Hawala

Suppose Abdul (in India) wants to send 20 Lakh Rs. to his brother Mohammed in U.S.
The Normal preocedure for Abdul is to go to a Bank. Deposit the money and then tell Mohammmed to collect the money from the bank. The Bank will charge a Service Tax of say 10%.

Now in Hawala what happens is that
Yasmeen and Ghulam both are Hawala Traders in India (say Mumbai) and U.S.(say Los Angeles). Abdul goes to Yasmeen,tells her that he has to send money to his brother in US, Yasmeen takes the Money from Abdul and gives him a code.

Then Abdul calls up Mohammed and tells him the code plus the address of the Hawala Trader Ghulam. Mohammed goes to the address and after telling the code gets his money.
Normally Hawala traders charge a Service charge less than the Banks.
So people go for it.

Now how does Ghulam get back his money????

Either
1) Ghulam had to give 20 Lakh Rs to Yasmeen. So his debt is cleared
Or
2) Ghulam gets his money via Reverse Hawala Trading.
In this money is transferred from bank to bank and institution to institution, so the source is not actually known.


Is Hawala legal…?
Hawala is illegal in India and Pakistan.

India and Pakistan have laws that :

Prohibit speculation in the local currency,
Prohibit foreign exchange transactions at anything other than the official rate of exchange, and
Impose strict licensing requirements on money remitters and foreign exchange dealers.

In addition, there are regulations governing inbound and outbound remittances.


What are some indicators of Hawala?
A ‘Hawala' bank account almost always shows significant deposit activity.
These accounts will also almost always show outgoing transfers (usually by wire) to a major financial center known to be involved in Hawala. Three of the most common locations are Great Britain, Switzerland and Dubai.

Certain businesses are also more likely than others to be involved in Hawala :
Import/Export,
Travel and Related Services,
Jewelry (gold, precious stones),
Foreign Exchange,
Rugs/Carpets, and
Used Cars or Car Rentals.