Friday, January 25, 2008

The money trail

Matthew Levitt, writing at Middle East Strategy at Harvard describes how tracking terror financiers strikes blows against terrorism all out of proportion to the effect of individual jailings and prosecution. "The deterrent, preventive and disruptive benefits of the financial war on terror are significant. ... Major donors inclined to finance extremist causes may think twice before putting their personal fortunes at risk." Indeed the big payoff from going after terror funders may lie in the evidence that you can't take to court.



Following such [money] trails can reveal conduits between terrorist organizations and individual cells. ... Securing convictions for financing terrorism may be difficult, and financial designations may not drain the swamp of all available terrorist funds, but they effectively deter, preempt and disrupt the activities of terrorist support networks.

One of the more interesting challenges facing financial counter-terror sleuths is whether they can penetrate the network of hawaladars, a form of money transfer common in Islamic countries. "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." It's features seemed designed to evade financial tracking.

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. 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.

The hawala system plays a crucial role in moving money around the Pashtun diaspora, from Afghanistan to destinations abroad. It is allegedly used to move the proceeds from the opium trade. Consequently, it's not beyond the realm of possibility that it is also employed to move money among terror groups. At some point, the hawala system merges into the formal banking system, playing a role not unlike the darknet to the open Internet. It is a subterranean system which surfaces occasionally to where it can be tracked. But to follow it down into the depths requires knowing how the system works and getting among the hawaladars. Wikipedia describes its workings.

The hawala system relies on the extensive networks of mainly Pashtun diaspora in Iran, Pakistan, Saudi Arabia, Europe, and the United Arab Emirates. The groups link to the political, religious, and socio-economic networks within the core countries of Central Asia, three of which share a border with Afghanistan, and well beyond the region to the Middle East, the UK, and the US. ...

Trading families in the Pashtun Mafia ... often explained how they would establish their own hawala businesses as a "support center for their trade. ... Helmand not only accounts for more than a quarter of the total area under poppy cultivation and opium production in Afghanistan, it also dominates the country's opium trading networks. Located at the heart of the Pashtun belt, the province is therefore ideally placed to exploit the extensive Pashtun trading networks that reach many of the world's key financial sites.

From the cursory description the hawala system seems to be dependent on key nodes; it operates on an honor basis, and it's interesting to speculate how a given hawala chain would be affected by a penetration and a compromise of reputation.

14 Comments:

Blogger Mad Fiddler said...

From this description of the hawala process, a body might conclude that the entire point of the Islamic imperative banning interest in financial matters is that it so drastically simplifies exchanges that it makes it easy to conduct transactions which are intrinsically subversive, criminal, or disruptive to your enemy!

Keep in mind that Islam has a fourteen hundred year history of expansion by military assault against nations, and by political terrorism conducted by Islamic minorities against non-Islamic host societies.

"Hawala" transactions by their nature protect and allow profit, by-passing scrutiny and tax accounting, so interest is utterly unnecessary. After all, the reason for charging interest as a lender is to collect some profit from the service of lending. You don't need to charge, calculate and track interest if you have sufficient "hawala" traffic to generate the cash flow and profits you want.

1/25/2008 10:22:00 PM  
Blogger DaveK said...

The hawala system sounds an awful lot like the internet... a dispersed network of nodes that can reliably transfer valuable information (i.e. the ownership of money) from point A to point Z, using flexible routing and verification protocols.

A system like this is pretty reliable and can be very resistant to attack... especially if the attacker doesn't really understand the network, or if the attacks are directed randomly. On the other hand, if you truly understand how the network operates, and are able to identify its critical nodes, you will find the network can be relatively easily brought to its knees.

And attacks don't need to destroy critical nodes in this case... all you have to do in some instances is to eliminate trust in those critical nodes, and that seems to be what may be going on here.

Though often touted as being immune to anything but massive disruption, distributed communications networks do in fact have their own vulnerabilities that can be targeted by a knowledgeable foe.


Just my $.02
DaveK

1/26/2008 12:28:00 AM  
Blogger davod said...

Hawala is also a convenient way of hiding income. No taxes to the Infidel.

1/26/2008 01:14:00 AM  
Blogger Wretchard said...

The hawala system sounds an awful lot like the internet...

It struck me the same way. For that reason it will possess the Small World property and penetrating the hawala system would be potentially very useful if you could monitor the well-connected nodes.

1/26/2008 01:54:00 AM  
Blogger hdgreene said...

I think they are all cousins, even their wives are cousins. Still, we might destroy trust between them. Do any of us really trust our cousins? Only if our grandfather is alive and can have any of us killed. Or you could tell a guy his wife is having an affair with his uncle (no, not that Uncle. OK, that Uncle).

1/26/2008 04:23:00 AM  
Blogger Y.H.N. said...

Perhaps hdgreene has hit on it. Where the distributed network is "hosted" on a set of familial connections, perhaps we can take advantage of our growing knowledge of disfunctional families and business organizations.

Targeting confidence in the head of the family ("the grand father who can have you killed") would cause subordinate individuals (nodes) to take up the slack. (introduce the disfunction) Traffic analysis would reveal who these individuals are and allow the injection of false information into the communications stream. When the level of antagonism reaches a certain level you can begin to turn individual hawaladars.

1/26/2008 05:11:00 AM  
Blogger NahnCee said...

Am I missing something here? Aren't all these nodes connected electronically all over the world, either via telephone or the internet?

And wouldn't the electronic surveillance computers be able to easily track who's sending what to whom on what date - the same computers that the moonbat left is a-scared are eavesdroping on their e-mails?

And once someone has been caught sending money to the Arafat Memorial Fund, or something equally insidious, how hard would it be to tell that person if he does it again, his bank in Outer Mongolia that he has all his funds stashed in will be instructed to freeze his account for ever and ever.

And the bank in Outer Mongolia, if it knows what's good for it, will sure as hell freeze whatever it's told to freeze.

I think the great lesson of Watergate is to *always* "follow the money", but I just don't see where a system that was set up originally to depend upon cousins and camels will be that hard to crack in the 21st Century when they're having to use *our* tools and methods instead.

1/26/2008 09:54:00 AM  
Blogger Alexis said...

Why can’t we use hawala as a means to supply money to our allies and against our enemies? Al-Qaeda cannot disrupt our use of hawala without undermining the system upon which it depends for terrorist financing.

Heads we win, and we use the enemy’s bank to undermine al-Qaeda. Or tails al-Qaeda loses, and OBL loses the ability to move his money.

1/26/2008 10:39:00 AM  
Blogger Zenster said...

One of the more interesting challenges facing financial counter-terror sleuths is whether they can penetrate the network of hawaladars, a form of money transfer common in Islamic countries. "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." It's features seemed designed to evade financial tracking.

All of these informal financial transfer systems are based on the Chinese model of fei ch'ien. It was originally used as a means of moving wealth while avoiding highway robbers.

When one couples the notion of zakat (titheing) and the hawala system, it becomes apparent that many billions of dollars are flitting about the Islamic world without much of a paper trail. I've long maintained that shutting down the hawaladars is vital to combating global terrorism.

Another point is that terrorism runs in the family. The high context nature of Islamic cultures is strongly reliant upon familial trust and secrecy. This is why it is so difficult to penetrate terrorist cells. Spreading distrust in families will be no easy task.

NahnCee is quite right that the vast majority of modern hawala transactions likely occur on the Internet. Muslim businesses with a lot of foot traffic and low documneted cash flow should be electronically monitored for participation.

As the article notes, going after the big fish is also quite important. I think it would be very beneficial if a few of terrorism's international financiers experienced acute cases of swift onset lead poisoning. However, it is also safe to assume that even the bigger players still use the hawala network. Therefore, shutting the system down should remain a major priority.

Best of all is if successful surveillance operations spent time "aliasing" or "spoofing" some of the site's larger transactions before the node was shut down. Damaging high-denomination transfers is the surest way to sow mistrust. There would have to be a delicate balance in how many transfers were tampered with in how short of a time since compromised nodes will shut themselves down rather quickly.

1/26/2008 11:33:00 AM  
Blogger Tony said...

After 9/11, when the Bush Admin thought it a good idear to go after the enemy in detail and in toto, there was a program to chase these networks where they popped up on the visible Internet. But sappers in the government compromised that vein of attack.

You can read all about it in
The Media’s War Against the War Continues by Andrew C. McCarthy.


Not that I'm questioning the NYT's patriotism, or the leakers in the State Dept or intelligence agencies who shielded our enemies this way.

Question: does halawa move actual money, or just debt? Paperless debt, just like our banks do? They're not hauling sacks of greenbacks on donkeys over the Silk Route.

1/26/2008 02:36:00 PM  
Blogger Zenster said...

Tony: Question: does halawa move actual money, or just debt? Paperless debt, just like our banks do?

Please review this Australian article and its diagrams for some good details as to how the actual monetary instruments finally get transferred. Figures 2 & 3 show the nitty gritty.

1/26/2008 06:30:00 PM  
Blogger Tony said...

Zenster, thanks for the excellent pointer. As expected, it works like ours, via a different framework. No camels laden with gold this time, only intermittent, purposely dispersed 'dots' on the net.

The NYT took it upon themselves, with some government help from somewhere, to put the kibosh on US efforts to 'connect the dots.'

Pity, eh?

Sorry to beat a dead horse with the cow so long out of the barn.

1/27/2008 02:36:00 PM  
Blogger ledger said...

“...it's interesting to speculate how a given hawala chain would be affected by a penetration and a compromise of reputation.” – Wretchard

A good wisper campaign of hawala graft and thieft would probably do a lot of damage.

Next, a set of hawala con-artists could set up shop and take in a significant amount of money and then vanish into thin air - a nice rip-off operation.

Lastly, one could hire a criminal gang to rob a hawala leaving a cash short fall. This would make some donors reluctant to do business.

The hawala shops don’t pay taxes so they are fair game for any type of scam.

All of which would cause mistrust and disrupt the hawala system.

1/28/2008 12:21:00 AM  
Blogger RICHGUY said...

I really like your blog- have to check on it more often. If you are interested in
web-businesses
maybe you should have a look at my blog :)

2/27/2008 05:23:00 PM  

Post a Comment

Links to this post:

Create a Link

<< Home


Powered by Blogger