Nielson: No evidence to connect ‘hawala’ with money-laundering

Date: 08/11/01

By David Cronin

THE European Commission has acknowledged that aid groups which it funds use an unregulated financial network in Arabic countries, but insists it has no evidence that this is a channel for money-laundering.

Although the Commission's own agencies do not use the ancient hawala system, based on absolute trust, development chief Poul Nielson has said that it is used by EU-backed non-governmental organisations (NGOs) operating in Afghanistan.

Hawala is common for cross-border transactions in Islamic countries and is not subject to the record-keeping requirements of conventional banking. It is very difficult for law enforcement officials to trace transactions through the system.

Replying to a question by Socialist MEP Freddy Blak, Nielson said there is "no secure alternative to the system" for NGOs working in a country such as Afghanistan.

The commissioner's spokesman, Michael Curtis, said he had heard nothing to suggest the Taliban regime exercised control over the hawala system: "This is something that has existed for many years, long before the Taliban came to power. "Obviously, we take how taxpayers' money is used very seriously and if there were any particular problems we would deal with them. But at the moment we have no information to prove or disprove the allegations."

Nevertheless, the Commission last week endorsed new standards on combating money-laundering which directly concern the system. Drafted by a taskforce set up by the Organisation for Economic Cooperation and Development, the standards single out hawala as a system to be licensed and regulated.

Eight people were arrested in London last week, suspected of using hawala methods to transfer €163 million to New York, believed to have come from profits made from smuggling Afghan opium into the West. Members of Osama Bin Laden's terrorist group Al Qaeda are also reported to have used hawala when planning the bombing of US embassies in East Africa three years ago.

But one EU-funded group, the Danish Committee for Aid to Afghan Refugees (DACAAR) insisted it would be very difficult to bypass hawala. "If we had any suspicion this system was connected with money laundering or drugs, we wouldn't use it," said spokeswoman Sofie Rud.

Under hawala, money is transferred to an agent recognised by Pakistani authorities and can be accessed across the border with Afghanistan the following day. The charges levied by such agents were normally lower than those imposed by banks, she said. "It would be extremely difficult for money to get transferred safely in any other way. If our staff travelled across the border with lots of cash they could easily get robbed," said Rud. In the past decade the Commission has pledged €430 million to aid projects in Afghanistan, implemented by UN agencies and NGOs.

The European Commission has acknowledged that aid groups which it funds use an unregulated financial network in Arabic countries, but insists it has no evidence that this is a channel for money-laundering.