By Nikita Malik
In recent years, international law enforcement agencies have uncovered various mechanisms that facilitate the movement of money in support of terrorism. The hawala network, translated from Arabic to mean ‘transfer’ or ‘trust’, is a commonly used conduit.
Hawala has been linked to a number of terrorist organisations, including Al Qaeda and Islamic State, and has often been used in place of modern online banking systems, with an estimated £258.9 billion passing through the network every year. The hawala system can be described as an informal way of transferring money across borders, and flourishes in many regions of the Middle East and South Asia, which tend to have relatively under-developed and less formalized banking structures. It is also used where large communities of diaspora populations live, accounting for an estimated $500 billion in global remittances.
The hawala system is used by criminals because of the trust established within the group, because it avoids high banking fees, and because it is suitable for transfers to remote parts of the world. It also evades the bureaucratic administrative process associated with standard banking verification practices, as senders are not required to provide details such as a passport, visa, or residence permit information. As the book-keeping systems within hawala networks are rudimentary, no identifiable paper trail can be traced, making it cumbersome to investigate transactions. For this reason, it has often been abused by criminals and terrorists.
Investigations into terrorist related offences have revealed the use of hawala networks to transfer money. In Iraq, two Kurdish individuals were arrested for using hawala networks to transfer $148,000 to Ansar al Islam (supporters of Islam), a proscribed Sunni terrorist group which eventually became part of Islamic State. Ali Khan, a Pakistani national residing in Massachusetts, was convicted for transferring a sum of $4,900 to Faisal Shahzad in February 2010 using a hawala-linked transaction. Khan’s family later received an equivalent amount of money in Pakistan. Shahzad was subsequently convicted for the attempted May 2010 car bombing of Times Square, New York.
More recently, advances in modern technology have created new and sophisticated means to transfer money. Many of these financial systems, which include cryptocurrency exchanges, offer a degree of anonymity which may give terrorists an alternative means to conduct financial transactions. While anecdotal evidence shows that some terrorists are using this technology, there is no indication that it has yet been adopted on a large scale. Nevertheless, the cases where terrorists have used cryptocurrency represents a potentially disturbing trend, highlighting the possibility that this could develop further in the future.
A key defining feature of bitcoin, for example, is its decentralized network, which has no central authority that processes or verifies transactions, but is instead connected through a chain of networks on the blockchain that verifies and confirms each transaction. This means that anyone can access bitcoins without going through a bank or financial institution that requires the provision of verifiable personal details. Bitcoins are created through a process of ‘mining’ to verify each transaction on the blockchain. While information of each transaction is recorded on the blockchain, they are not directly linked to names, physical addresses, or other identifying information, which makes it anonymous to a certain degree, complicating efforts by law enforcement agencies to identify individual transactions and link them to users. According to a 2015 Europol report, bitcoin featured in high profile investigations involving payments between criminals, and was used in over 40% of these transactions in the EU.
Terrorists and criminals use Bitcoin for illicit transitions, because it offers similar benefits to the hawala system. Bitcoin provides financial security as the blockchain acts as an impartial intermediary, ensuring that coins are irrevocable once spent. The network hampers any attempt made to recall a verified bitcoin transaction unless the recipient actually sends the coins back to the sender. In this context, it prevents double spending and ensures that money cannot be duplicated within the network. A network of ‘miners’ ensure each bitcoin transaction is unique and legitimate. If an attempt at duplication is made, the block-chain rejects the transaction as forged and faulty. As such, it benefits both criminals and terrorists purchasing goods and services on the Darknet, who otherwise would be at risk of being scammed by rival criminal organisations on the other side of the network.