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
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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