German police raid alleged hawala banking ring
German authorities have carried out a raid on an organized international network allegedly engaged in illegally transferring millions of euros to Turkey.
A series of early morning raids saw around 60 apartments and offices searched across Germany. Police say 27 people are suspected of being involved in the scheme; six arrest warrants have been issued.
It is unclear whether the money being transferred was from illegal sources: in many cases the hawala system is simply used my migrants who want to send money back to their country of origin, but police said this system was particularly sophisticated.
Investigators estimate that money transferred through the network reached up to €1 million each day and more than €200 million ($222.4 million) in total.
The raids took place mostly on jewelers, precious metal companies and private apartments from 6 a.m. (05:00 UTC), with most locations in the state of North Rhine-Westphalia, according to Süddeutsche Zeitung, WDR and NDR. Raids also took place in Hesse, Berlin and in the Netherlands, which borders North Rhine-Westphalia.
German police taking part in the operation numbered 850, with the chief suspects thought to have come from the western German city of Duisburg and worked in the precious metals trade.
The operation was the result of a yearlong investigation led by a special division of the state criminal investigations office.
What is a hawala network?
The suspects are accused of building up an informal network of bank accounts across Europe and in Turkey, designed to evade detection of money transfers.
Transfers via the hawala system are believed to have reached up to a million Euros each day
Hawala systems (hawala is Arabic for transfer) originated in India and the Middle East, where they were used for centuries before Western banking systems were established. China also developed a similar system.
People using the system deposit into the bank account of a network participator (known as a hawaladar) in one country, then another operator withdraws the equivalent amount in another country and passes it on to the intended recipient. They are popular among import/export businesses.
Hawaladars typically charge a commission, but that is likely to be cheaper than transfer charges and other fees that a bank might charge, and hawaladars may also offer better currency exchange rates than legitimate banks. Hawala transfers also have a number of other advantages: not having to open a bank account or leave an electronic trail (at no stage does money actually cross international borders), and they tend to be much quicker and less bureaucratic than international bank transfers.
On the downside, there is also more risk, as the system relies on trust between the customer and the hawaladar, and among hawaladars in different countries.
Are hawala systems legal?
In the case investigated in Germany, most payments went from Germany to Turkey, but according to the Süddeutsche Zeitung, in order for bank accounts in Turkey to remain balanced, the organizers established an additional transfer system that passed money internally in a part-Turkish-owned metal-processing company.
Investigators have evidence showing that the gang used the cash deposited in German bank accounts to buy up gold and other precious metals.
Hawala activities are illegal under the German Payment Services Oversight Act (ZAG), which specifies that it is forbidden to offer services similar to a bank without a banking license. Activities that break the ZAG law carry up to five years in prison.
However such transfers are not illegal everywhere: certain states in the US still allow them, though such a scheme was implicated in preparation for the 9/11 attacks in 2001. Enforcement is also an issue, since such services are often advertised simply as currency deals.
A hawala scheme was also at the center of a major bribery scandal that implicated top politicians in India in the 1990s, and such systems are known to aid all kinds of financial crimes from tax evasion to moneylaundering.