convergence

Figure 1. A Simple Hawala Transaction
Person in
Country A
Step 1
Hawaladar in
Country A
Step 4
Settling of
Accounts
Step 2
Threat Finance
Recipient in
Country B
Step 3
Hawaladar in
Country B
Step 1. A Person in Country A would like to send money to a recipient in
Country B. The person in Country A contacts a hawaladar, a hawala operator,
in Country A and gives the operator money and instructions to deliver the
equivalent value to the recipient in Country B.
Step 2. The hawaladar in Country A contacts the counterpart hawaladar in
Country B via fax, email, telephone, or other method and communicates the
instructions.
Step 3. The hawaladar in Country B then contacts the recipient in Country B
and through verication by some code passed from the person in Country A to
the recipient in Country B, delivers the equivalent value (in foreign currency or
some commodity), less a transaction fee, to the recipient in Country B.
Step 4. Over time, the accounts between the two hawaladars may become
unbalanced and must be settled in some manner. Hawaladars use a variety of
methods to settle their accounts, including reciprocal payments to customers,
physical movement of money, wire transfer or check, payment for goods to be
traded, trade or smuggling of precious stones or metals such as gold and
diamonds, and invoice manipulation.
Sources: GAO, using information from the Department of the Treasury, the Financial Action Task Force
on Money Laundering (FATF), Interpol, U.S. law enforcement, and other experts.
To transfer drug proceeds back to a cartel’s home country, the funds earned internationally
must be converted back to the preferred domestic currency. Nonbank institutions conduct
legal currency exchanges for their customers, but through a series of both licit and illicit transactions,
they can also move funds from “bad” to “good” for the benefit of the criminal client or
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