As Arab banks try to stop illicit money transfers, the ancient 'hawala' network keeps the criminal channels open
By Paul Cochrane in Beirut
The Independent on Sunday 11 February 2007
Hi-tech attempts to stop the flow of finance to terrorist organisations in the Middle East have been stymied by a system of money transfer that dates back to the eighth century.
In the wake of the attacks on 11 September 2001, Washington pushed Arab financial institutions to crack down on illicit money transfers and implement regulations stipulated by the OECD's Financial Action Task Force (FATF) - an international body overseeing initiatives to combat money laundering and terrorism.
Arab central banks and financial institutions were quick to adopt FATF recommendations so that they could continue dealing with Western banks and compete on the global market.
The Middle East North Africa-FATF (MENA-FATF), established two years ago, claims illicit activity has declined by 90 per cent.
But with tighter regulations on banks, criminals are returning to the use of the hawala system of moving money from country to country.
Money is transferred through a network of hawala brokers, or hawaladars. A customer approaches a broker in one city and provides a sum of money to be transferred to a recipient in another, usually foreign, city. The broker who has received the money calls his counterpart in the recipient's city, providing instructions on the disposal of the funds and promising to settle the debt at a later date.
The method relies entirely on the honour of the brokers and no records are produced of individual transactions.
"What happens now does not go through financial institutions or banks; it's smuggled or goes via the hawala system," said Masood Safar Abdulla, the compliance manager at the Commercial Bank of Dubai.
The ancient hawala system is popular with the Gulf's massive expatriate Asian labour force as a cheap way of sending money home, estimated to run to billions of dollars a year.
Although much of the money transferred is legitimate, a drug bust by the Italian police late last year connected several Pakistanis with a Dubai-based Indian who received money through his informal bank to channel funds to drug cartels and arms dealers.
The incident is a single example of how dirty money could be laundered via the hawala system, and has put pressure on countries to improve regulation of alternative remittance systems. "The fact that MENA-FATF is organising a conference on hawala shows it is more serious about the issue," said Michel Nassif of World-Check, a British company that runs an intelligence database on financial risk.
But even if central banks can bring the hawala system under control, large sums of ready cash are being transported around the Middle East, eased by the region's lack of transparency.
"The most troubling spot is Dubai," said a source at a regional central bank. "There is a lot of cash coming in and out. If you look at the construction boom, it doesn't make sense: are these new skyscrapers really economically viable? That is a big indicator of money laundering."
Some money invested in UAE real estate is allegedly from Russian and Indian individuals. But how much is being laundered is anyone's guess. "Who can measure it? We know it is going on and we are not doing enough. UAE says it is, but it is a convenient system for everyone," the source said.
Another banking executive in the region said: "MENA-FATF is not very effective and governments are paranoid about financial transparency."
Iraq is considered a particular problem for regulators, with cash flowing in and out of the country to be laundered or to fund insurgents. "A lot of terrorist financing is going on in Iraq; how else are they being funded?" the central bank source said.
Incidents of money laundering connected to Iraq abound, with one source giving the example of an Iraqi-Lebanese businessman "cleaning" Kuwaiti money in Azerbaijan for an Iranian client to fund Muqtada al-Sadr's Mahdi army in Baghdad.
Mr Nassif said the Middle East needed peace and stability before illicit funding could be curbed. "The more turmoil in the region, the more regulations will not be implemented."
StatCounter
Tuesday, February 27, 2007
A Day in the Dahiye: an account of a trip to Beirut's southern suburbs
Jan 27, 2007
Just after the Barbir junction, on the road heading from Bachar Khouri to Beirut's southern suburbs – the dahiye – and the airport, the van is directed to the side of the road at a Lebanese army checkpoint. A soldier goes up to the driver's window, cheeks are kissed, and then the side door is slid open by another soldier and all the chebab – the men – are asked to step out. Identity cards are presented, inspected and each man frisked from shoulders to ankles by the M16 wielding soldiers.
"What's this? No ID?" the soldier asked when I presented my passport. "It's a passport, I'm a tourist," I was forced to lie, not having a residency permit. The soldier looked a little incredulously at me – what would a tourist be doing going to the southern suburbs, what the Western media during the July war last year called a "Hizbullah stronghold"? He gave me a nod, and we piled back in the bus – young, clean shaven men, middle age men with stubble and moustaches, and the bearded, heading home after a morning's work.
The talk in the bus was about the checkpoint and the army, but the mood seemed decisive – everyone was pleased the army were checking vehicles. But why vehicles going to the dahiye and not solely the other way around, towards downtown where the opposition has been protesting since December 1, and a probable trigger point for any violence? Needed security said one man.
The roads were unusually quiet for a Saturday afternoon, but Beirut has been quiet since the student riots on Thursday that left three dead, 160 plus wounded, and resulted in a late night curfew. People have been staying at home, and discussion amongst people is what could happen next, with violence at the nationwide opposition-led strike last Tuesday and on Thursday at the Beirut Arab University.
The van drove over the temporary airport bridge erected after the Israelis destroyed it in July last year, the wooden beams creaking and clapping as the vehicles pile across. Men got off at points along the road, and others clambered aboard.
Before the airport the van turned into the dahiye, driving through the densely populated Bourj Al Barajneh, passing two-level houses, 10 storey buildings, the occasional plot of landed planted with vegetables, butcher's shops, internet 'cafes,' corner shops, and fruit and veg. sellers.
At a petrol station I indicated I wanted to get out, paid the young driver – dressed in a woolly hat and body warmer – 750LL (50c) and walk over to Mreyjeh. A new building is going up where the rather wittily named 'Guantanamo,' fenced-in astro turf football pitch used to be. Other buildings are also under construction in the area, presumably to house Lebanese dispossessed during the July war and the continuous stream of people moving to Beirut from the South and the Bekaa valley, where the majority of Shia live.
On arriving at my friend Hassan's building, one over from where I lived for two years, he asked me over the intercom to get some snoobar – pine nuts – before clambering up the seven flights of stairs to his apartment – yet another power cut (outages range from 6 to 10 hours a day).
On walking over to a shop, I meet Mohamed Baydoun, who runs a computer games shop where youths play on four Playstations. The usual exchanges were made – how are you? How is your health? Your family? Work? And then the inevitable, what do you think of what is going on? Mohammed is not too optimistic, but changed the topic when his 8-year old sound Abboude ran over to us.
On returning to Hassan's, we decide to go for a walk. The sun, after all, was shining and the sky blue. First off, we messed around with Hassan's car battery, lost a screw, and I had to push Hassan's car along with some young lads until the ignition kicked in.
With Hassan chugging off in his car, I had entered the road and bumped into Mohamed, a cameraman for NBN TV, outside a butcher's shop cuddling his one year old son.
We talked for a while, and then I saw Hassan, a 25 year old computer programmer, hanging out on the streets with other chebab – young men. His face lit up as we greeted each other. "Where are you living now," he asked. "In Achrafieh, same place as before." "Ah, with the enemy," he joked.
"I think there will be trouble this Tuesday," he added. "Will you be there if something happens?" "Yeah, for sure man" (Hassan's English is punctured with Americanisms picked up from TV and hip-hop music.) I cannot tell if Hassan is serious or not, he is a bit of a joker and very concerned, as many young Lebanese are, about his appearance - slicked back hair under a designer white woollen hat, a leather motorcycle jacket and the requisite stylish jeans. But unlike usual chebab talk – of sex and women – this time it was politics, and the guys were determined there should be change in Lebanon's political make up. But before the convo. got any further, Hassan picked me up in his brother's 1980s Mercedes to park it outside his other brother's apartment block. There we met his brother Joe, wife Nisreen and 2-year old son Yahya.
"Are you with us?" Nisreen asked, wearing a brown, stylish headscarf – a recent addition to her appearance.
"I am for Lebanon, and the Lebanese people," I replied, rather diplomatically.
"You are with us then," she said.
Joe joined us and told me that the March 14 movement – predominantly Sunni and the rightwing Christian parties of the Phalange and the Lebanese Forces – want to make Amal and Hizbullah fight them and lead the country to civil war. Hizbullah has discipline, the others don't he said. If Hizbullah wanted it could take over the country in a day, but it doesn't want to, it wants a part of the government.
Did you hear about the snipers on Thursday he asked me? "They were Sunnis, crooks and criminals who care nothing about people hired by (Sunni politician) Hariri. They want to stir up strife."
I told him that a friend told me that at the strike on Tuesday at Nahr el Kelb, by Jounieh, 700 Lebanese Forces supporters armed with metal bars and chains, to the shout of "charge," attacked the opposition supporting Christians - Michel Aoun's party - tearing orange scarves off men and women's necks, beating up bystanders and causing mayhem. Joe didn't seem surprised.
Hassan was keen to start our walk however, and we wander ed around the neighbourhood for a while, talking of this and that. We passed by a church near Mreyjeh's municipality. I noticed that it is being renovated, long overdue as the turn of the century building was destroyed in the civil war.
"It's a beautiful church," Hassan said as we looked through the fence.
"Yes, but will anyone use it?"
"No," Hassan laughed. "There are no Christians here anymore."
Then why rebuild it? In the early 1970s the dahiye predominantly consisted of Christian villages on the outskirts of Beirut. Industrialization and the migration of Shia from the Bekaa and the South – attributed to work seekers and Israeli invasions - led to the urbanization of what became known as the dahiye. With the onset of civil war in 1975, Christians started to leave the area as the country divided along sectarian lines. However, due to Lebanon's archaic electoral voting system, Lebanese vote in their villages or towns, meaning for the municipality of Mreyjeh, with some 60,000 people, only 5,165 are registered as living there. From the pre-1976 days, 85 percent of voters were Christian and 15 percent were Shiite, but the area is nearly 100 percent Shia today.
The bizarreness of this system is that only 15 Christian families live in Mreyjeh, meaning about 50 votes. Not unexpectedly, the municipality administration along with the other 5000 odd voters live elsewhere.
The original Shiite inhabitants of the area only have 600 votes.
Hassan said this doesn't encourage the cleaning of the streets.
I asked him why Hizbullah doesn't clean up the streets, as a bit of a 'brighten up the neighbourhood' kind of programme.
Hassan replied that this could be seen to be undercutting the municipality, in addition to the fact that the municipality is run by Christians.
But along with the political-sectarian angle, part of the real problem for municipalities in the dahiye is that they do not collect much tax from locals – about 10% in Mreyjeh's case – and secondly, the government has slashed municipality budgets.
Nonetheless Mreyjeh's second church quietly goes up, funded by – I'm not sure yet, but plan to find out.
The end of the 10 day Shia religious ritual of Ashoura is on Tuesday, and make-shift Husseiniyya tents, decked out in black cloth and full of plastic chairs, were to be seen in various places. Few seemed to be very full, with one three-quarters empty.
I asked Hassan - decked fully in black himself, as Ashoura requires the pious – whether Ashoura was a bit quieter this year.
"Yes, due to the situation and politics," he said. The end ritual, which usually involves around 100,000 plus gathering in the dahiye, and in other cities, notoriously Nabatiyeh where a few thousand self-flagellate themselves. (Hizbullah and Amal do not condone this, requesting that if you have to shed blood for Ashouta, donate it).
There seemed to be other reasons why the Shia were avoiding gathering en masse for Ashoura. Hassan said he was worried about a Sunni suicide bomber entering a crowd of Shia. (The day passed without event in Lebanon).
On returning to Hassan's we had dinner with his wife Najwa (a converted Sunni), and 2-year old daughter Fatima. Half way through the dinner of kibbe (raw meat), stuffed courgettes, rice with meat, and spaghetti, Rou-rou visited, Najwa's 15-year old niece. Unlike the last time I saw her, about five months ago, she wore all black, bar her face, hands and feet. Her father died of a heart attack recently. A retired soldier in his 40s, he weighed around 400 pounds.
After dinner we watched Al Manar TV, affiliated to Hizbullah. There was a curious video montage where a clock, with images, ticks backwards from 2007 to 1975. "Let's not go back to then," it read. The image from 2007 was of a Sunni sniper at the Beirut Arab University riots on Thursday.
On the news there was slowed down footage of the bodyguard of Saad Hariri (pro-govt. Sunni, head of the Future movement, and son of assassinated former PM Rafik Hariri) running down to a bunch of guys, walkie talkie in hand, telling Sunni men to rally. There was also footage of a young Shia man that was killed walking home from work on the day of the riots, with an interview with his Sunni wife and two young children. Other reports included the wounded from the fights.
After leaving Hassan's I went for a shave at the local barber, run by a 20 year old called Ali.
'Studio Style' is painted an orangey-brown, and on the mirrors are stuck pictures of pop band Westlife and Brad Pitt. On a wall above a black, fake leather couch is a large, garish photograph of Ali. With the help of his 16-year old assistant Ahmed, Ali gave me a requested "Hizbullah beard". That means closely cut just under the jawbone and high on the cheek, although Ali insisted it meant further under the chin.
The "Hizbullah beard" has long been a joke in some of the chebab barbershops. The former occupant of Studio Style, it was called something equally interesting, like Studio Smile, would always tell the other lads hanging out in the barbershop what I wanted. Once, on asking whether I wanted a shave, he steered me to a free chair. Hassan (yes, another) then whispered Hizbullah? I said yes, and he then indicated to the man sat in the only other barber's chair and said cheekily, Hizbullah.
After asserting my interpretation of the Hizbullah beard, I just missed a van to Martyrs' square. After waiting about ten minutes, a slick silver BMW passed by then reversed. The window rolled down and a young man asked me where I was going. He agreed to take me, and then asked the same of the man standing next to me at the junction. He wasn't heading that way, so I had a ride back, and all the driver could ask was how much would it cost, and where, could he learn English.
Just after the Barbir junction, on the road heading from Bachar Khouri to Beirut's southern suburbs – the dahiye – and the airport, the van is directed to the side of the road at a Lebanese army checkpoint. A soldier goes up to the driver's window, cheeks are kissed, and then the side door is slid open by another soldier and all the chebab – the men – are asked to step out. Identity cards are presented, inspected and each man frisked from shoulders to ankles by the M16 wielding soldiers.
"What's this? No ID?" the soldier asked when I presented my passport. "It's a passport, I'm a tourist," I was forced to lie, not having a residency permit. The soldier looked a little incredulously at me – what would a tourist be doing going to the southern suburbs, what the Western media during the July war last year called a "Hizbullah stronghold"? He gave me a nod, and we piled back in the bus – young, clean shaven men, middle age men with stubble and moustaches, and the bearded, heading home after a morning's work.
The talk in the bus was about the checkpoint and the army, but the mood seemed decisive – everyone was pleased the army were checking vehicles. But why vehicles going to the dahiye and not solely the other way around, towards downtown where the opposition has been protesting since December 1, and a probable trigger point for any violence? Needed security said one man.
The roads were unusually quiet for a Saturday afternoon, but Beirut has been quiet since the student riots on Thursday that left three dead, 160 plus wounded, and resulted in a late night curfew. People have been staying at home, and discussion amongst people is what could happen next, with violence at the nationwide opposition-led strike last Tuesday and on Thursday at the Beirut Arab University.
The van drove over the temporary airport bridge erected after the Israelis destroyed it in July last year, the wooden beams creaking and clapping as the vehicles pile across. Men got off at points along the road, and others clambered aboard.
Before the airport the van turned into the dahiye, driving through the densely populated Bourj Al Barajneh, passing two-level houses, 10 storey buildings, the occasional plot of landed planted with vegetables, butcher's shops, internet 'cafes,' corner shops, and fruit and veg. sellers.
At a petrol station I indicated I wanted to get out, paid the young driver – dressed in a woolly hat and body warmer – 750LL (50c) and walk over to Mreyjeh. A new building is going up where the rather wittily named 'Guantanamo,' fenced-in astro turf football pitch used to be. Other buildings are also under construction in the area, presumably to house Lebanese dispossessed during the July war and the continuous stream of people moving to Beirut from the South and the Bekaa valley, where the majority of Shia live.
On arriving at my friend Hassan's building, one over from where I lived for two years, he asked me over the intercom to get some snoobar – pine nuts – before clambering up the seven flights of stairs to his apartment – yet another power cut (outages range from 6 to 10 hours a day).
On walking over to a shop, I meet Mohamed Baydoun, who runs a computer games shop where youths play on four Playstations. The usual exchanges were made – how are you? How is your health? Your family? Work? And then the inevitable, what do you think of what is going on? Mohammed is not too optimistic, but changed the topic when his 8-year old sound Abboude ran over to us.
On returning to Hassan's, we decide to go for a walk. The sun, after all, was shining and the sky blue. First off, we messed around with Hassan's car battery, lost a screw, and I had to push Hassan's car along with some young lads until the ignition kicked in.
With Hassan chugging off in his car, I had entered the road and bumped into Mohamed, a cameraman for NBN TV, outside a butcher's shop cuddling his one year old son.
We talked for a while, and then I saw Hassan, a 25 year old computer programmer, hanging out on the streets with other chebab – young men. His face lit up as we greeted each other. "Where are you living now," he asked. "In Achrafieh, same place as before." "Ah, with the enemy," he joked.
"I think there will be trouble this Tuesday," he added. "Will you be there if something happens?" "Yeah, for sure man" (Hassan's English is punctured with Americanisms picked up from TV and hip-hop music.) I cannot tell if Hassan is serious or not, he is a bit of a joker and very concerned, as many young Lebanese are, about his appearance - slicked back hair under a designer white woollen hat, a leather motorcycle jacket and the requisite stylish jeans. But unlike usual chebab talk – of sex and women – this time it was politics, and the guys were determined there should be change in Lebanon's political make up. But before the convo. got any further, Hassan picked me up in his brother's 1980s Mercedes to park it outside his other brother's apartment block. There we met his brother Joe, wife Nisreen and 2-year old son Yahya.
"Are you with us?" Nisreen asked, wearing a brown, stylish headscarf – a recent addition to her appearance.
"I am for Lebanon, and the Lebanese people," I replied, rather diplomatically.
"You are with us then," she said.
Joe joined us and told me that the March 14 movement – predominantly Sunni and the rightwing Christian parties of the Phalange and the Lebanese Forces – want to make Amal and Hizbullah fight them and lead the country to civil war. Hizbullah has discipline, the others don't he said. If Hizbullah wanted it could take over the country in a day, but it doesn't want to, it wants a part of the government.
Did you hear about the snipers on Thursday he asked me? "They were Sunnis, crooks and criminals who care nothing about people hired by (Sunni politician) Hariri. They want to stir up strife."
I told him that a friend told me that at the strike on Tuesday at Nahr el Kelb, by Jounieh, 700 Lebanese Forces supporters armed with metal bars and chains, to the shout of "charge," attacked the opposition supporting Christians - Michel Aoun's party - tearing orange scarves off men and women's necks, beating up bystanders and causing mayhem. Joe didn't seem surprised.
Hassan was keen to start our walk however, and we wander ed around the neighbourhood for a while, talking of this and that. We passed by a church near Mreyjeh's municipality. I noticed that it is being renovated, long overdue as the turn of the century building was destroyed in the civil war.
"It's a beautiful church," Hassan said as we looked through the fence.
"Yes, but will anyone use it?"
"No," Hassan laughed. "There are no Christians here anymore."
Then why rebuild it? In the early 1970s the dahiye predominantly consisted of Christian villages on the outskirts of Beirut. Industrialization and the migration of Shia from the Bekaa and the South – attributed to work seekers and Israeli invasions - led to the urbanization of what became known as the dahiye. With the onset of civil war in 1975, Christians started to leave the area as the country divided along sectarian lines. However, due to Lebanon's archaic electoral voting system, Lebanese vote in their villages or towns, meaning for the municipality of Mreyjeh, with some 60,000 people, only 5,165 are registered as living there. From the pre-1976 days, 85 percent of voters were Christian and 15 percent were Shiite, but the area is nearly 100 percent Shia today.
The bizarreness of this system is that only 15 Christian families live in Mreyjeh, meaning about 50 votes. Not unexpectedly, the municipality administration along with the other 5000 odd voters live elsewhere.
The original Shiite inhabitants of the area only have 600 votes.
Hassan said this doesn't encourage the cleaning of the streets.
I asked him why Hizbullah doesn't clean up the streets, as a bit of a 'brighten up the neighbourhood' kind of programme.
Hassan replied that this could be seen to be undercutting the municipality, in addition to the fact that the municipality is run by Christians.
But along with the political-sectarian angle, part of the real problem for municipalities in the dahiye is that they do not collect much tax from locals – about 10% in Mreyjeh's case – and secondly, the government has slashed municipality budgets.
Nonetheless Mreyjeh's second church quietly goes up, funded by – I'm not sure yet, but plan to find out.
The end of the 10 day Shia religious ritual of Ashoura is on Tuesday, and make-shift Husseiniyya tents, decked out in black cloth and full of plastic chairs, were to be seen in various places. Few seemed to be very full, with one three-quarters empty.
I asked Hassan - decked fully in black himself, as Ashoura requires the pious – whether Ashoura was a bit quieter this year.
"Yes, due to the situation and politics," he said. The end ritual, which usually involves around 100,000 plus gathering in the dahiye, and in other cities, notoriously Nabatiyeh where a few thousand self-flagellate themselves. (Hizbullah and Amal do not condone this, requesting that if you have to shed blood for Ashouta, donate it).
There seemed to be other reasons why the Shia were avoiding gathering en masse for Ashoura. Hassan said he was worried about a Sunni suicide bomber entering a crowd of Shia. (The day passed without event in Lebanon).
On returning to Hassan's we had dinner with his wife Najwa (a converted Sunni), and 2-year old daughter Fatima. Half way through the dinner of kibbe (raw meat), stuffed courgettes, rice with meat, and spaghetti, Rou-rou visited, Najwa's 15-year old niece. Unlike the last time I saw her, about five months ago, she wore all black, bar her face, hands and feet. Her father died of a heart attack recently. A retired soldier in his 40s, he weighed around 400 pounds.
After dinner we watched Al Manar TV, affiliated to Hizbullah. There was a curious video montage where a clock, with images, ticks backwards from 2007 to 1975. "Let's not go back to then," it read. The image from 2007 was of a Sunni sniper at the Beirut Arab University riots on Thursday.
On the news there was slowed down footage of the bodyguard of Saad Hariri (pro-govt. Sunni, head of the Future movement, and son of assassinated former PM Rafik Hariri) running down to a bunch of guys, walkie talkie in hand, telling Sunni men to rally. There was also footage of a young Shia man that was killed walking home from work on the day of the riots, with an interview with his Sunni wife and two young children. Other reports included the wounded from the fights.
After leaving Hassan's I went for a shave at the local barber, run by a 20 year old called Ali.
'Studio Style' is painted an orangey-brown, and on the mirrors are stuck pictures of pop band Westlife and Brad Pitt. On a wall above a black, fake leather couch is a large, garish photograph of Ali. With the help of his 16-year old assistant Ahmed, Ali gave me a requested "Hizbullah beard". That means closely cut just under the jawbone and high on the cheek, although Ali insisted it meant further under the chin.
The "Hizbullah beard" has long been a joke in some of the chebab barbershops. The former occupant of Studio Style, it was called something equally interesting, like Studio Smile, would always tell the other lads hanging out in the barbershop what I wanted. Once, on asking whether I wanted a shave, he steered me to a free chair. Hassan (yes, another) then whispered Hizbullah? I said yes, and he then indicated to the man sat in the only other barber's chair and said cheekily, Hizbullah.
After asserting my interpretation of the Hizbullah beard, I just missed a van to Martyrs' square. After waiting about ten minutes, a slick silver BMW passed by then reversed. The window rolled down and a young man asked me where I was going. He agreed to take me, and then asked the same of the man standing next to me at the junction. He wasn't heading that way, so I had a ride back, and all the driver could ask was how much would it cost, and where, could he learn English.
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