Select Committee on International Development Written Evidence


Supplementary joint memorandum submitted by Dr Roger Ballard, University of Manchester, and Dr Saad Shire, Dahabshiil Transfer Services

A STRATEGICALLY INFORMED APPROACH TO REGULATORY INITIATIVES FOR IFT/HAWALA SYSTEMS: SOME RECOMMENDATIONS

  We would strongly commend the arguments set out in the statement issued at the close of proceedings of the 2nd International Conference on Hawala in Abu Dhabi, and most especially its explicit recognition that informal funds transfer (IFT) systems play a key role in facilitating remittances, and that as such they now form an integral part of the international financial system.

  More specifically, we would also argue that any planned regulatory regime should recognize that

  1.  Such systems are not deposit-holding banks: rather they are specialist inter-currency funds transmission agencies, aiming to deliver funds entrusted to them within 24 hours.

  2.  Regulatory systems will only work effectively if they are designed to fit the specific character of the processes being regulated, and take cognisance of the specific (and varying) socio-cultural character of the customer base in the community which each IFT system serves.

  3.  Relatively little is known about the varying character of IFT systems in different parts of the globe: our knowledge-base must be improved if effective and appropriate regulatory regimes are to be established.

  4.  The imposition of inappropriately draconian regulatory regimes will simply drive IFT yet further underground, so defeating the object of the exercise.

  5.  In constructing such exercises, the precise objectives of the regulatory structure must be carefully spelled out, and the utility of all proposals must be carefully scrutinised from both a cost/benefit and a fit-for-purpose perspective.

  6.  The fact that IFT systems frequently transfer funds on behalf of commercial businesses, charities and so forth besides retail customers should not be overlooked.

  7.  In pursuit of the efficient implementation of long-distance inter-currency value transmissions, IFT systems routinely implement standard forms of banking practice, including the consolidation and deconsolidation of funds in large tranches to facilitate settlement processes. Whilst these processes are the key to the commercial success of IFT, it is at this level that criminally-sourced funds could most easily be slipped into the system. To that extent current know-your-(retail)customer regulations appear to be poorly focused viz to the task in hand.

  8.  Contemporary IFT systems are in a constant date of development, and many have achieved a higher level of electronic sophistication than the banks; the ever-wider use of advanced technology improves—rather than threatens—the prospects for more effective exclusion of criminal malfeasance.

  9.  Effective regulation is only likely to be achieved in the context of close cooperation with IVT operators: top-down initiatives, especially if draconian in character, are likely to be precipitate counter-productive outcomes.

  10.  IFT operators should therefore be encouraged:

    (i)

    To publicly identify themselves, preferably in incentivised registration schemes

    (ii)

    To gather themselves together into formally constituted organisations

    and with whom the authorities would consequently be able to negotiate on a collective basis

  11.  Efforts should be made to develop and support (rather than to condemn) the operational and managerial practices currently deployed by IFT operators. Such an initiative could usefully be facilitated by an international or a regional development agency.

  12.  In the interest of facilitating the further development of legitimate IFT, greater efforts should be made to harmonise regulations across countries. The mutual recognition of national regulations (eg within the European Union) would simultaneously facilitate growth, greater operational efficiency and the more effective exclusion of potentially criminal transactions.

April 2004

  See also the Conference Statement from the Second International Conference on Hawala, available at: http://www.cbuae.gov.ae/Hawala/statement-E.htm





 
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