Hawala Presentation

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Hawala Presentation

• By Adel Al-Fadhel
• Director of Anti Economic Crime
• General Directorate of Criminal Investigation
• Ministry of Interior
• Kingdom of Bahrain

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Bahrain as an International Financial Center
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Bahrain Monetary Agency (BMA)

• The Bahrain Monetary Agency (BMA) was established
  in 1973.
• The BMA is responsible for the licensing,
  supervision and regulation of banks and financial
  institutions.
• The BMAs supervisory and regulatory framework is
  fully consistent with international standards
• BMA has established standard conditions and
  licensing criteria for each of the categories of
  license currently granted

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Size of Bahrains Financial Sector

• 22 Commercial Banks 
• 2 Specialized Banks
• 48 Offshore Banking Units
• 34 Investment Banks
• 34 Representative Offices
• 11 Investment Advisory Other Financial Services
  
• 17 Money Changers
• 4 Foreign Exchange Money Brokers

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• Hawala

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History

• Hawala is an ancient international method of
  transferring money that is based upon trust.
• It has existed for centuries, wherever
  expatriates communities lived.
• Starting from the mid 70s Hawala was used widely
  by expatriate workers in the Gulf area.

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Types Definitions of Money Transfers

• Legitimate
• A system of overseas money transfers using
  licensed, regulated and supervised financial
  institutions

• Illegitimate
• A transfer or remittance of money outside the
  regulated banking system or legal financial
  channels, considered to be an informal
  underground banking transactions.

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How does it work ?

• Hawala works by transferring money without
  immediately moving it.

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How does it work ?

• If a person (A) wants to send the equivalent of
  2000 to the family at his home country, he
  contacts a local Hawaladar and give him the
  2000.
• The local Hawaladar contacts a Hawaladar at that
  country asking him to pass on an equivalent sum
  of money to (A)s family.
• The two brokers even their balances over time
  through a reverse transaction, smuggling money,
  manipulation of invoices.

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Why hawala developed ?

• Some people are not familiar with banks and
  payment systems
• Numerous papers that has to be filled up in banks
• Excessive service fees

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Advantages

• Delivery Convenient to towns and villages that
  have not been served by financial institutions
• Door-to-door Service
• Simple
• Quick
• Safe
• Favorable exchange rates
• Low fees
• Tax advantages (as it leaves no paper trail)
• Some Hawaladars go to where the expatriates
  reside or work to collect money

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Regulation
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Hawala is regulated through

• Bahrain Monetary Agency Law Regulations

• The Prohibition Combating of Money Laundering
  Law

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Bahrain Monetary Agency Law Regulations
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Bahrain Monetary Agency Law

• According to Article no. 60 of the BMA Law no. 23
  of 1973
• No person is permitted, without a license issued
  in accordance with this Law, to undertake money
  changing business or act as an agent for any
  foreign unlicensed financial or investment
  interest to conduct money changing business in
  Bahrain.

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Punishment

• Whoever act in contravention of the above will be
  punished by a term of imprisonment not exceeding
  six months and/or a fine not exceeding 1,000
  Bahraini dinars ( 2,652 ), in addition to the
  closure of his place of business.
• (This law is currently under review and most
  articles will be revised)

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BMA Regulation Concerning Money TransfersNo. 1
of 2002

• Moneychangers should not transfer funds for
  customers to a person or organization in another
  country by any means other than through banking
  system.
• Failure to comply with this rule will lead to
  BMA imposing sanctions upon that licensee, and
  may revoke licensees license.

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BMA Circular Concerning Money TransfersNo. 1 of
2002

• All licensees are required to
• Include details of Originator Information with
  all electronic transfers of funds they make for
  their customers.
• Maintain records of all Originator Information
  received with an inward transfer.
• Carefully scrutinize inward transfers which do
  not contain Originator Information

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BMA Regulations

• Many BMA regulations are the principal means by
  which the BMA seeks to implement best
  international disclosure and monitoring practices
  from bodies such as
• The United Nations
• Financial Action Task Force on Money Laundering
• The Basel Committee on Banking Supervision
• The Financial Stability Forum
• The Organization for Economic Cooperation and
  Development
• The International Monetary Fund
• Others

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BMA Reguations Are

• Mandatory on BMA licensees
• Complemented by licensing requirements
• Prudential reporting arrangements

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Licensees compliance with the BMA regulations is
assessed via

• Regular on-site inspections by BMA staff
• Reporting accountants reports where required
• Banks external auditors are required to confirm
  annually in the published accounts that there
  have not been any breaches of BMAs regulations

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The Prohibition Combating of Money Laundering
Law
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The Prohibition Combating ofMoney Laundering
Law

• Legislative Decree no. 4 of the year 2001 with
  respect to Prohibition and Combating of Money
  Laundering (the Law) passed into law in Bahrain
  on the 31st of January 2001.
• Bahrain is the first country in the Gulf region
  to make money laundering, and its related
  activities criminal offences.
• Offence of Money Laundering Any person
  conducting a transaction with the proceeds of
  crime knowing or believing or having reason to
  know or believe, that such property is derived
  from criminal activity or from an act of
  participation in criminal activity shall have
  committed the offence of money laundering

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The Prohibition Combating of Money Laundering
Law

• Transactions means any disposition of property
  including but not limited to purchase, sale,
  loan, pledge, gift, transfer, delivery, deposit,
  withdrawal, transfer between accounts, exchange
  of currency, loan, extension of credit, purchase
  or sale of any stock, bond, certificate of
  deposit, or use of a safe deposit box
• Offence of Money Laundering are punishable by
  terms of imprisonment of up to 7 years, and by
  fines of up to BD 1,000,000 (more than 2.6
  million )
• All licensees are expected at least once in each
  calendar year to commission acceptable auditors
  to review its compliance with all matters
  associated with combating money laundering
• Failure by licensees to comply with the Law may
  lead to the imposition by BMA of a fine of up to
  20,000 Bahraini Dinars ( 53,000 )

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The Law is applicable to

• All holders of a banking license, moneychangers,
  mutual funds registered in Bahrain and investment
  advisers.

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Foundation of Anti Money Laundering Unit (The
Enforcement Unit)Article 4.4

• According to the above article, The Minister of
  Interior issued a the Ministerial Order number 18
  of 2002 establishing the Anti Money Laundering
  Unit, in the General Directorate of Criminal
  Investigation, with the following functions
• Receipt of reports on money laundering offences
  and related offences
• Conducting investigations and compiling evidence
  in money laundering offences and related
  offences
• Implementing procedures relating to international
  co-operation under the provisions of this Law
• Execution of decisions, orders and decrees issued
  by the competent courts in money laundering
  offences and related offences.

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Institutions are required to

• Keep for a period not less than five (5) years a
  copy of the evidence of identity of each client .
• Keep a transaction record of any new or unrelated
  transaction for a period not less than five (5)
  years after the termination of the transaction so
  recorded.
• Report to the Enforcement Unit and the relevant
  entities any transactions suspected by the
  relevant officer by reason of the identity of the
  persons involved, the nature of the transaction
  or any other circumstances (using the STR).

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International CooperationArticle 8.1

• Where a foreign State makes a request for
  specific information relating to suspicious
  transactions, persons and corporations involved
  in those transactions or the investigation or
  prosecution of a money laundering offence, the
  Enforcement Unit shall execute the request or
  inform the foreign State making the request of
  any reason for not executing the request
  forthwith or of any delay in the execution of the
  request.

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Exchange of InformationArticle 9.1

• The Enforcement Unit and the relevant entities in
  the State of Bahrain may exchange information of
  a general nature regarding the offence of money
  laundering with competent authorities in foreign
  States.

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Exchange of InformationArticle 9.2

• The Enforcement Unit shall in response to a
  reasonable request from a competent authority in
  a foreign State provide to that competent
  authority specific information relating to
  suspicious transactions or persons and
  corporations involved in those transactions or
  the investigation or prosecution of a money
  laundering offence.

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The End

• Thank you