Coming clean

An American businessman was taken into custody, accused of laundering up to US$500m through banks in the UAE.

The allegations are believed to concern large remittances from South East Asia and the US, and it was suggested that some bank employees may have been complicit.

Several operators of hawala, the informal transfer of money through a network of brokers, were also closed down due to suspicions they had been used to launder money. A spokesman for the UAE Central Bank was unwilling to confirm the details of these cases.

Hawala brokers keep track of their accounts with each other, but generally do not keep details of transactions by individual customers, making an audit virtually impossible.

However, the UAE Central Bank requires hawala brokers to register and to submit quarterly reports of all of their transactions. They must submit forms for senders, beneficiaries and suspicious transactions. However, the informal nature of hawala makes it difficult to know how many brokers are complying with the Central Bank’s requirements.

Hawaladars must often make use of money transfer bureaus to settle their debts with each other, and it is here that their activities can be regulated.

David McElroy, vice president and chief legal counsel, MoneyGram International Limited, London, says: “The nature of hawala is that it’s an unofficial system of money transfer so it’s difficult to quantify, and because it is an unofficial money transfer system it’s higher risk for things like terrorist financing and money laundering. It is prevalent in certain areas of the globe such as the Asian subcontinent, the Middle East and parts of East Africa.”

MoneyGram adheres to strict regulations, and as an American organisation is subject to the US PATRIOT act, which puts a high level of responsibility on money laundering companies to detect and report suspicious behaviour.

“Worldwide, MoneyGram tries to be a leader in compliance and anti-money laundering,” says McElroy.

“We exercise higher scrutiny in particular countries and particular corridors on a risk-based approach: countries in which there is potentially a risk of terrorist financing or where there tends to be a pattern of money laundering violations.

“There are certain countries in Africa as well as parts of the Middle East where you have to exercise a higher level of vigilance, but the truth is money laundering can happen anywhere. We’re all part of a global financial economy nowadays, so it’s important to exercise vigilance across our network.”

The UAE has its own regulations for money transfer agents. Customers wanting to carry out a transaction must supply proof of identity, such as their passport, labour card, UAE driving licence or national identity card, which must be an original document.

“We take a copy of that because the staff may make a mistake in inputting the data, so if we have this source it can be evidenced in audits or any investigation,” says Akber Dardarkar, head of compliance and due diligence for Wall Street Exchange.

“If it is a commercial transaction, we need to know whether he is allowed to make business here, so he has to provide us with trade licence copies. We check the validity of both of these documents.” The exchange may also ask for a copy of any invoices related to the transaction to ensure that it corresponds with the amount to be transferred, as well as with the names of the beneficiary and the remitter.

If anything about the transaction is suspicious – for example, if someone with papers that identified him as a labourer wanted to transfer US$10,000 – the exchange would still allow the transaction, but would flag it up to the authorities. “I would do the transaction and then make a suspicious reporting to Central Bank,” explains Dardarkar.

“If I refuse a transaction to him, then I am giving a tip-off to him.

“I’m giving him a clue that he’s under surveillance, so he may go to other financial institutions and if they don’t take the precautionary measures he may dupe them.”

The exchange may build up profiles of regular customers to help establish whether they are transferring a suspiciously large amount of money.

It may also choose to conduct site visits on customers.

Dardarkar heads the compliance cell and a team of money laundering reporting officers (MLROs), each responsible for particular branches of the exchange, report to him.

“They review post-processing transactions and they come up with a report if there is any irregularity observed, but we don’t depend only on the MLROs,” says Dardarkar. “We make all our staff involved in any kind of financial operation.”

He adds: “Whether it is a transaction or an interaction with the customer they should be fully aware of anti-money laundering regulations prevailing in the UAE, and the Financial Action Task Force recommendations.

“We have training sessions where we groom our compliance attitudes and culture in our company, so every counter staff, every marketing staff, every branch manager is fully aware what are their obligations towards the anti-money laundering regulations.”

Staff are supported by IT systems which prompts them about suspicious transactions, and generate regular reports for the Central Bank.

All of these processes come into play when hawaladars use the exchange to transfer money to their counterparts in other countries.

“Nobody can stop it because water finds its own way, but it is coming to the surface due to the hawaladar certificates issued by the Central Bank,” says Dardarkar. “In my experience, 90% of transactions through hawala are for genuine reasons – for remote areas, for efficiency, for cost-cutting, things like that.

“Even people doing legitimate jobs who want to send remittances to their home countries, to their families, would rather use hawala services than the financial industry because either it is unaffordable, they find it difficult or they don’t have time.”

He believes that the Central Bank’s hawaladar certificates have helped to improve transparency.

“It has become more and more compliant because they are keeping all of their records,” says Dardarkar.

“These remittances are now moving through formal remittance whereas before they were not, they were going through hidden names.

“Now if a person brings to me five or 10 transactions of different remitters I will have to ensure that he has been authorised to do the job by Central Bank. If he has the certificate copy with him then I have to process the transactions.

“We try to be more cautious because some hawaladars might abuse the facilities given to them but we have our own controls. We make a report to Central Bank to say this hawaladar has made remittances through us and this is the volume for this particular day.”

All money exchanges and other financial institutions in the UAE are audited every year to check their compliance to the Central Bank’s anti-money laundering regulations.

For an unregulated practice, hawala is becoming more transparent and less susceptible to abuse by criminals. Although there will always be underground operators who choose to remain hidden from scrutiny, the different parts of the financial industry, guided by the Central Banks, are helping the Middle East to earn a better reputation.