Following the Migrant Money Trail People-smuggling trade depends on hawala transfers—largely with no paper trail and often outside the law; new attention on terror financing By Giovanni Legorano and Joe Parkinson
http://www.wsj.com/articles/following-the-migrant-money-trail-1451471405
ISTANBUL—Behind the reinforced door of an unmarked office in this teeming immigrant neighborhood, a man who goes by the name of Hawez Zaman moves money the same way his predecessors in the Middle Ages did, in an off-the-books transfer system critical to today’s spiraling migrant crisis in Europe.
The centuries-old system known as hawala enables users to transfer money from one point to another entirely on the basis of trust—largely without a paper trail and often outside the law. It is the dominant way migrants flooding into Europe pay for their journeys, used for 90% of the transactions in a people-smuggling trade valued at around $2.5 billion a year in Europe, according to European security officials and researchers. It is used for a further $390 billion a year migrants send back home as part of an informal but widely accepted financial system used across the developing world.
The money flows are also drawing renewed attention among terrorist finance investigators, who since the Sept. 11, 2001, attacks have tried to monitor hawala systems. They are concerned that some of the same hawala systems flourishing from the business of moving migrants could also be tapped by would-be attackers as a source of financing.
“Given what we’ve seen so far, we have very strong suspicions terrorists receive money via hawala,” said Calogero Ferrara, a Palermo-based prosecutor heading a large pan-European people-smuggling investigation. “After the Paris attacks, we have intensified investigations on this front.”
Investigators haven’t found evidence that hawala was used to move money in the Nov. 13 attacks in the city, which killed 130.
Western security officials from nations involved in the U.S.-led coalition against Islamic State have warned that the jihadists are using hawala to transfer money from the group’s headquarters in Syria and Iraq to its affiliate in Libya and possibly other regions. A United Nations report in November echoed that warning.
“We are very concerned about hawala being used by ISIS inside and outside of the territory it dominates,” one Western security official said, using another term for the militant group, adding the payment mechanism is an important “part of the ISIS financial infrastructure.”
In Istanbul each day, Mr. Zaman, a stocky 32-year-old Iraqi Kurd, said he receives up to 200 cash payments of €1,500, or about $1,600, on behalf of migrants from Syria, Iraq and Afghanistan who are paying smugglers for the first leg of the journey from Turkey to Greece on the way into the European Union.
He also moves money every day unrelated to migrant smuggling in amounts from a few hundred dollars to the thousands.
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When migrants reach their destination in Greece, Germany or beyond, Mr. Zaman said he makes a virtual transfer to an associate hawala dealer, or hawaladar, who releases the money at the other end to the smugglers.
For each payment, Mr. Zaman said he charges roughly 5%—or a bit more than half the percentage typically demanded by established money-transfer agents. He saves money by not having to pay compliance, infrastructure and other costs that licensed agents have.
Hawala is also often quicker—a transfer can be almost instantaneous—and can easily reach people in remote areas. Customers include those with low levels of literacy, no bank accounts or credit cards and sometimes no identification documents.
Criminals, meanwhile, like the absence of transaction records, which eliminates the money trail officials use to discover and prosecute crimes. In the traditional system, short-term records are destroyed when transactions are settled, and the use of Skype, Viber and WhatsApp to organize the payments helps elude detection.
“The ‘follow the money’ method doesn’t apply here,” said Andrea Di Nicola, a lecturer in criminology at the University of Trento. “This is a very serious problem, because the movement of money tells you a lot about how the criminal organization works.”
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The traditional, no-records system is illegal in most countries. Many hawala dealers operate legally in the Mideast, Africa and South Asia if they register and pay tax, and a highly regulated, licensed form—which requires record-keeping akin to modern money-transfer services—is legal in some Western countries. But few brokers become licensed in EU member states such as the U.K. or Germany, according to a 2013 report by the Financial Action Task Force on money laundering.
“It’s a big problem for the police,” said Patrik Engström, head of Sweden’s border police, which has detected cases of migrants there using hawala to pay for relatives in Italy, Libya, Turkey and Iraq to join them. “Transactions are much harder to trace—where they came from and where they went, who made them and who received them.”
Mr. Zaman operates illegally in a district that has emerged as a global hub for the hawala trade: Aksaray, a hardscrabble neighborhood close to Istanbul’s Grand Bazaar known as “little Syria.” It is one of the world’s largest crossroads for Syrian refugees.
The name is one of the pseudonyms the trader uses in his business—different names for different sets of clients.
Mr. Zaman pours profits into expanding his network and paying off local criminals and police to protect the business.
“People fleeing war zones don’t want to use banks or Western Union ; Hawala is easier and something they trust,” said Mr. Zaman. Pulling on a Marlboro, he took calls from clients arriving on the Greek island of Lesbos requesting that money be released to pay smugglers. “This is one of the fastest-growing businesses in Istanbul,” he said. “I would migrate myself, but the money is too good.”
Mr. Zaman said he had no qualms about processing payments that go to human smugglers. “Many smugglers are Syrian and they help refugees reach safety,” he said. “We are helping to finance that and helping them get their money out of Syria.”
Fast delivery
Hawala, or “transfer” in Arabic, first flourished among medieval traders who used it to pay for transactions without sending money or gold along treacherous trading routes. It took root over the centuries in the Middle East, South Asia and parts of Africa.
It is now present in virtually every community established by Muslim and Indian migrant workers in Europe, North America and the Middle East. Chinese migrants use a similar system that they call fei-chien, or “flying money.”
Hawaladars guarantee delivery to recipients within 48 hours, no matter how remote the destination. Funds of all sizes are transferred with no legal contracts. Recipients are given only a code number or simple token, such as a banknote torn in half, as proof that money is due.
Over time, transactions among the brokers mostly cancel each other out. If hawaladars do build up credits or debits, they can settle them through bank transfers in jurisdictions such as Dubai, a global center for hawala clearance, or by carrying cash or valuables like jewelry across borders.
In transit hubs like Istanbul or the coastal city of Izmir, hawala dealers are often based in backrooms of legitimate businesses, like money changers, jewelers or tea houses. Some use official cross-border transactions to settle hawala payments. Last year in Italy, prosecutors found carpet importers from Iran and Afghanistan acting as hawaladars. Officials believe they settled hawala debts by overstating or understating invoices tied to carpet transactions.
Despite its informal nature, cheating and fraud are rare within hawala networks, which are based on tight ethnic or tribal relationships.
“If someone doesn’t go by the rules, he will be ostracized forever,” said Nikos Passas, a Northeastern University professor who has studied hawala. Moreover, a hawaladar’s family and legitimate business could suffer if he defrauded a customer, he added.
Mr. Passas cited the case of a U.K. hawaladar who gambled away customers’ money, causing losses to fellow brokers in Pakistan and Britain. The broker was kicked out of the network and the other brokers shared the losses, he said. In case of disputes between brokers, an elder hawaladar or a committee hears out the two sides and settles the dispute.
Since 9/11, U.S. Treasury officials have worked extensively with other nations in which hawala is a major financial tool to try to stop terror financiers and better regulate those services.
In 2010, Faisal Shahzad, who admitted he tried to detonate a car bomb in Times Square in New York, told investigators that he used hawala money transfers to collect about $12,000 to pay for the attempt.
In 2011, a U.S. District Court in St. Paul, Minn., convicted two Somali-American women of having routed $10,000 to al-Shabaab, the Somali Islamist insurgency the U.S. classifies as a terrorist group, using hawala.
One current case highlights the connection between people smuggling and terrorism. Prosecutors in Sassari, Sardinia, ordered the arrest last April of 22 Pakistan and Afghanistan nationals, alleging they had smuggled people into Italy and collected donations from the Italian Muslim community. According to the charges, the funds were transferred to Pakistan and Afghanistan via hawala, and they were used to finance terrorist attacks in Pakistan.
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Izmir, Turkey, has become a hub for smugglers, hawala shops and other businesses profiting from the migrant trade. Photo: Mackenzie Knowles-Coursin for The Wall Street Journal
Prosecutors said the group has had contacts with Islamic State. A trial started this month in Sardinia.
“We are extremely worried about ISIS,” said Danilo Tronci, the leading prosecutor in the case. “We suspect money is now flowing via hawala to ISIS in Syria.”
Other Italian prosecutors say investigations show large proceeds coming from people smuggling have been transferred via hawala to areas of Syria and Iraq that are controlled by Islamic State. Prosecutors also say they believe smugglers pay fees to Islamic State in areas the group controls in Libya.
Hawala is also a vehicle for other criminal activity. In 2010, as much as half of Somali ransom proceeds, or roughly $100 million, flowed out of the country via hawala, according to researchers at Dalhousie University. Four years ago, the U.S. Treasury sanctioned Afghanistan’s largest hawala group, alleging it had moved billions of dollars on behalf of corrupt officials, the Taliban and drug kingpins.
But experts say that even though the human-smuggling trade is growing, criminal activity represents a tiny fraction of overall hawala transfers.
Kind of insurance
The use of hawala has expanded with the more than two million migrants who have poured into Europe since 2008. According to European prosecutors and aid groups, migrants use hawala so that they don’t travel with large sums of money through countries where they can be easily robbed, such as Sudan and Libya.
On the Balkan route from Turkey, they sometimes entrust the sum needed for the whole trip to a hawaladar at the starting point of their journey, who then pays smugglers for each leg once migrants arrive at each destination. The hawala serves as a kind of insurance—money is held by the third party until the migrant is safely delivered to his destination.
When migrants arrive on Lesbos, the Greek island that has seen about half a million mostly Syrian refugees arrive this year, they tear open sealed plastic bags holding their cellphones. They call hawala dealers, who then release to the smugglers the money that ensured safe passage.
“It was easy, very easy, to send the money,” recalls Osama, a 26-year-old Syrian-born carpenter living in Berlin who declined to give his last name. He used hawala to pay smugglers to ferry a cousin from Turkey to Greece. He transferred the €1,500 from a Turkish jeweler in Berlin to a Kurdish cafe owner in Istanbul, both of whom moonlight as hawala dealers.
For Said, a 40-year-old Afghan now in Italy, hawala was part of everyday life. When he worked in Tehran for a subsidiary of an Afghan company exporting medicines to Afghanistan, the company used hawala to make payments to its Kabul headquarters. Said, who declined to give his last name, sent money home using the network. U.S. and United Nations. sanctions on Iran related to its nuclear program bar large international banking transactions with the country, making hawala one of the few options to move money across its borders.
This summer Said decided to emigrate, first traveling from Tehran to Istanbul. His wife sent him €1,000 via hawala from Iran to Istanbul, paying a 3% fee. Said used hawala for the rest of his journey.
“In Afghanistan, it’s something common and normal,” said Said, who has applied for asylum in Italy, planning to bring his wife later. “When we had to move money from Iran to Turkey, that was the only option.”
The huge flow of migrants into Europe has set off a scramble among official money-transfer companies to take a slice of the business from hawala. Mobile wallets and online transfer services with rock-bottom fees are increasingly targeting migrants for the remittances they send home.
Ria Money Transfer, a subsidiary of Kansas-based Euronet Worldwide Inc., is lowering transfer charges below hawala’s typical 5% rate to target the migrant remittances market.
“The only way to beat hawala is to be efficient, lower internal costs and open new branches to reach more locations,” said Sebastian Plubins, Ria’s managing director for Europe, the Middle East, Africa and South Asia. Ria has opened in Eritrea and plans to expand in Syria, Iraq and Afghanistan. Eventually, “customers who may have sent money informally, will come to us.”
In November, the EU launched an initiative to encourage transfer companies to lower their fees to less than 3%, in part to discourage the use of informal networks.
Established hawala dealers are working to defend their territory. Facebook pages aimed at the Syrian diaspora in Europe advertise their ability to transfer money back to Syria.
One Arabic-language posting touted hawala’s ability to move money in the Middle East, Greece, Germany and Serbia. In response to questions sent by WhatsApp to the number on the posting, a Syrian who declined to be named said he runs a hawala business from a travel and money-exchange shop in Turkey.
His network sends about $20,000 a day around the world, taking a 5% cut, he said. The broker said he expects profits to rise by 50% this year, in part due to surging demand from migrants in Europe, particularly in Syria and Germany.
He said his network has been recruiting to meet demand, adding 30 brokers in the past year to reach 100 total members.
In the Istanbul neighborhood of Aksaray, the explosion of business has sparked a turf war between gangs, locals and security officials say, with organized criminal groups competing violently.
“We have to pay a lot of people and we have a lot of security,” said Mr. Zaman, who said he has been taking 500 calls a day and sometimes sleeps only a couple of hours a night. “But I have a history in this trade so I can protect myself.”
—Benoît Faucon in London and Anna Molin in Stockholm contributed to this article.
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