1
The Operation of Transjurisdictional
Value Transfer Systems in the
Contemporary Global Order:
a comparative perspective
Presented at the European Complex Systems Society Conference,
Lisbon, September 16th, 2010
Roger Ballard
Centre for Applied South Asian Studies
roger@casa.org.uk
www.casas.org.uk
Value Transfer and Long-Distance Trade
•
Access to an effective system of transjurisdictional value transfer is a
necessary prerequisite if long-distance trade is to be more than a matter of
barter
– value transfer systems are consequently of ancient origin
– and long pre-date the emergence of European banking systems
•
Nevertheless all such systems throw up a similar set of technical challenges:
i. Communication: how to move information from a → b → c
ii. Logistics: how to move value from a → b → c
iii. Trust: how to contain the risk of malfeasance when a, b and c are widely
separated
•
In the past communication was a much more challenging task
– transjurisdictional data transfer could take many months
– in sharp contrast to instant data transfers from anywhere to anywhere now
available via the internet
•
Meanwhile the issues of logistics and risk-control have become steadily more
challenging
– given the exponential growth in the scale and complexity of transjurisdictional
economic activity
•
How, then, have these challenges been resolved?
2
The logistics of value transfer
•
Whilst currency – whether in the form of cowrie shells, doubloons,
banknotes or e-money – is a means of storing value
– currency and value are not synonyms
 cowrie shells have never been legal tender in New York
 nor rupees in London
•
– with the result that the relative value of local currencies are subject
to constant change
Two key points follow from all this
– the spatial transfer of currency (in whatever format) is an intrinsically
counter-productive activity
i.
ii.
•
because it is unlikely to be legal tender at the other end
because moving it from a to b (in anything other than an e-format) is
both an expensive and a risky operation
Hence those involved in transjurisdictional value transfer invariably seek
to ensure that their operations are as close to zero-sum in character as
possible
– no less in the present than the past
3
A simple example
1. Merchant P sails from A to B,
– where he sells his cargo ₱ 10,000
2. Just as he does so Merchant Q arranges to buy a cargo for ₱ 10,000 in B,
– which he aims to sell at a profit in his home base A
3. But merchant P doesn’t plan to go home just yet, since he fancies he can pick up a
profitable cargo further away in C
b
– So P approaches a harbourside value transfer agent (VTA ) to deposit ₱ 10,000,
who puts him in credit to the tune of ₡ 22,000 (his home base currency)
b
4. So when Q approaches the VTA looking for ₱ 10,000 to complete the purchase of his
b
a
cargo against the credit he had obtained from VTA ‘s partner back VTA back in his
home base A
b
– VTA hands Q the local currency which he has just received from P
– and promptly docks Q’s credit by ₡ 23,000 – giving himself profit of ₡ 1,000 on the
deal
5. Whilst Q does even better when he sells his cargo for ₡ 50,000 when he gets back to A
c
6. Meanwhile Q sails on to C, where he VTA , where he cashes in the letter of credit for ₡
22,000 in yet another local currency, so enabling to purchase yet another cargo ......
7. A process almost as simple as using ATMs as far as the VTA’s customers are concerned
– processes which are readily scaleable, always provided that the VTAs can keep
track of what is going on
4
The non-transparency of ‘Back Office’ processes
•
•
As far as customers are concerned, the processes whereby value transfers
are achieved are both invisible and inaccessible
– this is not a cause for concern – so long as the delivery process is
reliable
– a reputation for absolute trustworthiness is consequently a necessary
prerequisite for operating a VT network
The issue of how delivery is achieved is of no concern to customers
– moreover VT operators invariably keep their cards very close to their
chests
i.
ii.
•
for the sake of financial security
to prevent members of rival VT networks poaching their business
Furthermore if VTA’s achieve their goal of zero-sum value flows at each
node
– their back-office processes will rarely give rise to physical currency transfers
– VT networks are essentially messaging networks which facilitate the
transjurisdictional transfer of value
5
On Banks and Banking
•
One of the most obvious features of banks is that they are institutions for
the storage of value
– so obviating the need to stash away wads of currency notes under our
mattresses
•
However they also serve as vehicles to facilitate the transfer in several
distinct ways. These include
i.
ii.
•
But whilst these processes are the bread-and-butter foundation of retail
banking, there are two further aspects of contemporary banking operations
which demand our attention
i.
ii.
•
Within-jurisdiction value transfers, by cheque, BACS etc
The issue of loans against the security of the security of the running sum of
deposits – as in mortgages, for example
Transjurisdictional value transfers of the kind we have just been considering
Commercial inter-bank (and inter-financial institution) transfers, and most especially those
massive swaps and transfers (of debt rather than credit) which ultimately gave rise to the
recent credit crunch
But no matter how complex and arcane such value transfer operations may
be,
–
the logistical principles deployed in implementing them remain are closely congruent with
those which we have just considered.
6
On the Containment of Risk
•
•
•
•
•
•
Whenever we temporarily place value in the hands of others we put it at risk
– but value transfer is quite different from speculative investment
Other than an agreed fee/commission
– we expect swift, safe and risk-free value delivery to be implemented at the
other end
Hence unless VTAs can maintain a reputation for utmost reliability, they will
rapidly go out of business
– how, then, can VTA’s contain the risk of malfeasance amongst themselves?
In contemporary Euro-American contexts transactional security is maintained by
means of legally enforceable contracts
– the existence of which is routinely confirmed by the issue of formally
prepared invoices and receipts
Moreover contractual relationships of the kind are by no means restricted to
corporate dealings with customers
– corporate bodies (from banks onwards) secure deals between each other
on precisely the same basis
Hence at in contemporary Euro-American contexts
– legally enforceable contracts are the principal backstop against the prospect
of financial malfeasance
7
But how often do we go to court?
•
•
•
•
•
•
But whist we all assiduously keep records of our financial dealings
– and hence feel naked and exposed in the absence of receipts
We very rarely if go to court to enforce our contracts
– at an everyday level we actually operate on a basis of mutual trust
– not least because we have all got our own personal and/or corporate reputations to
maintain
Hence going to court to enforce contracts is best identified as a remedy of last resort
– but if trust is the de facto foundation of our financial dealings, what happens when trust
evaporates?
The answer is obvious: no deal
– Banks do not lend to customers they do not trust
– Customers do not leave their funds in Banks which appear to be on the point of collapse
– Banks do not lend to each other if they fear that potential borrowers are sitting on heaps
of toxic debt
In other words in the absence of mutual trust, the whole financial system swiftly jams up
– which is the principal reasons why Euro-American financial systems are subjected to tight
regulation by the state
– such that powerful regulators have emerged as the ultimate backstop against systemic
risk
But despite their powers, we are still in the midst of a disastrous credit crunch
– so why has regulation failed?
8
The downside of contract
•
There is a strong sense in which relationships of contract trump those of
trust
– since contracts are concluded on the basis of caveat emptor
– there are no further obligations between the parties beyond those precisely
specified in the terms of the contract
 in other words the two parties are not bound together by any underlying relationships
of reciprocity, or by concern for the stability of the system as a whole
•
In these circumstances financial actors have no intrinsic loyalty to the
demands of regulators
– regulations merely indicate the limits beyond which they may not go
 unless they can find some carefully crafted loophole by means of which they can
legitimately evade regulatory injunctions
– by moving value offshore, for example
– or by slicing and dicing risky sub-prime mortgages, repackaging them into
nominally AAA CDO securities, and then selling them on to other financial
institutions on a caveat emptor basis
 in a curious mixture of trust and contract
•
So producing the ‘rationally constructed’ shadow economy based on the
transfer of risk and debt, which recently collapsed like a pack of cards
– as a result of comprehensive systemic failure
9
On the prerequisites for systemic stability in value
transfer systems
•
With this in mind let’s go back to the issues with which I began, when I
specified the three basic challenges which VT systems must of necessity
resolve:
i.
ii.
iii.
•
In the contemporary world communication has never been easier, and the
logistic issues are pretty straightforward
–
•
Communication: how to move information from a → b → c
Logistics: how to move value from a → b → c
Trust: how to contain the risk of malfeasance when a, b and c are widely separated
instead it is the containment of risk which is proving to be the really challenging issue
For despite huge investment in lawyers, contracts, regulatory initiatives and
so forth
– formally constituted Euro-American VT systems remain as sclerotic as they are
expensive
 especially when it comes to making transjurisdictional value transfers
 and despite the emergence of instant global information transfer facilities
•
And worse still, formal methods remain acutely vulnerable to system failure
– in the face of all this can we learn anything useful from the operation of
contemporary ‘informal’ alternatives?
10
‘Informal’ VT systems in the contemporary world
•
•
•
•
Informal VT systems have sprung to public attention during the past decade along
two main vectors
i.
As vehicles for the transfer of migrant workers’ remittances to their countries
of origin (circa)
ii.
As potential vehicles for terrorist finance, laundering the profits drug
smuggling
Migrant workers in all parts of the globe have developed informal VT networks as a
swifter and cheaper and alternative to the VT services provided by formally
constituted institutions (i.e. Banks)
– current flows down such IVTS channels are in the order of USD 2.5 billion p.a.
Concrete evidence as to the extent to which terrorists and money launderers actually
utilise these networks to facilitate their activities is extremely limited
– and is the focus of intense debate on both sides of the Atlantic
Whilst migrants from Latin America, China, Africa and elsewhere have all developed
their own distinctively organised IVTS networks
– those serving migrants from South Asia have attracted the most intense public
attention, especially since 9/11
– not least because their clients and organisers are largely, although by no means
exclusively, Muslim
11
The roots of Hawala
• Deployed by long distance traders of Muslim origin in the Indian for
more than a millennium
– the Hawala system is best understood as series of networks of mutual
trust
 or to be more precise in coalitions of reciprocity
– whose constituent members, although spatially distributed, are under
an absolute obligation to fulfil the agreements which they negotiate
with one another
 in the course of facilitating the transfer of the tranches of value which they
implement on behalf of their customers
• As a result Hawala networks are best identifies as self-governing
distributed systems of mutual reciprocity
– operating on a transjurisdictional basis
 and hence independently of any parochial legal jurisdiction
– in which relationships of trust, rather than those of contract, provide
the foundations of system security
12
Trust and reputation
•
•
From a Euro-American perspective, ideologically grounded in expectations of caveat emptor
– reliance on such a windy and ephemeral concept as mutual trust appears as the
foundation for system security looks extremely risky
Unless and until one inserts the concept of reputation into the equation
– once this is in play, a coalition of reciprocity can also be understood as a coalition of
mutually guaranteed reputations
•
•
This plays out at many levels
i.
in collective terms, any given VT network can only stay in business if all its members
sustain a reputation for prompt and scrupulous value delivery
 hence all network members have a collective interest reputation maintenance
ii.
all such networks consequently have a collective interest in self-policing
 so if any member should damage that reputation without good reason, he will be
regarded as being in breach of trust to the coalition as whole
iii.
loss of trust as a result of malfeasance has disastrous consequences for the
perpetrator
i.
the malfeasant will be personally excluded from the coalition unless he makes
good the losses (which the coalition itself may have done if retail customers
require reimbursement)
ii. exclusion will also extend into the familial sphere: all the malfeasant’s close
relatives will also suffer a similar loss of social, no less than financial reputation
The power of these sanctions should be self-evident
13
The construction of coalitions of reciprocity
•
•
•
The coalitions which underpin such networks do not spring into life out of the blue
– rather they emerge over time from foundations which as much more parochial
character
– most usually from networks kinship reciprocity
 most particularly in those communities which already support extended
families, descent groups, clans and so forth
 and failing that on the basis of pre-existing relationships of trust within
religious and sectarian groups, common home-town residence and so forth
In other words IVT networks are invariably the outcome of entrepreneurial efforts to
reinforce and extend pre-existing networks of reciprocity
– the better to take advantage of commercial opportunities
It also follows, at least in the first instance, that transjurisdictional networks are
strongly community specific
– which yet further reinforces the power of exclusionary sanctions
 since loss of community membership has such far reaching (and in this case transjurisdictional) consequences
•
But although initially constructed on a parochial basis
– once such coalitions are in active business, cross-network alliances, constructed
on exactly the same basis, regularly emerge
14
15
The context within which contemporary IVTS networks have emerged
•
•
•
In structural terms, contemporary Hawala networks are in no sense a novel phenomenon
– they are built on foundations which long ante-date the emergence of the
contemporary Euro-American financial system
Nevertheless they have emerged in a specific phase of globalisation in which
i.
Several hundred million migrant workers from the global south have taken
employment in more prosperous regions in the global north
 precipitating an unprecedented demand for multi-billion dollar value transfer
services in the reverse direction
ii.
Formally constituted banks were ill prepared to meet these demands
 migrants typically sought to transfer penny packets of value (USD 100 - 500) to
destinations located well beyond the spatial limits of the banking frontier
iii.
Many banks in the global South were even less prepared to cope with these
demands than were their Euro-American counterparts
 and were also subject to tight restrictions on access to foreign exchange by the
state
iv.
With the result that there was a pent-up but unmet demand for access to foreign
exchange within most southern jurisdictions
 especially when South/South trade began to take off with a vengeance
Thereby giving rise to substantial opportunities for transjurisdictional arbitrage
The growth of remittance-driven Hawala networks
•
Within this context long-distance labour migrants were well placed to take
advantage of the opportunities which have opened up in the current phase
of globalisation given that
i.
as a result of their history of chain migration, migrants they were already
entrenched in globally extended transjurisdictional networks
ii. electronic communications were becoming steadily more accessible on a global
scale
iii. Dubai had emerged as node providing transjurisdictional value transfers for
traders based in South Asia, the Middle East and East Africa, and the
counterparts in Euro-America
•
Against that background all that South Asian settlers in the UK needed to
do was construct a system of logistics by means of which to tap into
existing facilities in Karachi and Dubai for a hawala-driven system of
‘informal’ value transfers to take off
– thereby providing members of their community with an essential financial service
•
Which was cheaper, swifter, much more spatially extended and just as
reliable
– as that provided by more formally constituted financial institutions
16
The formal characteristics of Hawala networks
•
Hawala networks are best identified as distributed systems
– whose features are closely parallel to those which underpin the operation of the
internet:
1.
2.
3.
4.
5.
6.
The core function of Hawala networks is to facilitate the transmission of data
and instructions with respect to the implementation of local value transfers to
be implemented by hawaladars located in spatially separated nodes.
Their central objective is the efficient transmission and routing of traffic
between end nodes; packets of data are transmitted between and stored at the
edge of the network, i.e. in the end nodes.
Networks have no central registry; exchanged data is stored separately at each
node by cooperating hawaladars.
Those located at any given point in the network only have a limited view of the
system as a whole.
As in TCP/IP, the routing system is layered; Hawaladars operating as upper tier
routers have a more comprehensive – but still far from complete – view of the
network’s extent.
As in the internet, the system’s priority is accurate and speedy data
transmission; redundancy in information storage is systematically avoided.
17
Remittance delivery: the financial and logistical challenges
•
•
•
•
•
Providers of VT services find themselves confronted by two parallel challenges:
i. A financial challenge: converting customer’s funds from one currency into
another
ii. A logistical challenge: delivering those re-denominated funds into the hands of
distant recipients
Whilst currency-conversion is readily achieved on wholesale basis in forex markets
– the marginal cost of converting small sums is prohibitive
 as ever, economies of scale are a prerequisite for commercial efficiency
The solution to that challenge is straightforward
– the consolidation of innumerable penny packets of value into large
commercially negotiable tranches
 which can be traded in forex markets in London or New York
 or better still by negotiating back-to-back settlement swaps with interested
counter-parties, thereby eliminating brokerage costs
But having been consolidated for conversion into alternative currencies
–
customers funds also need to be accurately disaggregated
– and swiftly delivered to recipients largely resident in obscure rural destinations
How, then, do Hawaladars crack these challenges?
18
The Hawala solution to the challenge of transjurisdictional VT
•
The solution to these logistical challenges which contemporary hawaladars displays two key
features:
1.
The routine separation of the messaging dimension of the process from both its settlement and
its currency-transfer dimensions
2.
The construction of a hierarchical pyramid of mutually cooperating Hawaladars within which to
layer the various dimensions of the settlement process within the dynamic context of a distributed
system
–
which enabling them position to execute an inter-related series of individually brokered
transjurisdictional pas-des-deux between themselves
 during the course of which large tranches of value are consolidated and deconsolidated
 mixed, matched and swapped on a global basis
 in such a way as to precipitate cross-currency transfers which meet host of globally
distributed customers’ forex requirements
 all on a daily basis
•
Several further distinctive features of this system are also worth noting
i.
since the system operates in real time, no-one holds customers’ assets for long enough to
make extract investment benefits from them
ii.
foreign exchange risks are minimised since all deals are contracted at spot rates
iii. given that this is a distributed system without a central registry, no-one has a comprehensive
view of all elements of the global settlement
19
1. The initial stage in UK: receipt of funds, data transfer and disbursement20
Fax
messages
£££
Retail
Hawaladar
RH1
DH2
DH3
• Bradford
Consolidating
Hawaladar
CH1
Disbursing
Hawaladar
DH1
• Birmingham
• London
• Karachi
1. RH1, a retail sending hawaladar in Bradford has received orders to deliver a total of
£30,000 to his customers’ relatives in Pakistan
– this made up of 35 individual transactions for sums of between £200 and £2,000, to be
converted at the rate of £1 = Rs. 130
 a rate agreed with his consolidating hawaladar CH1 in Birmingham that morning
– as well as to several more in others localities in Northern Pakistan with whom he does business
2. At close of business he faxes a list of delivery instructions to his disbursing partners
DH1, DH 2 and DH3 in Northern Pakistan
– which they set about implementing the following day
3. At the same time makes arrangements to send £30,000 in cash to CH1 in Birmingham
– together with instructions to arrange appropriate cash deliveries in rupees to DH1, DH 2 and
DH3 etc in Pakistan
2. The initial stage in Pakistan: a reverse transfer begins to crystallise
Retail
Hawaladar
RH1
•
£££
Consolidating
Hawaladar
CH1
•
DH2
• London
•
•
DH3
Bradford
Birmingham
Disbursing
Hawaladar
DH1
Exchange
House
Rs. Rs.
• Karachi Rs.
Meanwhile in Karachi three businessmen have invoices to settle to
a total £100 K for goods imported from the UK
Having checked the rates on offer at several Exchange Houses in
Karachi
– they hand over a total of Rs 14 million to an agent of their selected
Exchange house
– together with details of their suppliers’ bank accounts in the UK into
which a total of £100 K is to be deposited
21
3.
A back to back transjurisdictional value swap is brokered and implemented
Retail
Hawaladar
RH1
DH2
DH3
• Bradford
Consolidating
Hawaladar
CH1
££££
•
Disbursing
Hawaladar
DH1
• Birmingham
Phone Calls
Rs. Rs.
Rs.
Exchange
House
• London
• Karachi
The Exchange House in Karachi phones CH1 in Birmingham, indicating that
he is seeking to place £100 K in Exchange for rupees, and they agree on a
deal @ Rs 135 to the Pound, to be implemented later that day, whereupon:
i.
The Exchange House faxes its local agent in London to signal the impending
arrival of £100k, along with details of the bank accounts into which the funds
are to be deposited
ii. Hawaladar CH1 faxes delivery instructions to the Exchange House in Karachi,
such the a total of Rs. 13.5 million are physically transferred to DH1, DH2,
DH3, DH4 and DH5
 since CH1 is providing transfers services for RH 2, RH 3, and RH 4 as well as RH1
iii. CH1 then phones RH1, RH 2, RH 3, and RH 4 to inform that delivery is in train
iv. Later that day the settlement is implemented, and the deal is complete
22
23
4. Key features of the system
Retail
Hawaladar
RH1
DH2
DH3
• Bradford
Consolidating
Hawaladar
CH1
• Birmingham
• London
•
Disbursing
Hawaladar
DH1
Exchange
House
• Karachi
Several key features in this system are worth noting
i. All the elements of this complex deal are executed on the basis of reciprocities of mutual trust
ii. Information is transmitted on a need to know basis; CH1 will have no information about the
precise identify of the ultimate retail beneficiaries of the transfers he has brokered
iii. But this is not a ‘system without records’: it could not work reliably without the accurate transfer
of delivery information
iv. Rather it is a ‘lean and mean’ operation in which unnecessary (and hence redundant)
information transfers are avoided
v. The whole operation is vigorously competitive: all hawaladars are in competition with one
another as they seek to secure better bargains
vi. The system can readily be scaled up both vertically and horizontally – and can readily include a
plurality of jurisdictions
Senders
Recipients
24
Value transfers
Customers’ domain
Migrants in UK
Retail
Hawaladar
Pakistani importers
Retail
Hawaladar
Retail
Hawaladar
Customers’ domain
Hawaladars’ domain
Delivery
Hawaladar
G
B
P
C
a
s
h
T
r
a
n
s
f
e
r
s
Delivery
Hawaladar
UK Migrants’ Kinsfolk
Delivery
Hawaladar
An overall view of the underlying
logistics of transjurisdictional
value transfers
Delivery
Hawaladar
Delivery
Hawaladar
Pakistani exporters
from UK
Karachi -based
Exchange House
Hawaladars’ domain
Retail
Hawaladar
Customers’ domain
Importers of goods and
services in Karachi
Value transfers
P
K
R
C
a
s
h
Consolidating
Hawaladar
Remittances to Pakistani
students in UK
Recipients
Exporters in Pakistan
Retail
Hawaladar
T
r
a
n
s
f
e
r
s
Remittances from
parents to offspring
studying in UK
Senders
Senders
Recipients
25
Value transfers
Customers’ domain
Migrants in UK
Retail
Hawaladar
G
B
P
Retail
Hawaladar
Retail
Hawaladar
Regional
Hawaladar
C
a
s
h
T
r
a
n
s
f
e
r
s
Customers’ domain
Pakistani importers
Consolidating
Hawaladar
Hawaladars’ domain
UK Migrants’ Kinsfolk
Delivery
Hawaladar
Delivery
Hawaladar
instructions
The Faxed
spatial
dynamics of
a back to back Hawala
swap
Delivery
Hawaladar
Deconsolidating
Hawaladar
Agent of Karachi
Exchange House
Local
Brokers
Delivery
Hawaladar
Delivery
Hawaladar
Pakistani exporters
from UK
Hawaladars’ domain
Retail
Hawaladar
Customers’ domain
Importers of goods and
services in Karachi
Value transfers
P
K
R
C
a
s
h
Karachi -based
Exchange House
Remittances to Pakistani
students in UK
Recipients
Exporters in Pakistan
Retail
Hawaladar
T
r
a
n
s
f
e
r
s
Remittances from
parents to offspring
studying in UK
Senders
26
Customers
Customers
Local Hawaladars
Local Hawaladars
Regional
brokers
delivery instructions
Regional
brokers
Global
brokers
Global
brokers
Cash swap
Global
brokers
Regional
brokers
Global
brokers
delivery instructions
Regional
brokers
Local hawaladars
Local hawaladars
Customers
Customers
Global Hawala
•
•
The model I have presented today is highly simplified
– I have hugely shrunk the number of operators at each level
– and have restricted my to settlements are straightforward GBP/PKR exchanges
In reality
– Pakistani migrants are to be found in large numbers in the Gulf, throughout
Western Europe and in North America
– Hawaladars serve a wide range of communities of South Asian and Middle
Eastern origin
 whose members are currently employed in the US, Europe, the Middle East and
prosperous parts of South East Asia
•
•
Meanwhile the counterparties who buy the forex dimension of their remittances are
extremely varied
– such the financial liquidity thereby generated by serves to facilitate
transjurisdictional trade throughout the Indian Ocean region
Whilst the proportion of these transfers which is implemented through Banks, as
opposed to IVTS networks, is unknown
–
–
•
in economic terms IVTS networks are undoubtedly the market leaders in non-corporate
contexts
since the ‘lean and mean’ character of their logistic operations sharply reduces their
overheads
Nevertheless the system has begun to ring alarm bells in Washington DC
27
The role of Dubai
•
•
•
•
•
Like the internet, Hawala is a distributed system with no central register
However it does have a number of hubs /routers:
– such that at highest level most of these deals of the kind I have described are
ultimately brokered as between the Exchange Houses of Dubai
– in global back-to-back cross-currency settlements in which the units of account
are stacked up in tranches of value in multiples of $100,000
– a significant proportion of which are brokered in parallel IVT hubs in Singapore
and Hong-Kong
The central concern of the Euro-American authorities is that IVT transfers are
untrackable
– and hence provide a ready means whereby terrorists, drugs smugglers and the
like can launder money on a global scale
As a result they are making a vigorous effort to criminalise Hawala operations
– in the hope that all those engaged in legitimate financial activities will choose to
use the formally constituted banking instead
Despite its higher overheads and sclerotic delivery capacity
– on the grounds that the records in the banking system’s centralised data bases
can readily monitored
 so facilitating the detection of terrorists’ and drug-smugglers’ financial
activities
28
The impact of 9/11
•
•
•
Since 9/11 all banks have been required to implement extensive (and expensive) AML
precautions
– on pain of being excluded from New York money markets
– many local and regional Hawaladars have also found themselves subject to
criminal prosecution on these ground
However the Hawala system is nothing if not adaptive
– in the aftermath of these developments many of the leading Exchange Houses in
Dubai and Karachi have
 set up wholly-owned PLCs in London
 between them recruited most local hawaladars as their agents
 who now transfer their daily takings into the central bank account of the
PLC with which they have signed up
 so enabling them to shift the bulk of the back-office operation to Dubai
So whilst the system works on much the same principles as it ever did
– the greater part of the logistic operation is now carried out within a jurisdiction
into which the UK and US authorities have no immediate rights of access
– and in which many exchange houses are in the midst of establishing close ties
with Wall Street Banks
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The ultimate challenge
•
The wider context:
i.
ii.
iii.
iv.
v.
population of the globe is now 6 billion+, and expanding rapidly
Global mobility (or to put another way transjurisdictional activity of all sorts) is
expanding exponentially
Inequalities on a global scale are becoming steadily more intense
The hegemonic position enjoyed by Euro-America for the past two centuries is
subject to serious challenge from below, and cannot be expected to last long
 and as this has occurred all manner of internecine conflict s have erupted in all
corners of the globe
As states become more and more uncertain of their capacity to sustain the status
quo
 they are becoming ever more interested in systemic strategies by means of
which to maintain their comfortable position of hegemony
vi.
But whilst the powerful are magnetically attracted to the data-mining capabilities
of IT as a means of sustaining their position of advantage
 the implications of the recent revolution in communications technology are far
more even-handed
vii. They regularly provide an equally effective means of undermining the interests
and assumptions of currently established hegemons
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