airplane from Kabul International Airport, Afghanistan. The undeclared cash
equivalent moving across the border by land and air is unknown. U.S. investigators suspected
Afghan officials were diverting U.S. aid and logistics dollars and drug and extortion money to
financial safe havens to benefit the Afghan officials. The article alleges illicit funds derived from
corruption moved through hawala systems. These failed humanitarian efforts are devastating to
developing countries (Rosenberg, 2010).
An Iraqi banker used hawala to aid criminal clients. The banker oversaw the settlement of
illegal financial transactions related to human smuggling. The smuggler and his customers
agreed to deposit the price of the transport with the hawaladar and after a successful smuggling
operation; the customers then contact the hawaladar to release the money to the smuggler (van de
Bunt, 2008a).
The Islamic State utilizes hawala and money-exchange offices in Iraq, Syria, Turkey, and
Jordan to transfer millions of dollars to and from the militant-held territory. Attempts at isolating
the terror group from the global banking system are useless with the services of hawaladars. A
money-exchange operator noted Iraqi officials expect bribes (Coker, 2016). This highlights the
difficulty in regulating hawala on an international level without the support of local law
enforcement.
In Somalia, hawala remittances from Kenya appeared to fund al-Shabaab militant
organization that claimed responsibility for a terrorist attack at Garissa University College in
Kenya. During 2015 in Kenya, Africa’s laws allowed for the closure of hawala shops. Kenya

16. 10
responded by shutting down hawala shops and familial remittances to Somalia. The underlying
effect was the devastation of the Somalian economy. In undeveloped areas of Africa,
enforcement is difficult without regulatory bodies or alternative formal banking systems. There
is concern that the crackdown on hawala might increase animosity toward the government and
increase support of terrorist groups (Stevis, 2015).
Black Market Peso Exchange (BMPE) mimics hawala by pushing currency through
informal transfer systems in Colombia and Mexico to launder drug money. BMPE takes currency
from drug sales collected in stash houses and smurfs it into accounts controlled by a money-
exchanger or an associate in the U.S. Smurfs are people who physically move small currency
amounts into numerous accounts to evade detection. Legitimate traders then buy goods and ship
them to Colombia. Money remitters in the U.S., who receive a commission, launder the drug
money from the Colombian money-exchanger. Alternatively, cash is given directly to exporters,
or used to purchase small denominations of money orders. Some smuggle the cash into Mexico,
deposit into conventional banks, and get bank drafts to pay exporters. This system allows drug
proceeds to enter the conventional and legitimate U.S. economy as payment for exported goods
and drug traffickers receive their profits in Colombia in pesos (FATF, 1998).
In 2015, U.S. federal authorities dismantled an international network of money launderers
that used a hawala system to move millions of dollars from the U.S. and Canada to Mexico.
Money transfers benefited the Sinaloa drug cartel and other criminal groups. Cash couriers
moved the illicit funds and moved drugs from cartel stash houses back to Canada (Rubin, 2015).
Purpose Summary
The aforementioned samples address different regions of the world due to the
intertwining nature of the global economy and the transnational movement of illicit funds for

17. 11
organized crime, terrorist financing, and money laundering schemes. Naim (2005) claims
international networks are capable of eroding the authority of the states while corrupting
legitimate businesses and governments. The regulatory environment must match the evolution of
the organized crime world and corruption methods for continued prosecution of criminals,
mitigation of illicit funds transfers, and prevention of terror.
Literature Review
This project reviewed the use of hawala by criminal organizations and the attempts to
regulate an informal banking system to prevent illegal money transfers. Watterson (2013) noted
it is difficult to regulate hawala or IVTS because a weak response gives criminals permission to
engage in illicit activity and a strict response encourages underground banking systems. This
portion of the study reviews historical information regarding guidance for recommendations to
the following questions: Are the current regulations and supervisory controls of hawala effective
in the varying ethnic and geopolitical environments? How can international bodies and
governments assist in mitigating the use of hawala by organized crime groups, terrorist
financiers, and money launderers? Would a standardized international approach of hawala
regulation help with enforcement of supervisory controls to mitigate illicit funds transfers? The
research reviewed various regulations and enforcement mechanisms and focused on successes
and failures in various regions.
Financial Action Task Force
In 1989, the Ministers of the Member jurisdictions established the FATF to set standards
and promote effective implementations of legal, regulatory, and operational measures for
combating money laundering, terrorist financing, and related threats targeting the integrity of the
international financial system. The FATF is an international body for policymaking and

18. 12
generating political will to enact national legislative and regulatory reforms (FATF, 2016a). The
FATF is also the global standard setting body for AML/CFT. There are currently 36 members
including 34 jurisdictions and two regional organizations. The FATF (2013) noted that the scale
of unregulated hawala is unknown and is impossible to generalize. Some of the FATF
jurisdictions attempted to estimate the unregulated hawala at 10% to 50% of the total remittance
market. In 2012, the FATF updated their AML/CFT recommendations. The purpose was to
identify risks, pursue money laundering and terrorist financing, apply preventative measures for
the financial sector and other designated sectors, establish powers and responsibilities for
competent authorities, enhance the transparency and availability of beneficial ownership
information of legal persons, and facilitate international cooperation (FATF, 2016c).
FATF Forty Recommendations. The FATF 40 Recommendations assess and apply a
risk-based approach by taking action and designating an authority or mechanism within the home
country to coordinate actions to mitigate risks. The first recommendation states countries should
force financial institutions and designated non-financial businesses and professions to identify,
assess, and take effective action to mitigate AML/CFT risk. The second recommendation notes
that countries should have national AML/CFT policies. Countries should designate an authority
to enforce these policies. The FATF also notes that policymakers, FIUs, law enforcement
authorities, and supervisors should have mechanisms in place to coordinate with each other
concerning the policies (FATF, 2016c).
The third and fourth recommendations state that countries should criminalize money
laundering and adopt legislative measures that allow authorities to freeze or seize and confiscate
property obtained from money laundering based on the Vienna Convention and Palermo
Convention. The FATF also recommends that countries criminalize terrorist financing even if

19. 13
there is no link to a terrorist act and implement targeted financial sanctions in compliance with
the United Nations (UN) Security Council recommendations related to financing of terrorism and
weapons of mass destruction. These resolutions require countries to freeze assets and ensure
funds and assets are not available to criminals or terrorists. The FATF also recommended that
countries should ensure secrecy laws do not interfere with implementation of the FATF
Recommendations (FATF, 2016c).
The FATF (2016c) recommends implementing customer due diligence to ensure financial
institutions do not keep anonymous accounts or accounts in obviously fictitious names.
Customer due diligence is also required with the establishment of business relations, transactions
above $15,000, certain wire transfers, suspicions of money laundering or terrorist financing, or
doubts about the accuracy of previously obtained information. Customer due diligence includes
identifying and verifying the customer, beneficial owners, source of funds, understanding the
purpose of the business relationship, ongoing due diligence, and purpose for any change in
activity. Additional due diligence rules exist regarding politically exposed persons (PEP) and
correspondent banking institutions. The FATF also recommends maintenance of records for at
least five years to ensure compliance with request for information from enforcement agencies.
The FATF (2016c) recommends licensing or registration for persons providing money or
value transfer services. It also recommends effective systems monitoring and compliance
measures. The FATF suggests countries identify and assess money laundering or terrorist
financing risks from development of new products, technologies, and business practices. The
report notes financial institutions should be required by law to file a suspicious transaction report
(STR) when they suspect or have reasonable grounds to suspect that funds were derived from
criminal or terrorist related activity. They also advise protections from criminal and civil liability

20. 14
for financial institutions and their directors, officers, and employees for breaches of disclosure of
information provisions related to the filing of a STR. Law enforcement and investigative
authorities should have authority to conduct investigations based on the country’s AML/CFT
policies including mutual cooperation with financial institutions. Countries should establish an
FIU to receive information related to AML/CFT issues and ensure that law enforcement has the
authority to conduct investigations and obtain information from the FIU.
The FATF (2016c) advises countries maintain comprehensive statistics on matters
relevant to the effectiveness and efficiency of their AML/CFT systems. Statistics should include
STRs received and disseminated; AML/CFT investigations; prosecutions; convictions; property
frozen, seized, or confiscated; and mutual legal assistance requests. The countries FIU and
enforcement agencies should establish guidelines and provide assistance to financial institutions
and non-financial businesses regarding the application of the national measures created to meet
the FATF Recommendations. The FATF also recommends countries have a wide range of
effective, proportionate, and dissuasive sanctions (criminal, civil, or administrative) available to
deal with persons; financial institutions; designated non-financial businesses; and senior
management of these institutions that fail to comply with AML/CFT requirements.
The FATF (2016c) noted international concerns with mutual legal assistance and
recommended countries not prohibit mutual legal assistance, use a central authority to ensure
efficient processing of mutual legal assistance requests, not refuse a request, and maintain
confidentiality. Countries should also have the authority to take action in response to requests to
identify, freeze, seize, and confiscate property obtained through proceeds from money
laundering, predicate offenses, and terrorist financing or property of corresponding value.
Jurisdictions must have processes for sharing proceeds with counterparts in law enforcement. In

21. 15
addition, countries should execute extradition requests in relation to AML/CFT issues and not
provide safe havens for individuals charged with terrorist activities.
FATF IX Special Recommendations. The FATF IX Special Recommendations
emphasized the additional risks associated with the financing of terrorism and established a basic
framework to detect, prevent, and suppress the financing of terrorism and terrorist acts. They
included ratification and implementation of UN instruments (Security Council Resolution 1373
and the 1999 International Convention for the Suppression of the Financing of Terrorism),
criminalizing the financing of terrorism and associated money laundering, freezing and
confiscating terrorist assets, reporting suspicious transactions related to terrorism, international
cooperation, alternative remittance, wire transfers, non-profit organizations, and cash couriers.
The ARS recommendation suggests countries ensure persons or legal entities (e.g. agents
providing a service for the transmission of money or value through formal or informal systems)
obtain a license or registration and abide by the aforementioned FATF Recommendations that
apply to banks and non-bank financial institutions. Each country should ensure parties providing
alternative remittance services are subject to administrative, civil, or criminal sanctions (FATF,
2012a).
The wire transfer recommendations include money remitters and suggests requirements
for accurate and meaningful originator information (name, address, date of birth, and account
number) on funds transfers and related messages. In addition, it suggests the inclusion of
information during all steps of the payment chain and enhanced monitoring of transfers that do
not include the originator information. The non-profit organization recommendation advises that
these entities are vulnerable to misuse for financial transfers by terrorist organizations posing as

22. 16
legitimate entities, exploitation of legitimate entities as conduits for terrorist financing, and
concealment or diversion of funds intended for terrorist organizations (FATF, 2012a).
The FATF Special Recommendation VI concerning alternate remittance includes hawala
and IVTS. The FATF notes the objective of the ARS recommendation is to increase transparency
of payment flows by ensuring that jurisdictions enforce consistent AML/CFT measures for all
forms of money transfer systems with a focus on those operating outside the traditional financial
sector and not currently subject to the FATF Recommendations. The goal was to bring all money
transfer services under certain minimum legal and regulatory requirements. The three core
elements of Special Recommendation VI suggest licensing or registration of persons providing
money transfer services, adherence to the FATF 40 Recommendations and the IX Special
Recommendations, and ability of governments to impose sanctions on the money transfer
services that fail to comply with the registration or the FATF Recommendations (FATF, 2012a).
Trautsolt and Johnson (2012) reported that the current approach outlined by the FATF
concerning alternate remittances is not effective in developing countries. Their research focused
on Afghanistan and the United Arab Emirates. The authors agreed with the FATF’s opinion on
alternate remittance systems as vehicles for criminals to move expenses and launder illicit funds;
however, they contended that the FATF’s regulations are counter-productive in developing
countries and risk based approaches should be individually applied based on the jurisdictions
economies and circumstances.
FATF Law Enforcement Recommendations. Operational Issues Financial
Investigations Guidance published by the FATF, addressed standards to recognize law
enforcements role in the AML/CFT context. The purpose of the guidance is to assist law
enforcement and financial institutions in utilizing the available tools and information to identify

23. 17
and document the movement of money during criminal activity. Education should be provided to
each institution or agency concerning identification of warning signs and typology awareness
indicative of suspicious or criminal activity. The effectiveness of a country’s AML/CFT regime
is enhanced when it has the capability to identify criminal networks, trace proceeds of crime and
terrorism, and develop evidence through multiple sources (FATF, 2012b).
Law enforcement is invaluable for the implementation of the FATF Recommendations to
detect illicit financial activity, protect the integrity of the financial markets, bring criminals to
justice, and prevent threats to national security. They seek to prevent, deter, and disrupt money
laundering, associated predicate offenses, and terrorist financing. The FATF Recommendations
for law enforcement include a national policy criminalizing AML/CFT and implementation of
data collection standards to document prosecutions, sanctions, and confiscation measures. This
should prevent dealing, transfer, or disposal of illicit property (FATF, 2012b).
The FATF report emphasized a necessity to create domestic and international
investigative task forces including criminal investigators, public prosecutors, policymakers, and
competent anti-corruption and tax enforcement authorities. The report notes that all criminal
investigators should be trained on proper identification of suspicious activity beneficial to
financial investigations. Raising awareness of suspicious activity increases the possibility of
obtaining pertinent information to prevent illicit movement of funds. The FATF recommends
law enforcement be granted the power to compel production of financial records and implement
a wide range of investigative techniques. Training and education should be standardized and
provided at all levels of law enforcement. The training should also include all sectors of formal
and informal financial industries to share best practices, legal procedures, evolving trends, and

24. 18
typologies for identifying activity in different environments. These trainings should include
national as well as international counterparts (FATF, 2012b).
FATF G20 Recommendations. The Terrorist Financing FATF Report to G20 Leaders
assessed the growing threat of terrorist groups in the global AML/CFT network and noted most
of the 194 jurisdictions studied had criminalized terrorist financing, but relatively few had
obtained convictions for terrorist financing. The Group of Twenty (G20) is a collaboration of
large countries including Brazil, Canada, China, India, the United Kingdom, and the U.S. FATF
determined that most jurisdictions have legal instruments to implement financial sanctions;
however, the countries are slow implementing the sanctions and continue to have gaps in their
legal frameworks. In addition, most jurisdictions never make practical use of targeted financial
sanctions. Countries have adequate legal powers that are not activated in practice. According to
the paper, two-thirds of jurisdictions have never taken any practical actions related to financial
sanctions (FATF, 2015a).
The FATF is taking steps to deal with the enforcement of AML/CFT sanctions. They
intend to follow-up with individual jurisdictions to address the identified enforcement problems,
address systematic weaknesses including foreign requests for asset freezing action, and continue
to reinforce research programs on risks, trends, and methods of terrorist financing. The FATF
expects the G20 to endorse their goals of ensuring all jurisdictions have implemented measures
to counter terrorist financing. Furthermore, the FATF expects the G20 to assist with
implementations in other jurisdictions, provide technical advice, and lead by example to mitigate
terrorist financing and illicit fund transfers (FATF, 2015a).
The FATF report outlined gaps in the international program for seizing terrorist assets
including 21 jurisdictions that do not have the ability to freeze terrorist assets. The report

25. 19
emphasized the use of sanctions lists communicated to the financial sector and encouraged the
progress of real time notifications to mitigate the transfer of terrorist assets before seizure can be
completed. Most jurisdictions can apply administrative penalties to financial institutions or
regulated professionals for failure to implement sanctions requirements and have adequate
systems and controls to successfully seize assets. Only thirty-three percent of jurisdictions have
reported any of the following: asset seizure, receipt of a request to freeze assets, or penalization
of a breach in targeted financial sanctions. The FATF speculated the following reasons for
failure to abide by financial sanctions: low levels of terrorist financing activity, lack of capacity
or infrastructure to identify targets and withstand legal challenges, lack of capacity to implement
and supervise financial sanctions, lack of awareness among operational counter-terrorism
authorities of targeted financial sanctions, and failure to prioritize the financial component of
terrorism cases (FATF, 2015a).
The FATF expects all jurisdictions in their global AML/CFT Network to have legal
frameworks to criminalize terrorist financing, implement targeted financial sanctions, and to take
action to address gaps in their systems on an urgent basis. Jurisdictions with fundamental
problems will be subject to follow-up processes overseen by the FATF. In conclusion, the
FATF’s goals are to improve measures for the criminalization of terrorist financing in all
jurisdictions, guidance on effective supervision, enforcement of compliance recommendations
and financial sanctions, and the creation of a handbook to facilitate foreign requests for freezing
terrorist assets. The FATF also continues to research the risks, trends, and methods utilized in the
international financial system to mitigate the flow of illicit funds transfers by analyzing the data
and historic trends (FATF, 2015a).

26. 20
U.S. Legislation, Regulation, Supervision, and Enforcement Agencies
USA Patriot ACT. The U.S. Congress enacted the Bank Secrecy Act (BSA) in 1970 to
combat money laundering. The USA Patriot Act (Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) was designed to
deter and punish terrorist acts in the U.S. and around the world, enhance law enforcement
investigatory tools, and require all elements of the financial services industry to report potential
money laundering. The Patriot ACT also strengthened measures to prevent the use of the U.S.
financial system for personal gain by corrupt foreign officials (FinCEN, 2015).
FinCEN stated in Section 359 of the USA Patriot Act that the definition of a financial
institution included licensed senders of money plus any person who engages as a business for
transmission of funds, informal money transfer systems, or transfer of money domestically or
internationally outside the conventional financial institution system also known as MSB
(FinCEN, 2002). The USA Patriot Act noted any individual or group of people conducting,
controlling, directing, or owning an IVTS in the U.S. are operating a financial institution. Hence,
hawaladars and IVTS operators must comply with BSA requirements including AML program
establishment, registration with FinCEN as an MSB, and compliance with record keeping and
reporting requirements. The obligation to register is placed upon the person who owns or
controls the money transmitting business. Operation of an unlicensed MSB or IVTS is a felony
crime in the U.S. and operators are subject to civil and criminal fines and imprisonment for not
more than five years (FinCEN, 2009).
The U.S. regulations involving international financial flows evolved quickly after 9/11.
Zarate (2013), a U.S. Treasury official, noted the U.S. financial influence helped their allies
while simultaneously inflicting pressure and impact on the enemies’ financial networks. Zarate

27. 21
summarized his post 9/11 goals correlated with the U.S. Treasury goal to protect the integrity
and safety of the U.S. and international financial systems from illicit fund flows. This goal
remains true to this date and enables the U.S. to regulate actors outside of the apparent reach of
U.S. regulations.
Zarate (2013) and U.S. Treasury Department officials traveled to the Middle East in 2002
to begin shaping U.S. policy on money laundering and terrorist financing. The goals included
building government capacity in Afghanistan to counter Al Qaeda and Taliban financing
originating from the poppy (drug) trade transmitted through the banking sector and hawala
networks, collaborating with the Pakistani government to dismantle financial networks within the
country, and meeting with the G20 Finance Ministers to encourage global controls on illicit
financing to terrorist groups. The U.S. Treasury Department attempted to emphasize regulations
on hawala networks that span the world.
Zarate (2014) noted money creates vulnerabilities as billions of dollars are transferred
across borders daily via wire transfers, hawala, and cash couriers. The three trends that limit
America’s use of its financial powers include the use of new currencies and technologies outside
the formal financial system, use of the Internet, and less accountability and transparency in new
remittance methods. These trends make it difficult to track money flows with traditional means.
Zarate emphasized that criminals and terrorist financiers attempt to undermine U.S. financial
pressure. The anonymity of the Internet makes it difficult to track remittances due to the nature
of the actors and the increasing complexity of the global financial system. The collusion of
nefarious actors including but not limited to Russian and Eurasian organized crime; Chinese
hackers utilizing cyber-espionage to attack Western, Asian, and Indian systems; and certain

28. 22
nation-states threaten the international financial system and the economic vulnerabilities of the
U.S. (Zarate, 2013).
Financial Crimes Enforcement Network. FinCEN recognized a modernized IVTS or
hawala operation that involves the use of traditional financial institutions to complete the
remittance settlement process. Business owners offer IVTS services as part of their cash
intensive businesses (e.g. convenience stores, grocery stores, restaurants, import/export
companies, travel agencies, and cellular phone stores). The hawaladar or IVTS operator send
commingled funds via wire transfer or physical delivery to another country for processing of the
settlement. FinCEN also states hawaladars or IVTS operators purchase negotiated instruments
with funds withdrawn from domestic (U.S.) accounts to smuggle abroad to the IVTS operator in
another country for settlement or direct payments to beneficiaries (FinCEN, 2003).
FinCEN published a final rule on definitions and other regulations for MSBs. As of
September 2011, an entity qualifies as a MSB under the BSA regulations based on activities
within the U.S, even if none of the agents, agencies, branches, or offices are physically located in
the U.S. This is due to the ability for individuals to offer MSB services in the U.S. from foreign
locations due to the Internet. The entities are subject to the same civil and criminal penalties for
violations and must employ a compliance officer to meet statutory regulations (U.S. Department
of Treasury, 2012).
Department of Homeland Security. In 2015, Homeland Security Investigations (HSI),
the investigative division of the U.S. Department of Homeland Security (DHS), provided
training to successfully identify and investigate financial crimes to foreign law enforcement
officers, regulatory and intelligence agencies, judicial authorities, and bank and trade officials.
Cross Border Financial Investigations Training (CBFIT) program trains on international

29. 23
standards of new technologies, dissuasive actions, competent authorities, international
cooperation, and cash couriers. In addition, Trade Transparency Units (TTU) teach identification
of discrepancies in import and export trade documentation. Trade is the common denominator in
most of the world’s alternative remittance and underground banking systems. The TTU generate,
initiate, and support investigations and prosecutions related to the abuse of ARS, TBML, and the
illegal movement of criminal proceeds across borders by sharing trade data between
governments to see both sides of the import and export transactions (U.S. Department of State,
2016).
U.S. Department of State. The U.S. Department of State’s Bureau for International
Narcotics and Law Enforcement Affairs (INL) Office of Anti-Crime Programs attempts to
strengthen criminal justice systems and assist law enforcement agencies globally to combat
transnational criminal threats before they affect the U.S. The Terrorist Finance Working Group
(TFWG) assists countries with drafting legislation and regulations that meet international
standards; law enforcement, judiciary, and financial sector regulators training; and development
of FIUs to collect, analyze, and disseminate financial information. The Department of State,
DHS Homeland Security Investigations, and Department of Treasury support eight TTU in the
Americas. The misuse of trade used in counter-valuation or settlement is the link to prosecution
in most of the world’s IVTS and ARS cases. INL provided support to the UN Global Program
against Money Laundering (GPML) by sponsoring money laundering conferences, providing
short-term training courses, and mentoring advisors on a long-term basis to specific countries
(U.S. Department of State, 2016).
U.S. Department of Justice. The Money Laundering and Financial Crimes section of the
U.S. Department of State’s International Narcotics Control Strategy Report (INCSR) was

30. 24
prepared under Section 489 of the Foreign Assistance Act of 1961 to provide information on
AML programs in other countries. The purpose of the program is to provide technical assistance,
information, training, and support for supervisory, law enforcement, prosecutorial, customs, FIU
personnel, and private sector entities. This should increase global compliance with international
standards and convictions for money launderers and terrorist financiers. Countries processing
illicit funds are vulnerable to a breakdown of the rule of law, corruption of public officials, and
destabilization of economies. U.S. law enforcement and regulatory agencies provide training and
technical assistance on financial investigations, international standards, countermeasures, and
tools to recognize, investigate, and prosecute financial crimes. The training and assistance is
provided to financial investigators, regulators, supervisors, prosecutors, private sector entities,
and judiciary members (U.S. Department of State, 2016).
Southwest Border Anti-Money Laundering Alliance. The Southwest Border Anti-
Money Laundering Alliance (SBAMLA) resulted from a settlement agreement reached between
Arizona Attorney General’s Office and Western Union Financial Services, Inc. The program
assists with coordinating investigations and prosecutions to reduce money laundering, disrupt
criminal organizations, provide training (law enforcement, prosecutors, and private sector
partners), and mitigate violence associated with smuggling organizations and movement of
weapons. It also funds related training and information sharing in the Alliance States and
Mexico. The SBAMLA intends to build a network of money laundering, financial investigation,
and asset forfeiture experts to assist in cases and bring these people together for conferences to
improve the effectiveness of their efforts (Brnovich, 2010).

31. 25
Legislation, Regulation, Supervision, and Enforcement by Country
India. Gagn (2005) reported that India created its own anti-terrorism regulation, the
Prevention of Terrorism Act (POTA), in response to a terrorist attack on India’s Parliament
building in 2001, intensification of cross border terrorism, and knowledge of an organized
international crime network distributing weapons. The Indian legislators responded quickly and
declared POTA a necessary weapon against terrorism similar to the U.S. response to the 9/11
attacks. Detractors of POTA criticized the law as unnecessary and draconian. The law allowed
for 180-day detentions without charge, presumptions of guilt, summary trials, and trial in
absentia. The law gave state law enforcement powers to investigate, detain, and prosecute for
terrorist offenses. The new central government repealed POTA in 2004 due to media and human
rights group criticism for prolonged detention sentences and privacy issues. Law enforcement
officers and officials abused POTA due to limited procedural safeguards against arbitrary arrest
and detentions. The issues with POTA included targeting of minorities and political opponents
with no formal charges while the accused waited in detention due to the broad text of the law and
substandard enforcement.
The 2016 International Narcotics Control Strategy Report (INCSR) notes India is a
member of the FATF, Asia/Pacific Group on Money Laundering (APG), and the Eurasian Group
on Combating Money Laundering and Terrorist Financing (EAG). India has made amendments
to the Prevention of Money Laundering Act (PMLA) and widened the definition of money
laundering. However, deficiencies remain in the Indian AML/CFT regime and the enforcement
model is stagnate. Crimes are difficult to prosecute and punishment is minimal without a
predicate money laundering offense (U.S. Department of State, 2016).

32. 26
Indian-based heroin traffickers and terrorist groups utilize hawala to move funds back
into India. In 2015, India implemented the Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act to attempt to repatriate into India undisclosed and non-taxed
financial assets. India has difficulty due to erratic levels of training and expertise in financial
investigations involving transnational crime and terrorist issues. The INCSR suggested India
should regulate traditional money or value transfer services and expand alternate payment
products and services (e.g. mobile banking). An increase in lawful financial services would
decrease India’s exposure to AML/CFT vulnerabilities by reducing the informal network.
INCSR also recommended India expand safe harbor provisions to increase reporting of illicit
activities and use data and analytics to detect trade anomalies indicative of customs fraud,
TBML, and counter-valuation in hawala networks (U.S. Department of State, 2016).
Somalia. Somalia’s financial system operates almost completely outside of government
oversight and utilizes black market or unsupervised hawaladars. Ransoms for rescuing ship
crews from pirates and settlement for trade goods including drug proceeds funneled through
Kenya move through Somalia’s hawala systems. In 2015, the Federal Government of Somalia
began improving fiscal transparency and budgeting processes. The Central Bank of Somalia
granted interim licenses to six banks and nine money transfer organizations and developed
internal procedures for banking supervision (U.S. Department of State, 2016).
Somalia’s government also implemented an automated Public Financial Management
system and conducts audits of government revenues and expenditures. However, public
corruption provides opportunities for money laundering including government officials
benefiting from pirate ransoms and transfer of funds to foreign destinations. In 2015, Somalia’s
Parliament passed AML/CFT legislation. Somalia still maintains limited investigative, policing,

33. 27
and enforcement capacity related to predicate crimes and hawaladars are not subject to customer
due diligence or suspicious transaction reporting. The government has no power to track, seize,
or freeze proceeds of crime or terrorist assets. There are no anti-corruption laws and the ministry
lacks the capacity to investigate suspected cases of AML/CFT (U.S. Department of State, 2016).
Afghanistan. Illicit activities including terrorist financing, money laundering, cash
smuggling, abuse of IVTS, and funding of organized criminal activity threaten the Islamic
Republic of Afghanistan. Afghanistan’s major sources of illicit revenue stem from the narcotics
trade, corruption, and contract fraud. Approximately 90% of financial transactions in
Afghanistan utilize hawala and less than ten percent of the population utilizes formal financial
systems. Corruption, limited resources, lack of technical expertise and infrastructure limits
Afghanistan’s ability to enforce laws and regulations. There is no clear division between banks
and hawala. Hawaladars keep accounts at banks and use wire transfer services to settle their
balances with hawaladars in other countries. Banks even utilize hawala to transmit money to
underbanked areas of Afghanistan. Afghanistan’s FIU, Financial Transactions and Reports
Analysis Center of Afghanistan (FinTRACA), reported in 2013 that MSBs and hawaladars had
failed to file any STRs. The report recommended that Afghanistan create an outreach program to
notify and educate hawaladars of licensing and reporting requirements (U.S. Department of
State, 2016).
Afghanistan can utilize presidential executive orders to freeze accounts owned by hawala
networks; however, there is no record of seized bank accounts or asset sharing. The report
recommended that Afghanistan work with the international community to train enforcement
officers, prosecutors, and judges on seizing and forfeiting assets and provide regulators and
enforcement offices with the resources to carry out their oversight and investigative duties. As of

34. 28
2013, the laws of Afghanistan related to terrorist financing were not on par with international
standards to criminalize the activity. Afghanistan should continue to criminalize money
laundering and terrorist financing, establish and implement the legal framework for identifying,
tracing, and freezing terrorist assets, implement adequate procedures for the confiscation of
assets, enhance FinTRACA, and establish and implement effective controls for cross-border cash
transactions (U.S. Department of State, 2016).
Iran. Iran’s business community utilizes money and value transfer systems including
hawala. Hawaladars, linked directly to the regional hawala hub in Dubai, utilize trade to
complete their hawala settlements. Until 2016, Iran was a primary money laundering concern
due to concerns of corruption, economic sanctions, and evasion of sanctions. The FATF had
issued public statements warning of Iran’s failure to address terrorist financing risks urging Iran
to address its AML/CFT deficiencies. The sanctions further encouraged the use of hawala
systems in Iran due to the world’s leading financial institutions not transacting with Iranian
banks. The underground economy in Iran was partially caused by restrictive taxation, widespread
smuggling, sanctions evasion, currency exchange controls, capital flight, and the large Iranian
expatriate community (U.S. Department of State, 2016).
According to the FATF Public Statement in June 2016, Iran’s high-level political
commitment to address AML/CFT deficiencies has been recognized by the FATF. The FATF
suspended countermeasures for twelve months to monitor Iran’s progress (FATF, 2016b).
Continued enhanced due diligence to business relationships and natural and legal persons from
Iran during this period is recommended (FinCEN, 2016).
Iraq. There is limited data available on the extent of money laundering in Iraq since the
economy in Iraq is cash based. Licensed and unlicensed hawala networks are widely used for

35. 29
legitimate and illicit purposes. Enforcement of financial crime is an issue in Iraq due to
corruption, weak financial controls in the banking sector, and weak links to international law
enforcement. Iraq is a member of the Middle East and North Africa Financial Action Task Force
(MENAFATF). The only AML statute in Iraq, AML Act of 2004, is very broad and the penalty
is only a misdemeanor. The government does not prosecute because the law does not criminalize
money laundering (U.S. Department of State, 2016).
The current lack of implementations, rampant corruption, weak compliance enforcement,
and the need for technical capacity at the Central Bank of Iraq’s Anti-Money Laundering Unit
(AMLU) undermine Iraq’s ability to enforce AML/CFT recommendations. Banks in Iraq do not
implement customer due diligence, open accounts based on referrals with no documentation, and
file few STRs. The AMLU needs to serve as the central point for collection, analysis, and
dissemination of financial intelligence to law enforcement and enable international cooperation.
The Central Bank of Iraq’s AMLU is not adequately structured, funded, or staffed. It is also not
provided the technical resources needed to perform its enforcement duty (U.S. Department of
State, 2016).
United Arab Emirates. United Arab Emirates (UAE) is a financial and trade center with
global risks from exchange houses, hawaladars, and trading companies. Formal financial services
are limited in guest workers’ home countries. This encourages the use of hawala in the UAE. The
risk of TBML is increased due to the commodities used for hawala settlements. There is concern
TBML supports sanctions evasion networks and terrorist groups in Afghanistan, Pakistan, Iran,
Iraq, Syria, Yemen, and Somalia. Money laundering and terrorist financing are proceeds from
illegal narcotics produced in South West Asia and Afghanistan which are trafficked globally
(U.S. Department of State, 2016).

36. 30
The UAE is a member of the MENAFATF. In July 2012, new hawala regulations were
enacted that made registration mandatory, extended customer due diligence and STR obligations
to hawaladars, and set sanctions for non-compliance. Education programs were implemented by
sending pamphlets to all related entities concerning the compliance regulations related to UN
list-based sanctions programs and the FATF high-risk jurisdictions. The Anti-Money Laundering
Suspicious Cases Unit (AMLSCU) and the FIU issued notes to the public regarding the dangers
of unlicensed charitable associations and investment companies. In 2014, UAE amended the
AML law expanding the list of money laundering predicate offenses to all serious crimes. The
report recommended the UAE increase resources devoted to money laundering and terrorist
financing cases in the AMLSCU and Emirate-level law enforcement and improve international
financial information sharing mechanisms. Recommendations were also given to law
enforcement and customs officials regarding more intense inquiries into declared and undeclared
cash and gold imports and exports. The UAE needs to focus on counter- valuation in hawala
transactions and execute asset sharing policies (U.S. Department of State, 2016).
Colombia. Money laundering and terrorist financing are issues in Colombia, specifically
in geographic areas controlled by Fuerzas Armadas Revolucionarias de Colombia (FARC) and
Bandas Criminales (BACRIM). The Colombian government attempts to regulate the AML/CFT
efforts due to the illicit drug trade penetrating the economy and affecting the financial
institutions. Criminals use BMPE, IVTS, bulk cash smuggling, wire transfers, electronic
currency, money orders, prepaid debit cards, and illegal mining to repatriate illicit proceeds to
Colombia. Colombia has difficulty implementing an effective AML/CFT regime due to
underdeveloped institutional capacity, lack of experience, inadequate level of expertise in

37. 31
investigating and prosecuting complex financial crimes, and lack of technology to analyze data
(U.S. Department of State, 2016).
The Colombian Attorney General National Money Laundering and Asset Forfeiture Unit
(UNEDLA) investigate the money laundering and asset forfeiture cases with law enforcement
from the Colombian National Police (CNP) and the Prosecutor General’s investigative body
Technical Intelligence Corps (CTI). The system is plagued with corruption and a limited judicial
capacity to try the cases. Colombia has increased interagency cooperation and information
sharing, implemented an assessment methodology to identify criminal money laundering
networks, provided education to increase quality of STRs, and signed an agreement with
FinCEN and Mexico’s FIU to conduct strategic tripartite cases among the three countries (U.S.
Department of State, 2016).
Mexico. Money laundering is prevalent in Mexico due to drug production and export,
corruption, kidnapping, extortion, piracy, and human trafficking. The cartels utilize the U.S.
Mexico border, the large flow of legitimate remittances, proximity to Central American
countries, and the high volume of legal commerce to conceal illicit transfers. In addition, the
2010 implementation of U.S. dollar deposit restrictions reduced the repatriation of U.S. dollars
back into U.S. formal financial institutions by seventy percent. This encouraged the use of Casa
de Cambios. The use of Casa de Cambios continued after Mexico lifted the restrictions; however,
The Secretariat of Credit and Public Debt (SHCP) now requires individuals utilizing Casa de
Cambios to provide identification for all transactions regardless of amount of currency
exchanged (U.S. Department of State, 2016).
Mexico is a member of the FATF and the Financial Action Task Force in South America
(GAFISUD). The legislative branch approved reforms to the anti-illicit finance framework to

38. 32
authorize administrative sanctions on financial institutions on its website and enable enhanced
powers to cooperate with the FIU and foreign governments on illicit finance or tax evasion cases.
The report suggests Mexico implement a system to identify and freeze terrorist assets and
address corruption from businesses and drug cartels exerting control over the political process
(U.S. Department of State, 2016).
Case Study Examples
Case Study 1 – Mahmoud Banki. According to The Cornerstone Report (2010), written
by the U.S. Immigration and Customs Enforcement (ICE-currently HSI), ICE has broad
investigative authorities under the U.S. Code. This enables ICE to pursue banking and financial
misconduct cases. ICE’s outreach and partnership program, Cornerstone, connects the public and
private sectors for the purpose of mitigating financial crime. The goal is to identify, disrupt, and
dismantle criminal enterprises to eliminate the criminal’s ability to earn, store, and move illicit
funds. The following case study was conducted by ICE’s Homeland Security Office for
allegations that Mahmoud Banki, a U.S. citizen, was operating an unlicensed MSB and
facilitating in the avoidance of Office of Foreign Asset Control (OFAC) sanctions on Iran.
Between January 2006 and September 2009, Banki provided money-transmitting services
to residents of Iran by participating in a hawala. Banki used the hawala network to receive
approximately $3.4 million from companies and individuals. The wires originated from Banki’s
relative and hawaladars in Tehran, Iran. The Iranian hawaladars arranged to have corresponding
amounts of U.S. dollars already in the U.S. or bank accounts in various countries deposited into
Banki’s accounts via wire transfer or check. These transfers, restricted by the Iran Trade
Embargo, benefited the individuals and companies because they wanted to transfer funds into

39. 33
Iran and were not permitted through the current U.S. financial system regulations (U.S.
Immigration and Customs Enforcement, 2010).
Banki facilitated the transfers by accepting the deposits and notifying his relative or the
hawaladar in Iran to disburse the corresponding amount of Iranian currency (Rials or Tomans).
The hawaladars benefited by manipulating the currency exchange rate and Banki benefited by
purchasing investments (real estate and securities) and paying his personal living expenses. In
2010, the court found Banki guilty of one count of conspiracy to violate the International
Emergency Economic Powers Act (IEEPA) and to operate an unlicensed MSB; one substantive
count of violating IEEPA; one substantive count of operating an unlicensed MSB; and two
counts of making false statements to a federal agency. IEEPA is a U.S. federal law authorizing
the U.S. President to regulate commerce after declaring a national emergency. Banki’s sentence
included 30 months’ incarceration and forfeiture of $3,314,047 (U.S. Immigration and Customs
Enforcement, 2010).
Case Study 2 – Access Inc. The Access Inc. case conducted by ICE and the Internal
Revenue Service Criminal Investigations (IRS-CI) involved a licensed MSB operating in New
Jersey. The owners conspired with four unlicensed money remitters operating in New York to
commit the criminal acts. The owner of Access Inc. claimed he collected small amounts of funds
from a large number of Pakistani immigrants and transferred the funds to accounts in Pakistan.
The investigation revealed that the customer base actually consisted of one to five customers per
day who brought in large sums of U.S. currency to Access Inc. Access Inc. was not open to the
general public. The company averaged over $5 million per month in cash deposits that were wire
transferred from the U.S. to Europe, Asia, and the Middle East. Although Access Inc. was in

40. 34
compliance by registering with the state to be an MSB, CTRs were not filed for the individuals
that brought in the U.S. currency (Forman, 2006).
The Access Inc. investigation originated from SAR filings and was jointly investigated
by ICE and Internal Revenue Service (IRS) agents, which led to six indictments and four search
warrants. This led to charges of operating an unlicensed/illegal money transmitting business,
failure to file CTRs, and conspiracy. The partnership between the private sector banks and the
government agencies provided the information needed for conviction. This case revealed
warning signs for banks including MSBs not open to the general public, limited number of
clients with large cash deposits, failure to file CTRs for cash deposits made by clients, fraudulent
records to evade CTR obligations, cash deposits wired offshore, and refusal to provide
identification to bank officials (Forman, 2006).
Forman (2006) claimed that public and private sector partnerships represent the strongest
method to detect, deter, disrupt, and deny terrorist and other criminal organizations illicit
financial activity. Forman reviewed case studies conducted by the HSI outreach and partnership
program Cornerstone. The goal of Cornerstone is to eliminate systemic vulnerabilities for
exploitation by criminal and terrorist organizations. HSI provides the private sector with
information on trends and warning signs identified during criminal investigations. HSI uses
federal laws to identify, interdict, seize, freeze, and forfeit wealth associated with terrorists and
other criminals.
Case Study 3 – Cash Intensive Businesses. FinCEN conducted a case study on an
organization that utilized cash intensive businesses in ethnic communities to provide unlicensed
remittance services for nationals of another country residing in the U.S. Restaurants, travel
agencies, and miscellaneous stores collected money from individuals to send back to their native

41. 35
countries for a fee. The remitters provided each sender a code to give to the beneficiary to claim
the remittance. The U.S. remittance operator telephoned or faxed the transaction orders to the
IVTS operator located in the foreign country. The beneficiaries received the funds before the
settlement occurred. An agent from the organization collected cash from the different stores and
converted the bulk cash to money orders and other negotiable instruments. The agent also
structured cash deposits into nominee accounts at local banks and disbursed the proceeds through
checks. Operators provided money orders and checks to couriers who physically smuggled the
instruments to IVTS operators in foreign countries. The monetary instruments negotiated at
correspondent accounts maintained by a U.S. bank completed the remittance (FinCEN, 2003).
Case Study 4 – Iraqi Hawaladar. An Iraqi Kurd hawaladar in Istanbul claims to receive
up to 200 cash payments of approximately $1,600 per day on behalf of migrants from Syria, Iraq,
and Afghanistan who are paying human smugglers for safe passage to the European Union in
addition to his normal hawala remittance transfers. Per the authors, the Iraqi Kurd hawaladar
operates illegally, uses aliases when dealing with different clients, and uses the hawala profits for
paying off local criminals and police to protect his business. The hawaladar had no qualms with
sending remittances benefiting human smugglers because he was helping refugees reach safety.
(Legorano & Parkinson, 2015).
Subject matter expert remarks and recommendations
Hawala and IVTS services are financially beneficial to customers for money remittances.
In some situations, customers are not charged for a hawala remittance, because the main source
of profit for hawaladars is the foreign exchange rate premium between the black market and
regular exchange rate. Hawala has adapted to a variety of circumstances including wars,
economic crisis, blockades, and different political regimes or failed states. Migration,

42. 36
communication, and international economic systems enabled hawala networks to prosper on a
global scale (Redin, Calderon, & Ferrero, 2013).
Van de Bunt (2008b) stated low income and migrant workers place more trust in hawala
remittance systems due to the speed of the transactions and lower fees. He also noted that hawala
evades modern supervision of financial transactions and hawala should be subject to the standard
regulations of formal financial institutions. Schneider (2013) claimed that registration or
licensing would be ineffective because the hawala system would go further underground. This
would make it harder to track remittances to discover criminal and terrorist activity.
European Security officials and researchers estimate money remittances in Europe for the
human smuggling trade at $2.5B and migrant remittances at $390B are channeled through
hawala per year. Calogero Ferrara, a Palermo prosecutor, noted strong suspicions terrorists
receive money via hawala and increased his investigations concerning hawala after the 2015
Paris attacks. Western security officials from nations involved in the U.S. led coalition against
the Islamic State of Iraq and Syria (ISIS) and the UN warned jihadists used hawala to transfer
money from their headquarters in Syria and Iraq to affiliates in Libya and other regions. The
authors speculated that hawaladars destroy short-term records in traditional hawala transfers and
use Internet applications including but not limited to Skype, Viber, and WhatsApp (Legorano &
Parkinson, 2015).
Schneider (2013) asserted that hawaladars disregard typical Know Your Customer (KYC)
obligations stipulated for formal financial institutions including identification of clients, record
keeping, and reporting of unusual transactions. Schneider also claimed hawaladars destroy
remittance records after delivery. He further alleged hawaladars protect themselves and their
clients by encrypting records in dialects or languages to prevent detection. Passas’s (1999)

43. 37
research claimed that beliefs on the operations of hawala and IVTS perpetuated by repetitive
facts repeated over time in media articles, government reports, academic publications, and UN
documents were not accurate.
Keene (2007) agreed with Passas (1999) and his theory that hawala has been
misperceived through repetitive statements that were not factual. Keene and Passas referred to
these inconsistencies as myths of hawala and IVTS. These myths included the belief that hawala
is a paperless system with no audit trail, a unique system for sending money without physically
sending money, and a system where money never enters the formal banking system with limited
KYC documentation. In reality, even though some information is encrypted or coded,
hawaladars and other IVTS operators keep ledgers and other forms of documentation. Records of
deals include calculations of fees and currency exchange rates because hawaladars need this
information to track their remittances and settle the remittance balances. The myth that hawala is
unique was rebuked by Keene because of the similar aforementioned IVTS remittance systems
including fei Chi’en, hundi, padala, chit, and underground exchange. In addition, Keene
contradicted the myth that hawala funds never enter formal financial systems based on
information that hawaladars possess conventional bank accounts and utilize the accounts to
offset the balances with their counterparts.
Keene’s final myth concerning KYC requirements contradicts the trust basis of hawala.
The trust relationship implies that the hawaladar knows the client. Hawaladars enter basic
information including sender name, address, phone number, and a personal reference into a
spreadsheet or ledger. Some hawaladars maintain this information for years. Keene contended
that hawaladars know their remittance customers more than formal financial institution bankers
know their customers regardless of the regulations. Internet banking limits personal relationships

44. 38
and personal information exchange between formal financial institution bankers and their
customers. Keene stated that hawaladars analyze suspiciousness of transactions better than their
formal financial institution counterparts due to their increased familiarity and personal
knowledge of their customers. The problem is that nefarious hawaladars do not always report
suspicious illicit funds movement. This research showed that hawaladars admitted they charge
criminals and terrorist financier’s higher commissions which proves hawaladars know their
clients send illicit funds and are aware of the illicit purpose for the client’s remittances. Keene
noted there is a blended nexus of terrorists utilizing organized crime activities and a myriad of
financial transactions to fund their activities (Keene, 2007).
Nakhasi (2007) claims that hawaladars operate shell businesses to conceal hawala
transactions from law enforcement and publicly deny that they are hawaladars. Hawala distorts
global economic health due to lack of publicly available records, which restrict analysis of
capital markets. Nakhasi reviewed the following two approaches to curtailing illicit or illegal
hawala remittances: investigative strategies and privatizing hawala. The investigative strategy
was based on the theory that money transferred by hawala attains usefulness only when
converted into currency and that hawaladars maintain personal or business accounts. Therefore,
the conversion requires a regulated relationship between hawaladars and banks monitored by risk
management departments. Warning signs for this account activity include high deposit activity,
cash or checks from local ethnic customer bases, checks with secondary account names, and
outgoing wire transfers to financial centers. The issue with this strategy is the lack of global
consistency. It allows hawaladars the opportunity to conduct transactions in jurisdictions with
weaker regulations.

45. 39
Passas (2006c) suggested each jurisdiction review risks and associated parties involved in
hawala or IVTS before making and implementing policy decisions that could backfire. Passas
also recommended historical analysis of hawala include interviews with hawaladars, operators,
and clients. He advocated tracking remittance patterns that notate discrepancies in transfers of
value in and out of the jurisdiction and warned against utilizing highly publicized cases of
spectacular abuses involving hawala as a basis for altering the regulations of the remittance
systems. These reactions to isolated events could prove to be counter-productive or invade the
privacy of lawful users of the remittance systems. Passas further suggested improvements to the
formal banking sector with consistency in economic and public policies, a higher degree of
economic liberalization (interest and currency exchange rates), and fewer currency regulations
while respecting ethnic groups and practices.
Privatization of hawala. Even countries that have overcome the competition due to
lender liability laws have not formally legalized hawala. For example, U.S. banks face increased
liability and regulatory risks when dealing with a hawaladar utilizing inconsistent record keeping
and lax KYC procedures; however, a privately owned hawala corporation in the U.S. has not
been established. Hawala is considered illegal in other countries, including Pakistan. In 2002,
Pakistan enacted a law requiring hawaladars to record remittances and register with the
government. In 2003, Pakistan created an FIU to analyze data on suspicious transactions. Due to
differing national regulations on hawala, it would be difficult to enact an international standard
for governance or for a private money remittance company to differentiate between a registered
licensed money remitter and a hawaladar. Furthermore, it would be difficult for a private
remittance company to verify the source of the funds and would not be able to verify if the third
party originator was registered (Nakhasi, 2007).

46. 40
Nakhasi (2007) recommended The Western Union approach to challenge the hawala
network through an attack on economic grounds. Western Union is a money remittance company
that attempts to provide services at a similar value to hawala. The theory states hawala would
disappear if formal financial institutions offered competitive products. These products might
include lower taxes on remittances, floating currency rates, and relaxation of currency
regulations and interest rates. Jurisdictions have also promoted privatizing through partnerships
with corporate wire transfer corporations and postal services. Proponents claim that the
government systems in Egypt, Jordan, Lebanon, and many Persian Gulf states compete with
hawala in speed and settlement services. Pakistan’s state-run bank collaborated with Western
Union and India approved a partnership with Western Union. The issue with this strategy is a
failure to address the ethnic, religious, and trust purposes for ARS. Furthermore, it assumes that
hawaladars would voluntarily submit to regulatory requirements or agree to conduct their
business as a subsidiary or consultant of a private company. Formal financial institutions and
privatized systems cannot compete on anonymity, efficiency, reliability, cost, location, and
religious concerns with hawaladars even in jurisdiction where banks offer delivery to compete
with hawala.
Hawala alternatives. Another alternative to hawala is the use of cell phones for
remittances. The government in the Philippines delegated supervisory and regulatory powers
over mobile operators to the central bank. This approach could be difficult in the U.S. due to
constitutional constraints and privacy issues. The approach would fail if hawaladars switched to
various forms of communication and stopped using cell phones. This enforces the argument that
each jurisdiction needs individualized regulations to target illicit activity based on the culture of
the jurisdiction (Nakhasi, 2007). According to the report by the FATF, Report on New Payment

47. 41
Methods (NPM), the use of NPM (e.g. prepaid cards, mobile payment services, and internet
payment services) would move customers from the illegal hawala or IVTS into the regulated
financial industry. This would enable increased transparency and suspicious transaction
monitoring. The report also assumed criminals use NPM as an alternate method for money
laundering or terrorist financing (FATF, 2010).
International cooperation. In addition to the financial benefits of hawala, it is used
internationally due to cultural and religious reasons. For example, it is compliant with the Islamic
financial practice of Sharia. Sharia Law attempts to foster the principles of justice, moral
rectitude, obedience to God, and the welfare of community. In contrast to that statement,
hawaladars view their illicit or criminal activity and accept the immoral activity of supporting
criminal organizations and terrorist financiers as part of their business. However, hawaladars
regulate themselves by ostracizing dishonest behavior through economic and social sanctions.
Islam encourages hawaladars to be transparent, responsible, and committed to serving their
interest without hurting other hawaladars (Redin et al., 2013). Afghan hawaladars exhibit willful
blindness to the source of their remittances when they originate from illicit sources. These
hawaladars view themselves as facilitators earning the most profit possible. This is inevitable
when doing business in certain regions due to the economic and political turmoil (Thompson,
2006).
Hawala regulations rely on international cooperation due to remittances across borders.
Hawala code words can be in different languages or encrypted which would make it difficult for
law enforcement to decipher. Hawaladars could be difficult to track if they are links in a network
and not aware of all parties involved in a remittance. Pathak (2003) stated that attempts to
regulate hawala will fail without consensus among hawaladars, users, intermediaries, nations,

48. 42
and coordinated international action. Pathak further contended that the USA Patriot Act forces its
provisions on other countries that do not have the resources, desire, or infrastructure to
implement the regulations, which hinders regulatory attempts. It is not feasible to outlaw hawala
due to the magnitude of cultural and religious groups who use it for legitimate purposes.
Passas (1999), similar to Keene, noted that hawala and IVTS operators hold bank
accounts. Education to formal bank institution employees could help detect illicit transfer
activity based on banking activities and KYC information obtained when opening accounts.
Passas asserted that law enforcement lacks training to understand financial mechanisms
indicative of suspicious activity in ethnic communities involving hawala and IVTS. The last
suggestion by Passas based on the international nature of hawala and IVTS included improved
communication and information exchange between jurisdictions. The key to success lies within
objective evaluation tools and monitoring on a regular basis.
Passas (1999) noted hawala is a good business model that helps communities and fosters
development and humanitarian support. Authorities and banks should take advantage of the
information available through hawala networks. Passas (2006c) reiterated the different methods
of regulations of hawala ranging from illegal, registration requirements, and legal. This makes it
difficult to have an international standard to regulate hawala or IVTS and encourages the
operators to function underground.
Discussion of the Findings
The purpose of this research project was to examine hawala/IVTS networks and the
effectiveness of implementing regulatory controls within the international supervisory
framework. Hawala has been a successful remittance system for hundreds of years with minimal
regulation and data collection. The project intended to answer whether a lack of enforcement and

49. 43
limited statistical information affected the success of the international supervisory, statutory, and
regulatory AML/CFT regime. As a result of the study, perceived gaps in the current systems
were analyzed through review of government studies, international financial body reports,
economic media articles, and peer-reviewed journals. This section synthesized different
perspectives revealed in the literature review by addressing the aforementioned research
questions involving regulations and supervisory controls, mitigation of unlicensed hawala
remittances, and the possible benefits of a standardized international approach of hawala
regulation and enforcement. The Discussion of the Findings section presents answers to these
questions and reviewed basic themes including supervisory controls and economic pressure to
encourage regulations and enforcement techniques.
Supervisory Controls
The expansive supervisory framework in the FATF Forty Recommendations and the IX
Special Recommendations outline an encompassing AML/CFT regime. However, the varying
efforts around the world demonstrate the difficulty of turning supervisory recommendations into
regulations without adequate enforcement (FATF, 2015a). FinCEN also issued a ruling which
requires support of participating countries to accomplish the desired goal. The FinCEN rule
states an entity qualifies as a MSB under the BSA regulations based on its activities within the
U.S., even if none of the agents, agencies, branches, or offices are physically located in the U.S.
This is due to the ability for individuals to offer MSB services in the U.S. from foreign locations
through the Internet. The purpose of the rule was to subject hawaladars and IVTS operators to
the same civil and criminal penalties as financial institutions because they are also money
remitters (U.S. Department of Treasury, 2012).

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Similar to the FATF Recommendations, the FinCEN rule must be enforced to be
effective. Unlicensed remittances are not adequately tracked with traditional means by formal
financial institutions. Law enforcement, government bodies, and financial institutions need to
detect unlicensed money transmissions and enforce registration of MSBs (FATF, 2012b). There
has been success in some jurisdictions as verified by the case studies noted in the literature
review; however, this research did not reveal a definitive method to successfully track unlicensed
remittances. The next subject, economic pressure, intended to enforce the supervisory controls
and outlined suggested ways to encourage jurisdictions to abide by the FATF Recommendations
and FinCEN rules.
Economic Pressure
International bodies and governments can utilize economic pressure to encourage
jurisdictions to set statutory and regulatory standards for AML/CFT regimes. Countries pay
attention to the actions and demands of the G20 countries. Large countries set standards for
international businesses with other countries (FATF, 2015a). For example, Iran has unlicensed
money remitters and Afghanistan does not follow the FATF Recommendations for seizure of
assets. If U.S. policy disavows business with Iran or Afghanistan, other jurisdictions would
follow the U.S. in exerting economic pressure to encourage countries to abide by international
supervisory recommendations. This is one way that international bodies and governments can
assist in mitigating the use of unlicensed remittance methods (U.S. Department of State, 2016).
Zarate (2013) also suggested economic pressure to impact financial networks and
encourage compliance with the FATF Recommendations. In order for economic pressure to
work, the jurisdictions need to build adequate government capacity. A governmental authority is
needed which can and will respond to economic pressure from other businesses, governments,

51. 45
and international bodies in order to maintain successful AML/CFT regimes (U.S. Department of
State, 2016). Zarate (2014) also noted the use of new currencies and technologies outside the
formal financial system lessen accountability and transparency and emphasized that criminals
and terrorist financiers undermine U.S. attempts to enforce supervisory regulations with
economic pressure.
Nakhasi (2007), noted differing national regulations make it difficult to enact an
international standard for AML/CFT regulations. In the Philippines delegated supervisory and
regulatory powers are in place to regulate mobile cell phone operators by the Central Bank. This
method would not be beneficial if hawaladars switched to different methods of processing
remittances and ceased using cell phones. Furthermore, this approach would be problematic to
implement for countries with privacy laws similar to the U.S. The evolving capabilities of
technology and the anonymity of the Internet make regulation enforcement arduous. The
underground financial system makes tracking remittances unsuitable because of the nature of the
criminal actors and the increasing complexity of the global financial system (Zarate, 2014).
International bodies and governments can assist in mitigating illicit funds transfers conducted by
organized crime groups, terrorist financiers, and money launderers by imposing sanctions,
requiring registration, and offering alternatives that are as efficient and economically beneficial
as hawala (U.S. Department of State, 2016). The imposition of sanctions, registration
requirements, and presentation of alternatives are included in the next subject concerning
enforcement techniques.
Enforcement Techniques
Lack of international supervisory control enforcement hinders the attempt to mitigate
illicit funds transfers. The FATF reports claim that most of their jurisdictions have criminalized

52. 46
terrorist financing but very few have obtained any convictions. The FATF also noted that
jurisdictions do not enforce targeted sanctions despite requisite legal instruments in the
respective jurisdictions (FATF, 2015a). The literature review suggested controls must be
implemented which match economic cultures, current geopolitical events, and religious attitudes.
However, strict controls encourage hawaladars and IVTS operators to move to environments
with fewer statutory regulations, less cultural bias, and lax enforcement. Unlicensed money
transmitters will attempt operations in jurisdictions with lax enforcement in order to evade
regulations (U.S. Department of State, 2016).
Passas (1999) referred to an individualized approach based on each jurisdictions
economy and cultural environment as the balancing point of encouraging supervision and
regulation of hawala while supplying viable enforcement techniques that are feasible in each
region. Passas noted this method encourages stability in the economy. For example, Kenya’s
closure of hawala shops ultimately eliminated inbound remittances to Somalia. This showed the
effects of enforcing regulations that are not beneficial and potentially disastrous for both region’s
economies. Mexico provided an example of allowing an economy to thrive illegitimately with
little enforcement. Mexico has a statutory requirement for registering money remitters; however,
unlicensed Casa de Cambios continue to operate (U.S. Department of State, 2016).
Imposing economic pressure could force countries to abide by international supervisory
recommendations. The FATF suggested the G20 assist other countries with enforcement of the
criminalization of terrorist financing, set an example with regards to enforcement of supervisory
recommendations and sanctions, and assist with technical advice and creation of regulatory
frameworks (FATF, 2015a). The review of several countries including Afghanistan, Iran, Iraq,