Hardy: I gave the money to Stanley to pay [the landlord] for me.

Mrs. Hardy (to Laurel): So what did you do with it?

Laurel: I gave it back to him.

Hardy: You gave it to me?

Laurel: Yeah. Then you gave it to [Mrs. Hardy].

Mrs. Hardy: Do you mean to say that the money he gave to you that you gave to him that he gave to me was the same money that I gave to him to pay him?

Laurel: Well, if that was the money you gave to him to give to me to pay to him, it must have been the money that I gave to him to give to you.

They could have been discussing the trail of hawala funds, except that hawala is no laughing matter.

Financial investigators call hawala a "system of remittance" - in this case, an ancient, record-less, international method of transferring money that is based upon trust. Hawala originated in southern Asia and today is practiced largely in that area, the Middle East, and by émigrés from those regions. Since September 11, American law enforcement has been trying to pull back the rocks under which it hides because federal investigators believe hawala is underwriting no small part of Middle Eastern terrorist operations.

The word hawala is Hindi for trust; these days, however, it has taken on a more nefarious meaning.

It didn't start out that way; it developed long before there were banks, wire transfers, Western Union, or even checks. Although it is still not necessarily used for illegal purposes - there aren't many ways to wire money to Afghanistan or Somalia, for instance - it remains one way that folks with money to hide can jump the national, legal, and financial barriers inherent in conventional banking.

Virtually unheard of in the United States even a few months ago, hawala is now high on the agenda of Operation Green Quest, the Treasury Department's task force seeking to disrupt and dismantle terrorist financing. (See U.S. Customs Today, Nov. 2001.)

Stopping the dollars that support terrorism is hard enough to do under Western banking systems, which keep records of transactions. In fact, banks in the entire Western Hemisphere must, by law, report to their national treasuries any transfers larger than $10,000. But with hawala, thousands, even millions of dollars at a time can crisscross the globe in a matter of hours, tracked only by a secret code and disposable scraps of paper, making hawala investigations a shell game of global proportions.

Even at its most benign, hawala cheats governments of legally owed taxes, customs duties, and other fees that are the rightful income of nations - money desperately needed, especially in the countries where it is practiced, to improve those countries' economic conditions.

How it works
Say a Pakistani immigrant living in Baltimore wants to send $5,000 home to his parents. He contacts a local hawaladar, as dealers are called, known to him through cultural or ethnic ties, and gives him or her $5,000 plus a small fee for the latter's efforts. The dealer then phones another hawaladar in Karachi. The Karachi dealer delivers $5,000 worth of rupees to the man's parents. End of story.

Sort of. Isn't the Karachi dealer now out $5,000? Yes, but only temporarily. As stated earlier, the key to hawala is trust: the Karachi dealer knows that the $5,000 will be returned to him - his outlay will be remitted - in the future, when he initiates a similar deal.

Hawala dealers give money out and take money in, not necessarily from the same client, so that in the end, their books balance. The remitted funds may follow a course as circuitous as that taken by Laurel and Hardy's rent money, but with hawala, what appears to be invisible accounting, isn't.

Written accounts of transactions, if they are done at all, are done in code on scraps of paper that are destroyed when the transaction is over. The code may be a combination of serial numbers taken from currency notes and known only to the hawaladar and the recipient.

By the start of the new year, the Office of Foreign Assets Control had frozen more than $33 million in financial assets as a result of Operation Green Quest's financial investigations*. Countries abroad that have signed on with the international effort to combat terrorism have frozen an additional $33 million.

And how much of that was hawala money? Unlike tracing funds sent through money laundering channels, which generally involve banks or businesses and thus leave some kind of paper trail, however false, hawala offers none of that. To the outsider, hawala transfers are like, poof! Now you see 'em, now you don't.

Penetrating hawala circles requires language skills and a physical appearance still uncommon among federal undercover agents. But thanks to Operation Green Quest and other federal task forces pulled together since September 11, investigative spotlights are starting to shine on the seemingly infinite variety of financing sources that are feeding foreign terrorist activities. Hawala transactions may leave no footprints, but certain kinds of banking transactions and certain kinds of small businesses can provide clues that point investigators to possible hawaladars.

The USA Patriot Act, passed in October 2001, expanded the federal government's investigative powers and created important new criminal offenses. One of them makes failure to register with FinCEN a felony for money-remitting businesses. (Before recently issued Treasury regulations mandated this registration, 45 states had such laws; now it is a felony to violate the federal registration requirement).

"That alone", explains Marcy Forman, Operation Green Quest's Division Director, "gives us new investigative opportunities that we believe will help us penetrate hawala circles. By giving us another charge to pursue (i.e., noncompliance with the reporting requirement), we can apply standard investigative tools to new situations and new challenges. Some of the tools may involve undercover techniques, others do not."

Treading lightly, U.S. Customs Today asks Forman how in the world investigators can trace the invisible.

"By using our intelligence sources, subpoenas, warrants, and by doing the kind of basic investigative work that helps us solve all our cases," she answers artfully.

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* The Treasury Department's Office of Foreign Assets Control (OFAC) has sole authority to freeze funds, which it does based upon the intelligence and other enforcement services Operation Green Quest provides to it.