What is the hawala system

92001E2038

WRITTEN QUESTION E-2038/01

from Freddy Blak (GUE / NGL) to the Commission

(July 13, 2001)

Subject: EU humanitarian aid and hawala

The humanitarian organization Dacaar, which is involved in aid actions by the EU, inter alia. involved in Afghanistan apparently worked with an illegal money network called the hawala. Hawala is a closed, secret global network that can transfer amounts across borders to anywhere in the world within a few days. The transfers are made without receipts and can therefore never be tracked down. Interpol and the international drug police regard this network as a dominant factor in global money laundering. The network is illegal in most countries.

1. Can the Commission confirm or deny that EU grants were passed on via hawala?

2. If so, can the Commission explain whether, in its view, it is correct that EU aid helps to conceal money laundering from drug trafficking and people smuggling through hawala?

Answer given by Mr Nielson on behalf of the Commission

(October 18, 2001)

To transfer the funds intended for its contractors, the Commission uses the services of public banks located in the Member States, which have been selected following a public call for tenders. The amounts are usually paid into bank accounts in the country in which the contractual partner is resident. The Commission therefore does not use the hawala system and is not responsible if the contractor decides to use the hawala system for its own purposes.

In order to provide a better insight into the hawala system and its specific role in the Afghan context, the Commission would like to take a closer look at the transfer of funds to the humanitarian non-governmental organizations (NGOs) active in the region.

All financial business transactions that take place outside of the official banking system are referred to as hawala banking. This system is used extensively for the exchange of money between members of an ethnic community and enables, for example, families to send money to their family members. The system requires very close personal ties as it is based on absolute trust. Various diaspora, especially those in the Arab states, use this money transfer system around the world. This is probably the oldest transfer technique. In this sense, the hawala system is not illegal, although the flows of money processed through this system are difficult to identify, as they practically only occur within a certain community, and are also difficult to track.

In the case referred to by the honorable Member, humanitarian NGOs and international organizations use the hawala system because there are no official banks in Afghanistan. However, the NGOs operating in Afghanistan need cash so that they can pay the local staff, purchase the goods they need and maintain the offices they have set up. The transfer of cash would be too risky for both the NGO staff and the financial resources given the general security situation in Afghanistan. There is therefore no other safe alternative to the hawala system.

On the basis of information received from the NGO Danish Committee for Aid to Afghan Refugees (Dacaar) and the Danish Ministry of Foreign Affairs, the Commission can confirm that Dacaar and most other NGOs and UN organizations use the hawala system.

For example, Dacaar does the following:

- The Dacaar office in Afghanistan requests funds in dollars from the main office in Pakistan.

- The main office has signed a contract with an officially registered money dealer who, at the request of the NGO, instructs an intermediary in Afghanistan to pay the NGO office in Afghanistan the required amount of money.

- The NGO's office in Afghanistan will notify the head office in Pakistan as soon as it has received the money from the middleman.

- Then the head office of the NGO in Pakistan pays the money dealer the amount he has laid out and a commission of 1 to 5%. This concludes the business transaction.

In this context, the Commission would like to point out that all implementing partners involved in Community humanitarian or development projects are subject to strict and regular controls. So far, the Commission has not found any irregularities in the financial management of Dacaar.