On HowToVanish many people
have been asking questions in response to an article I posted about hawala banking. It is a great topic and one that I
enjoy talking about so I thought I would respond by fleshing out what kinds
of transactions take place in a hawala system and then answer the biggest
question by far; how
do I find a hawaladar?
HAWALA BANKING
TRANSACTIONS
There are a few archetypical transactions that most
hawala transactions will resemble. The first
is the most common; remittances. For example: a person from very poor country
X is working in country Y. He sends home $100 USD of purchasing power to his
family twice a month. The cost to bank wire this amount is $10 USD or more
and costs him a large percentage of his minimal remittance amount. It is
difficult to save up and send larger sums on a less frequent basis because
banking is unreliable at best in country X and large amounts of cash are not
safe to store with his elderly parents, wife and children who are living
alone. An exchange through two hawaladars will efficiently facilitate such a transaction
on a regular basis at a much lower cost.
The second
situation is that of the transactional broker. For example, I want to buy
options on a certain stock but I do not have enough money in my trading
account to meet the margin or liquidity requirements. My good friend is
planning on purchasing options on the same stock so I give him some money and
he buys a few extra options which he will pay me for when I want to cash out.
My friend has acted like a hawaladar for the exchange.
A third
situation is that of the repatriation or expatriation of wealth. Real estate is
a good example because, regardless of legal restrictions, you cannot take
real estate away from or add it to a country, with the exception of Iraq,
California which is going to fall into the ocean and Dubai whose palm tree
shaped coastline is not a natural phenomenon. If you own real estate in
country A but live in country B you cannot simply tuck it into your pocket
like a gold coin and repatriate that wealth.
You will need to find a buyer of that property to convert the wealth into
mobile wealth that can be taken out of country A and brought into country B.
Once the wealth is more liquid then it can be transferred to someone acting
like a hawaladar for the transaction.
HOW ACCOUNTS ARE SETTLED
The main characteristic of a hawala transaction is
that they are informal exchanges made relying on the trust of the parties and
generally outside of a structured banking system. In each of these scenarios
there must be some settlement made for the transactions. The remitting and
receiving hawaladars will maintain a tally of the total amount owed between
them and settle their account at a later date. Almost all hawaladars destroy
the records of the individual transactions once they are completed.
They can then wire the money all at once, or they may simply offset the
balance against another account between the two.
What if the debtor on the tally sheet does not have
cash to pay the debt? Because this is
a private transaction, they may settle the debt using any value they wish.
The hawaladars remitting and receiving money might both have sufficient
wealth in both countries and will be able to settle their debts with each
other through the intra-national exchange of the amount in cash. In addition
they might choose not to settle in cash. The hawaladar in poor country
X may accept payment in chickens or vampire squids rather than in cash. The friend who bought
the option for you might settle what he owes by buying gold for you or a nice steak dinner. The real
estate purchaser may not have the cash for the property but gives you his
sailboat which is at a slip near your home.
HOW DO I
FIND A HAWALADAR?
These situations and a combination of them are
representative of most hawala transactions. Now remains the biggest question
that I recieve about hawala banking: how do I find a hawaladar?
For a person who is not already part of the culture
where hawala banking takes place, finding hawala services is not easy but
here are a few suggestions.
BECOME A PART OF THE RIGHT COMMUNITY
The main use of hawala is to remit money to the home
country of an immigrant worker. Thus you can find where these people
are, befriend them and ask to be connected to a hawaladar.
Remember that hawala is the formal name given to an
informal system so they might not even know what the word hawala means.
Simply look for someone offering the kinds of services you want. Some
good communities to look for would be people from Mexico, which receives more
money in remittances from the United States than any other country. Middle
Eastern countries, East African countries, and South and South Central Asian
countries have a long history of hawala practices.
I have had rather good discussions with one person
in particular about the cultural barriers to interacting with these kinds of
communities. If direct interaction is out of the question, you may need
to hire a private courier or messenger to be the intermediary for your search
for a hawaladar. My new friend came up with a great idea of hiring a
bellhop or a taxi driver because they can move easily in and out of the
complex social structures. Another suggestion for those living in a
foreign country would be to find a westerner who has a local spouse.
The local spouse will likely have more access to these kinds of communities
than westerners.
SEARCH ADVERTISEMENTS
Sometimes hawaladars will advertise their services
in the local ethnic newspaper. Of course if you do not speak
the language of the paper, you may want to hire a translator. A website
like Craigslist
or other discussion forums might even list some of these kinds of
services. It is probably a good idea to look for the exact services you
want rather than the word hawala or hawaladar.
UTILIZE YOUR NETWORK
Ask people you know. Given the financial
incentives that may come with the transaction, many people are willing to use
their network of friends to engage in these kinds of transactions, especially
if it is to help another friend or family member. I have used
this method numerous times for all kinds of transactions. A good person
to ask might be a friend with a liquid cash position such as a pawn shop
owner or a rich uncle.
CONCLUSION
There are significant benefits to hawala banking in
many kinds of transactions. Although for many westerners finding hawala
services from hawladars on demand may be difficult, the need may become more
acute because of the exacerbation of current currency controls and it is
likely that these kinds of hawala services will become much more commonplace.
In the meantime, it is good to be prepared and have access to those services.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree in Accounting from Brigham Young
University, a law degree from California Western School of Law and studies
the Austrian school of economics. He works as an entrepreneur, investor,
journalist and monetary scientist. He is a strong advocate of the freedom of
speech, a member of the Society of Professional Journalists and the San Diego
County Bar Association. He has appeared on ABC, NBC, BNN, many radio shows
and presented at many investment conferences throughout the world.
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