From Business to Bloody Murder: The Role of the Hawala System in Financing ISIS

Images of bandit-looking men, all but their eyes covered in black face covers, clad in a combination of camouflage and soiled black warfare attire, carrying flags embossed with the now all-too familiar white, cartoon-like Arabic script, carrying high-end weaponry, deliberately purposed for instilling fear, are images that have been imprinted forever in the minds of the world, as ISIS took control of Iraqi territory in 2014.

Images of bands of young men marching and posing with exaggerated conceit, that was marketed to recruit not just underprivileged youth from impoverished neighborhoods in Iraq, Yemen and Syria, but ones from privileged G5+1 countries, shocked the Western world and challenged preexisting criminologist theories of terrorist behavior that were for decades, used to try and explain the affinity felt by members of terrorist groups to their peers and the ideologies they allegedly fight to preserve.

One of the most striking images that surfaced during the wake of attacks by ISIS on Iraqi territory was one of emergence of Abu Bakr al-Baghdadi from the shadow of Iraq’s security crisis, who put a face to the threat of this new terrorist movement. Al-Baghdadi spoke publicly for the first time at Mosul’s Great Mosque of Friday, an intervention in which he called on the world’s Muslims to “obey” him as “the leader who presides over you”. However, the self-appointed ‘Caliph Ibrahim’ also brought with him a touch of branding into the bloody conflict when he appeared speaking in his 20-minute sermon, wearing an all-black robe and a black turban, an obvious attempt at conjuring up memories of the Abbasid caliphs, that only drew attention even further to his choicy accessory, a watch that is estimated at approximately USD$4500, believed to be either a Rolex, Sekonda or Omega, Seamaster. The video posted on YouTube prompted an outpouring of confused comments on social media about who was in fact funding this new and powerful terrorist organization.

What the watch represented for his global audience, was less about the concern surrounding the hypocrisy of simplicity than it was concern about the suspected powers, and flow of more-than-adequate financing, that was apparently behind this new global terror. While the hawala system had been called into question for years and had come under suspicion and intense scrutiny for its alleged role in providing a platform to financing terrorism, the blatant display of financial security that al-Baghdadi’s watch symbolized, called into even further question, the hawala system.

Hawala is an Arabic term that translates as “transfer” or “wire” in Arabic banking jargon, however the hawala system refers to an informal channel for transferring funds from one location to another through service providers, known as hawaladars, regardless of the nature of the transaction and the countries involved. Notwithstanding the demonization of the hawala system as a system whose primary function is to fund terrorism, the hawala system is rather, a system of Informal Funds Transfer (IFT), one of many systems used by different countries for transferring funds both domestically and internationally. The attraction with the hawala system for legitimate patrons of this IFT, often being expatriate workers, but even more so for terrorist organisations, is the economic and cultural factors that govern the usage of this system, whereby it is rendered as the less expensive, swifter, more reliable, more convenient, and less bureaucratic of banking systems in the formal global financial sector.

The hawala system, despite its simplicity and benefits, particularly to low-income expatriate workers who use this system to transfer funds home to families living under dire financial circumstances, does however, provide a highly unregulated platform that is equally utilized by criminal organizations for money laundering and particularly groups such as ISIS, for terrorist financing.

Consequently, in response, some international financial institutions have called for a regulation of IFT systems, but one which takes into account the complexity that is required to ensure a balance is struck so that the potential for over-regulation does not occur and undesirably drive this banking system even further underground. Other international financial institutions have proposed that despite the perceived benefits of regulating IFT systems in the form of registration or licensing, formal banking systems would have to focus on improving the quality of their services and reducing the fees that are currently charged. Simultaneously, international banking systems propose that in the longer term, formal financial systems need to shift their focus towards sustaining efforts that are aimed at modernizing and liberalizing the formal financial sector, as a means by which formal financial institutions can have a chance at competing with the informal remittance business.

What is certain for now, is that the lack of a regulatory framework is contributing to ISIS retaining its position as one of the wealthiest, if not the wealthiest terrorist organization to date, allegedly supported by citizens in some of wealthiest nations in the world. In the next article, we will explore some of the means by which the hawala system is utilized to finance ISIS and explore the profiles of some of the purported financiers of this deathly movement. At the same time, the benefits of the hawala system will be explored and a means by which a balance between preserving the benefits of this system can be struck while eliminating the threat of its abuse by terrorist groups such as ISIS.

View Sources ∨

 

http://www.wsj.com/articles/how-islamic-states-secret-banking-network-prospers-1456332138

http://www.gdrc.org/icm/hawala.html

http://www.telegraph.co.uk/news/worldnews/middleeast/iraq/10949449/Abu-Bakr-al-Baghdadi-ridiculed-for-flashy-wristwatch.html

http://www.cnn.com/2014/07/10/world/meast/iraq-baghdadi-watch/

http://www.newsweek.com/underground-european-hawala-network-financing-middle-eastern-terror-groups-307984

ISIS Makes $25 Million A Month In Financial Racket

https://www.imf.org/external/pubs/nft/2005/hawala/hawala.pdf

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