UAE - Tackling The Hawala Problem.

One of the biggest challenges in the war against terror has been tackling the financial infrastructure of the Al Qaida and numerous other groups on the US blacklist. After 9/11what came to light was that a considerable part of the financial backbone of these terror groups was supported by a system known as "hawala" (meaning "transfer" in Arabic). Under this system, funds are transferred without any paper trail, and there are no accounts, cheques, signatures or automated teller machines to deal with. But it is faster and cheaper than conventional systems, and finds access to places in the world where even post offices find it hard to operate. For example, in the 1980s when Afghanistan was under Soviet occupation, hawala was used to help fund the mujahedin fighting the Soviets in Afghanistan.

The system is based entirely on trust. And it invisibly funnels huge amounts of money every year from the Persian Gulf region to different parts of the world, from Asia to Africa. Crucially, the hawala system of money transfers assures the anonymity of the parties involved. For the most part, hawala is a conventional money transfer system - jokingly referred to as the "Eastern Union", as opposed to the US based Western Union money transfer company - helping out the poor labourers from the Indian subcontinent who work in the Gulf region to send money home, at better than official exchange rates and at a faster speed.

However, its characteristics of invisibility, anonymity and the untraceability have made it a very attractive channel for criminals to exploit. It has often also been a handy means for people involved in legitimate businesses to evade taxes, engage in money-laundering or hide the details of the recipients and the use of funds. It is these characteristics of the hawala system that began to attract attention after 9/11, especially after it became clear that some of the funds involved in the attacks on the WTC and the Pentagon were channelled to the parties involved through this system. The US charged that the Al Qaida network had transferred funds through the hawala and the UAE was cited as a transit point from where most of the money spent by the people behind 9/11 terror attacks was transferred.

In fact, the major hub for hawala operations is Pakistan, with the emirate of Dubai having been a key nerve centre. While Pakistan continues to be a hub for hawala operations, which most observers believe can never be fully curbed, the UAE has been trying to regulate and control the system. But such is the importance of the hawala in the economies of the countries involved that the UAE refused to bow to Western pressure to completely eliminate the system.

Instead, the government has launched a crackdown on illegal activities within the hawala system and decided to set up a licensing and supervisory system. The UAE Central Bank has set up a 12-member financial intelligence unit to monitor and analyse suspicious transactions. Likewise, money-exchange houses from where the hawala operations are mainly run have been directed to record details of people transferring more than 2,000 dirhams ($550). In the first few months after 9/11, the Central Bank froze the assets of 14 people and institutions suspected of having links with terrorist groups and illegal financial activities.

The UAE has co-operated extensively in trying to satisfy the US requirements in terms of cracking down on hawala. In 2002, the union reiterated its commitment to ratifying international conventions and protocols relating to terrorism to which it was not yet a party and it has been working toward that goal. In June 2002, the US sponsored the UAE's financial intelligence unit (FIU) for membership in the prestigious Egmont Group, an informal association founded in 1995 to provide support for the FIUs of different nations. The UAE thus became the first Middle Eastern country to join this organization.

In January 2003, a comprehensive law was passed by the federation criminalising money laundering, and reporting requirements and oversight were further tightened. Also in early 2003, the UAE became a party to the 1973 Convention on the Prevention and Punishment of Crimes against Internationally Protected Persons, including Diplomatic Agents. The UAE is now a party to six of the 12 international conventions and protocols relating to terrorism.