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That's hawala, not koala. For those unfamiliar with the hawala system, it is a way to send money, usually across long distances, at a far lower cost than sending money by wire or bank transfer. The method has been used for thousands of years, mostly among African, Asian and Middle Eastern cultures. Although the advent of modern banking has made hawala less common than before, the introduction of severe restrictions to banking privacy through legislation and enforcement has made hawala a very attractive option again for privately transferring money. The transfer of money in this manner is extremely private and is unlikely to be reported or discovered by anyone other than the hawaladars, the transferor and the tranferee. Hawaladars are the brokers or facilitators of the transaction. This transactional privacy has made hawala an evil villain for enemies of personal and financial privacy. False and exaggerated allegations of money laundering and terrorism funding through hawala transfers have incorrectly characterized what is actually the most efficient and ancient of all money transferring systems.
The Mechanics of Hawala
The most common use for hawala is to send money to another person who is at a great distance from you. The money sender contacts a local hawaladar and gives him the money he or she wants to send. The hawladar then contacts another hawaladar in the destination city for the money and arranges to have the hawaladar in the destination city turn over the money to the recipient, minus a small fee. No money actually travels the distance at that time but the hawaladars keep a tally of the total owed and then settle the difference at a later date. The exact methods can differ greatly.
Benefits of Hawala
The hawala system can exist outside of the traditional legal system because hawaladars generally transact with other hawaladars based on a long relationship of mutual trust, often built up over generations of hawaladars. Thus there is no need for formal legal protection, which is expensive, and there is a very low risk of default when you transact with such well known individuals.
This system is by far the most private form of transferring money. The entire transaction can occur over a couple of phone calls, emails, text messages, or instant messages. Although the United States requires registration of these kinds of services, it is very hard to enforce such a requirement because of the difficulty detecting the transactions. No formal records of the individual transactions are usually kept after the transaction has occurred. All that exists is usually a running tally of what is owed, often encrypted or coded. This is far different from the extensive disclosures required by banks for a similar transaction.
The hawaladars also have the benefit of being able to settle accounts in a transaction other than a currency transaction. These non-cash transactions are used to avoid official exchange rates, import or export duties, or other undesireable tax effects. These legal, privacy and economic advantages allow the hawaladars to perform the service of transferring money at a much lower cost than is usually available through bank money transfers.
Criticism of Hawala
There are many who strongly criticize the hawala system as dangerous because the transactions are so private. Although there have been no conclusive findings that transactions through hawaladars have contributed significantly to terrorism or organized crime, some argue that such transactions are likely to occur. These critics wish to either ban hawala systems (there are strict laws in some states regarding these transactions) or subject them to rigorous reporting requirements similar to how the banks currently operate. The reasoning appears to be something along the lines of, criminals eat food therefore we need to outlaw the private exchange of food unless there is a paper trail. Reporting requirements as they are currently constructed not only offend the notion of justice which requires that there be probable cause that there is criminal activity afoot or evidence of a crime, based on articulable facts, before a search can be conducted. The search may only occur after a neutral judge finds that there is probable cause and then issues a valid warrant. Although the banks are subject to invasive reporting requirements, they also require large amounts of capital to operate and thus are not easily overlooked by enforcers of such policies. Hawaladars can easily operate undetected and it is likely that many will do so. Catching a hawaladar will be harder than catching a drug smuggler that never smuggles any drugs across the border.
Future of Hawala
Because of the dramatic benefits that a hawala type system offers, it is only a matter of time before it becomes widely used in many more transactions throughout the world. Individuals that are well known in their niche or community will grow in influence as they are able to provide services at a much lower cost than may be found elsewhere. People who have strong relationships with others in their field of work or in their social life, who have the means to help others with such transactions, will become hawaladars, if just for a family member as a one time transaction. In addition, the services provided by these modern hawaladars will benefit the privacy of individuals.
