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San Francisco Chronicle - November 15, 2005
Crackdown on a Middle Eastern banking system
Most transfers valid, but technique can be abused, officials say
By Jim Herron Zamora
An informal banking system known by Middle Easterners as hawala, which began centuries ago on the Silk Road and Sahara desert caravans, has become a target in the war on terror by federal authorities who believe it allows terrorists to transfer vast sums of money without a trace.
Since the attacks of Sept. 11, 2001, the government has moved aggressively to halt these money transfer services or at least force them to comply with federal financial reporting laws. The campaign has resulted in the indictment of 138 people and the seizure of $25.5 million.
Three Bay Area men have been caught up in the crackdown; one of them is a Castro Valley man scheduled to be sentenced Thursday for illegally sending money to Sudan. But critics say the government has found no links to terrorism in any of its cases and has done little more than shut down mom-and-pop businesses guilty of failing to register their companies or report their transactions.
"The government needs to investigate terrorists -- we totally support that. But we need hawalas to feed our families," said Rona Popal, whose Fremont group, the Afghan Coalition, sent money to destitute widows and orphans in Afghanistan via a local hawala whose operator was arrested in 2003. "Hawalas need to obey the laws here. But we're very sorry to see good people getting arrested and losing their businesses."
Hawalas are a Middle Eastern form of Western Union in which money can be sent from one person to another through a loosely knit network that bypasses the traditional banking system.
Some $80 billion was transferred through the world's hawalas in 2004, according to the World Bank, and immigrants from the Middle East and South Asia consider the system a lifeline to send money home.
Despite the staggering amount of money that moves through the hawala system, it is quite simple.
An immigrant in Fremont who wants to send $1,000 to relatives in Afghanistan can give the money to one of several hawalas -- typically a restaurant or small business -- in the East Bay. That hawala contacts one in Afghanistan, which then gives $1,000 to the intended recipient. The two hawalas then settle their accounts through a third transaction.
"More than 90 percent of the money that is moved through these hawala services is legitimate expatriate remittances," said Professor Moyara Ruehsen, co-director of Terrorism Research and Studies program at the Monterey Institute for International Studies.
Ruehsen notes that some nonprofits and charities use hawalas to assist refugees because it is generally faster and cheaper than more traditional means, such as wire transfers, and because it allows the transfer of cash to regions that do not have banking systems.
But the informal nature of the exchanges -- many hawala merchants keep few records and avoid wire transfers that create paper trails -- can lead to abuse.
Interpol, the U.S. Treasury Department and the International Monetary Fund report that terrorists, drug dealers and other criminals -- along with legitimate businesses wishing to avoid taxes -- move between $20 billion and $35 billion worldwide through hawalas annually.
Since the federal crackdown began, three East Bay men have been arrested.
-- Qader Qudus of Fremont pleaded guilty last year to one charge each of failing to register his business and making one undocumented financial transaction -- done at the request of a government informant. More than 50 people, including a Presbyterian minister, wrote letters of support to the judge in the case.
-- Noor Alocozy of Hayward was sentenced to four months home detention Aug. 26 after pleading guilty in June of a federal charge of failing to properly license the money-transfer business he operated out of his pizzeria. Investigators said he neglected to properly record nearly $1 million he transferred to Afghanistan and Pakistan.
-- Eltaib Yousif of Castro Valley is scheduled to be sentenced Thursday after pleading guilty in July to failing to properly register the hawala he ran from a San Leandro convenience store. His attorney said he sent money to his friends and acquaintances in his native Sudan.
Arab and Islamic civil rights groups warn that the federal crackdown is disrupting a vital link between immigrants and their homelands and fueling mistrust in a community that law enforcement should be working with to eradicate terrorism.
"It's sending a message to Muslims in America that if you even have the slightest violation we are going to throw the book at you," said Arsalan Iftikhar, national legal director for the Council on American-Islamic Relations in Washington, D.C. "It's ridiculous, selective prosecution. Routine, minor violations of financial laws by Muslims are portrayed as victories in the war on terror."
But Dean Boyd of the U.S. Immigration and Customs Enforcement in Washington, D.C., denies that the government is engaging in selective prosecution. He also asserts that the violations uncovered by the government are neither minor nor routine. ….
\http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/11/15/BAG8QFOB7A1.DTL
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