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Underground banking earns Uncle Sam's interest

Saturday, October 11, 2003

Farooq Hussaini does not give the impression of a law-flouting desperado, but he knows desperation enough to understand why someone would use what can politely be called an unorthodox way of transferring money.

That moment of desperation came in 1986. Hussaini's mother in India was desperately ill and needed $1,000 in cash for a treatment to save her life.

"Mellon Bank told me it would take 15 days," Hussaini said. At the time, currency laws in India were such a tangle that 15 days would have been optimistic. Villages in India and throughout the Middle East do not always have convenient banking hours because they often do not have banks. In some corners, an ATM card is little more than an artifact from the future.

Hussaini telephoned friends in Pittsburgh's Muslim community. He tried to find someone who was traveling back to India who might carry the cash for him. Finally, one of his friends told him to call a guy in Chicago. He ran a "hawala" -- a sort of unregistered bank that moves money around like a Western Union without management. The name means "trust" in Hindi, and in Arabic means "transfer."

Given how it works, both names fit.

Hussaini promised to send the man $1,000. If he had been in Chicago he likely would have handed over the $1,000 in cash. The man telexed or faxed someone back in Hyderabad and told him to send along $1,000 to Hussaini's mother. Someone drove it to her village. Hussaini paid a $25 fee. Whoever picked up the cash in Hyderabad paid a fee as well.

Eventually, money from other transactions would be shifted around as other immigrants and expatriates wired cash until everybody was reimbursed for what amounted to an interest-free loan financed by flat fees. That is an important feature for Muslims who usually abide by Quranic law that forbids the lending of money at interest.

Hawalas are illegal in the United States. They violate a handful of laws regulating banks, lenders, wire transfers and taxes. They are secretive and have long been the bank of choice for illegal immigrants who lack the documentation needed for a regular bank account and need to keep a low profile.

Federal prosecutors view them as the ideal venue in which the unscrupulous can conspire with the zealous to move around money needed to finance terror. They would know that because the ISI, the Pakistani secret intelligence service, sometimes used hawalas to transfer funds U.S. intelligence agencies gave it to pass along to Afghan rebels.

Yesterday, the chickens came home to bank.

U.S. Rep. Melissa Hart unveiled proposed legislation that would widen law enforcement powers to investigate hawalas and shut them down. Because one hawala money transfer can be masked by multiple other financial transactions, sometimes making it hard to tell whose money is whose, Hart wants to give federal law enforcement wider powers to follow that money trail and to increase the penalties for knowingly passing money to terrorist groups. Currently a person could be penalized $11,000 and sentenced to 10 years in prison for each transaction. She'd like to see that rise to $50,000 and 20 years.

So far, federal investigations into the financing of terrorism -- including the 36 groups designated as terrorist fronts -- have resulted in 30 convictions. Whether hawalas are likely to play as large a part as initially suspected is unclear.

One investigator, who understandably cannot be named, has looked into the phenomenon since the weeks after 9/11. What he found were mom-and-pop style convenience stores, rental agencies, and other small places that deal heavily in cash, primarily serving frightened Muslims and Indians who are out-of-status on their immigration visas.

"The vast majority of hawala transfers, while not illegal, are not terrorist-related," he told me. "This is overwhelmingly an immigrant transfer of funds by people who need to keep a low profile."

That sounds about right to Hussaini.

On a visit to New York City last month, Hussaini spoke with some of the Mexican help at his hotel. A few were ambivalent about their immigration status. He asked them how they do their banking.

They described sending money by using a small shop whose keeper contacts someone back in Mexico and arranges to have cash sent along to families, charges a fee, and mixes it all in with a bunch of other bank transactions.

Hussaini knew it as a hawala.

"I said, 'Oh -- this works everywhere.'"

Dennis Roddy can be reached at or 412-263-1965.

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