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Hawala (also known as hundi) is an informal value transfer system based on performance and honor of a huge network of money brokers which are primarily located in the Middle East, Africa and Asia. An informal value transfer system (IVTS refers to any system mechanism or network of people that receives Money for the purpose of making the funds or an equivalent value The Middle East is a Subcontinent with no clear boundaries often used as a synonym to Near East, in opposition to Far East.

Contents

Origins

Hawala has its origins in classical Islamic law, and is mentioned in texts of Islamic jurisprudence as early as the 8th century. Sharia ( Arabic: ar شريعة) is the body of Islamic Religious law. Fiqh ( Arabic: فقه, fɪqəh is Islamic Jurisprudence. Fiqh is an expansion of the Sharia Islamic law—based directly on the Hawala itself later influenced the development of the agency in common law and in civil laws such as the aval in French law and the avallo in Italian law. Agency is an area of Commercial law dealing with a Contractual or Quasi-contractual Tripartite set of relationships when an Agent Common law refers to law and the corresponding legal system developed through decisions of courts and similar tribunals rather than through legislative statutes or executive Aval or Endorsement is a shared-in-common commitment of Payment of an obligation in favor of the creditor or Beneficiary, granted by a third In academic terms French law can be divided into two main categories private law (" droit privé " and public law (" droit public " Italy (Italia officially the Italian Republic, (Repubblica Italiana is located on the Italian Peninsula in Southern Europe, and on the two largest The words aval and avallo were themselves derived from Hawala. The transfer of debt, which was "not permissible under Roman law but became widely practiced in medieval Europe, especially in commercial transactions", was due to the large extent of the "trade conducted by the Italian cities with the Muslim world in the Middle Ages. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations Roman law is the legal system of Ancient Rome. As used in the West the term commonly refers to legal developments prior to the Roman/Byzantine state's adopting A financial transaction involves a change in the Status of the finances of two or more businesses or individuals " The agency was also "an institution unknown to Roman law" as no "individual could conclude a binding contract on behalf of another as his agent. Institutions are structures and mechanisms of Social order and Cooperation governing the Behavior of a Set of Individuals For other uses of the word Agent see Agent (disambiguation This is correct An Agent in Commercial Law is a person who is authorised " In Roman law, the "contractor himself was considered the party to the contract and it took a second contract between the person who acted on behalf of a principal and the latter in order to transfer the rights and the obligations deriving from the contract to him. " On the other hand, Islamic law and the later common law "had no difficulty in accepting agency as one of its institutions in the field of contracts and of obligations in general. "[1]

Hawala is believed to have arisen in the financing of long-distance trade around the emerging capital trade centers in the early medieval period. In South Asia, it appears to have developed into a fully-fledged money market instrument, which was only gradually replaced by the instruments of the formal banking system in the first half of the 20th century. A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Today hawala is probably used mostly for migrant workers' remittances to their countries of origin. The term migrant worker has different official meanings and connotations in different parts of the world the United Nations' definition is very broad essentially including anyone

How Hawala Works

In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or hawaladars. A customer approaches a hawala broker in one city and gives a sum of money to be transferred to a recipient in another, usually foreign, city. The hawala broker calls another hawala broker in the recipient's city, gives disposition instructions of the funds (usually minus a small commission), and promises to settle the debt at a later date. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations

The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers; the transaction takes place entirely on the honor system. A promissory note, also referred to as a note payable in Accounting, is a Contract where one party (the maker or issuer) makes an An honor system or honesty system is a philosophical way of running a variety of endeavors based on trust, Honor, and Honesty. As the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment. No records are produced of individual transactions; only a running tally of the amount owed one broker by the other is kept. Settlements of debts between hawala brokers can take a variety of forms, and need not take the form of direct cash transactions.

In addition to commissions, hawala brokers often earn their profits through bypassing official exchange rates. In Finance, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how Generally the funds enter the system in the source country's currency and leave the system in the recipient country's currency. A currency is a unit of exchange, facilitating the transfer of Goods and/or services It is one form of Money, where money is As settlements often take place without any foreign exchange transactions, they can be made at other than official exchange rates.

Hawala is attractive to customers because it provides a fast and convenient transfer of funds, usually with a far lower commission than that charged by banks. Its advantages are most pronounced when the receiving country applies distortive exchange rate regulations (as has been the case for many typical receiving countries such as Pakistan or Egypt) or when the banking system in the receiving country is less complex (e. Pakistan () officially the Islamic Republic of Pakistan, is a country located in South Asia, Southwest Asia, Middle East and This article is about the country of Egypt For a topic outline on this subject see List of basic Egypt topics. g. due to differences in legal environment in places such as Afghanistan, Yemen, Somalia). Afghanistan /æfˈgænɪstæn/ officially the Islamic Republic of Afghanistan ( Pashto: د افغانستان اسلامي جمهوریت, Yemen ( Arabic: اليَمَن al-Yaman officially the Republic of Yemen ( Arabic: الجمهورية اليمنية al-Jumhuuriyya Somalia ( Soomaaliya; الصومال) officially the Somali Republic ( Jamhuuriyadda Soomaaliya, جمهورية الصومال) and formerly known

Furthermore, the transfers are informal and not effectively regulated by governments, which is a major advantage to customers with tax, currency control, immigration, or other legal concerns. Currency control is a system whereby a Country tries to regulate the value of money ( Currency) within its borders Immigration refers to the movement of people among countries While the movement of people has existed throughout human history at various levels modern immigration implies long-term For the same reasons, governments do not favor the system, and accusations have been made in recent years that terrorist funding often changes hands through hawala networks. Terrorism is the systematic use of terror especially as a means of coercion

Hundis (The Bill of Exchange)

On a similar note, Hundis referred to legal financial instruments evolved on the Indian sub-continent. Law is a system of rules enforced through a set of Institutions used as an instrument to underpin civil obedience politics economics and society The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated These were used in trade and credit transactions; they were used as remittance instruments for the purpose of transfer of funds from one place to another. In the era of bygone kings and the British Raj these Hundis served as Travellers Cheques. For usage see British rule in India British Raj ( rāj, lit "reign" in Hindustani) primarily refers to the British They were also used as credit instruments for borrowing and as bills of exchange for trade transactions. Technically, a Hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order. Being a part of an informal system, hundis now have no legal status and were not covered under the Negotiable Instruments Act, 1881. They were mostly used as cheques by indigenous bankers. A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money

Angadia

The word angadia means courier (in Hindi) but it is also used for people who act as Hawaladars within the country (India). These people mostly act as a parallel banking system for businessmen. They charge a commission of around 0. 2-0. 5% per transaction from transferring money from one city to another.

Hawala after September 11, 2001

After the September 11 terrorist attacks, the American government suspected that some hawala brokers may have helped terrorist organizations to transfer money to fund their activities. The 9/11 Commission Report has since confirmed that the bulk of the funds used to finance the assault were not sent through the hawala system, but rather by inter-bank wire transfer to a SunTrust Bank in Florida, where two of the conspirators had opened a personal account. 9/11 Commission ReportThe National Commission on Terrorist Attacks Upon the United States, also known as the 9/11 Commission, was set up on November 27, 2002 SunTrust Banks Inc ( is an American Bank holding company. The largest subsidiary is SunTrust Bank Florida ( is a state located in the southeastern region of the United States, bordering Alabama to the northwest and Georgia to the However as a result of intense pressure from the US authorities, widespread efforts are currently being made to introduce systematic anti-money laundering initiatives on a global scale, the better to curb the activities of the financiers of terrorism and those engaged in laundering the profits of drug smuggling. Whether these initiatives will have the desired effect of curbing such activities has yet to be seen; although a number of hawala networks have been closed down and a number of hawaladars have been successfully prosecuted for money laundering, there is little sign that these actions have brought the authorities any closer to identifying and arresting a significant number of terrorists or drug smugglers.

In November, 2001, the Bush administration froze the assets of Al Barakat, a Somali remittance hawala company used primarily by the large Somali Diaspora. al-Barakat or al-Barakaat (which means "The Blessed" in Arabic) is a group of companies established in Somalia in 1986 Somalia ( Soomaaliya; الصومال) officially the Somali Republic ( Jamhuuriyadda Soomaaliya, جمهورية الصومال) and formerly known The term Diaspora (in Greek, διασπορά &ndash " a scattering or sowing of seeds " refers any population sharing common ethnic Many of its agents in several countries were initially arrested, though later freed after no concrete evidence against them was found. In August 2006 the last Al Barakat representatives were taken off the U. S. terror list, though some assets remain frozen. [2]

Hawala has been made illegal in some US states[[1]] and other countries as it is seen to be a form of money laundering and can be used to move wealth anonymously.

See also

Notes

  1. ^ Badr, Gamal Moursi (Spring, 1978), “Islamic Law: Its Relation to Other Legal Systems”, The American Journal of Comparative Law 26 (2 - Proceedings of an International Conference on Comparative Law, Salt Lake City, Utah, February 24-25, 1977): 187-198 [196-8] 
  2. ^ "US ends Somali banking blacklist", BBC, August 28, 2006. Events 475 - The Roman General Orestes forces western Roman Emperor Julius Nepos to flee his Capital Year 2006 ( MMVI) was a Common year starting on Sunday of the Gregorian calendar. Retrieved on February 24. Events 303 - Galerius, Roman Emperor, publishes his edict that begins the persecution of Christians in his portion of the  

Further reading

External links

Dictionary

hawala

-noun

  1. an old-established, informal system of money transfer from India and the Middle East, still in use by migrant workers
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