Hawaladar’s Lament

from Priceonomics

Hawaladar is a person who provides money services (hawala) to criminals. He is part of the criminal part of the shadow banking system. Shadow banking system is the banking services offered by non-banks. For example, a hedge fund could provide a loan to a company, which would be a shadow banking activity. Halawadar does something similar.

A Hawaladar is a person who moves money from one place to another using his network of contacts he’s developed usually from traditional import-export activity. So, for example, if a criminal in London wanted to payoff another criminal in New York in the amount of $10,000, the criminal could go to a Hawaladar in London, give the Hawaladar $10,000. The Hawaladar would call up an associate in New York and ask him to pay the criminal in New York $10,000. The Hawaladar in London would settle up with the associate in New York at a later time. The settlement usually is underpricing or overpricing of the goods being traded. The Hawaladar and the associate have both charged money for the service, of course, which the criminal in London is usually responsible for. And, in order for all of this to work, the associate in New York must trust the Hawaladar in London to settle up.

Nowadays, are Hawaladars really doing any trading? They are just a money service business.

The Hawaladar has been facing more competition over the past decade. Now, the London criminal could buy a prepaid debit card with cash at any store and then send that to the criminal. It does not require any intermediaries. The cost of buying a prepaid debit card is next to nothing. I think I could go to the corner store on my block and get one for about $5 and load thousands of dollars on it.

There are also other ways as well. People who do not have international trade businesses can get in on the Hawaladar game. I could pay off someone on behalf of a criminal using my PayPal account. I could use my Google Wallet. I could use my ApplePay. I could use Square, the payment service. I could use Venmo. I could use any store with a credit machine merchant account and pay them on my credit card and the store could pay off the criminal. It will just look like I paid for a product or service. I could even use Bitcoin.

The increasingly greater number of easy payment/transfer options are making it possible for criminal activity to be paid without the use of a Hawaladar.


What do you think was the weapon that was used to kill churchgoers in Charleston, South Carolina, confederate flag or gun?


About the Author: M. C. Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 


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Cuckoo Smurfing Means Criminal A Pays Criminal B In Different Countries

Cuckoo Smurfing is a way for criminals to move money from one country to another, usually. Sometimes it is used to move money from one bank to another within a country but with so many ways to move money these days, intra-country movements don’t requires an elaborate procedure.

large Cuckoo chick and smaller non-Cuckoo surrogate

The term comes from two things. First is cuckoo, which is a sneaky bird. When a bird of a similar or slight smaller build lays eggs and leaves the nest to find food, a cuckoo will push off some of those eggs and lay its own. What happens is that the cuckoo eggs will be taken care of by the unsuspecting bird. The bird will take care of it after it is hatched and because cuckoo chicks tend to grow more quickly than other bird, it will compete better when asking for food, causing other chicks to be malnourished and often die. Second is Smurfing, which is a verb created by the creators of The Smurfs, a Belgian television show from the 1960s that became very popular all over the world. The smurfs often replaced verbs with the word smurf. So, a smurf might say, I feel like smurfing some bread, replacing “eating” with “smurfing.” Combined, Cuckoo Smurfing is discretely replacing funds to take care of a transaction that criminals needed done to begin with.

It is important to note, in order for cuckoo smurfing to work, a money remitter must be knowledgeably involved.

Here’s how it works:

  1. NY Criminal (NC) has a need to pay London Criminal (LC) $10,000.
  2. A London Merchant (LM) has a need to pay NY Supplier (NL) $10,000.
  3. LM goes to the London Bank (or any money service that can make this transaction), and provides $10K with instructions to have it transferred to NL to the New York Bank.
  4. Banker at London Bank is part of this cuckoo smurfing operation. He instructs NC to deposit $10,000 to NL’s New York Bank account. Then he gives LC $10,000.
    Neither LM nor NL know that the fund was never transferred because what matters to them is that LM paid $10,000 and NL received $10,000. But doing this transaction this way, NC has successfully paid LC the $10K he owed.

There are many places that describe this on the internet but what almost all of them fail to describe the procedure in any meaningful way. They fail for two reasons. They do not:

  1. start by what criminal need creates the need to make the transfer to begin with, and
  2. explain the significance of having performed this transaction this way.

I hope I was able to describe it in a way that is more enlightening. I may do a video about this transaction since there doesn’t seem to be one that exists.

UPDATE Feb. 18/2016: There is now a video explaining Cuckoo Smurfing.

 


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.