15/04/24

Informal Value Transfer Systems | Hawala Banking

Informal Value Transfer Systems | Hawala Banking
Share

There is a plethora of reasons for money transfers, ranging from sending birthday gifts to providing essential support to family members overseas. Informal Value Transfer Systems (IVTS) are adopted by individuals for a multitude of reasons, especially in situations where conventional banking systems are either unavailable or inconvenient.

The term ‘Informal Value Transfer Systems,’ describes systems, mechanisms or networks through which individuals transfer money or value for the purpose of paying funds, or an equivalent value in alternative forms, to another party in a different geographical location in a manner, bypassing the conventional banking system.

An IVTS system requires strategically placed agents or intermediaries, who facilitate the exchange of funds, or value, between customers, normally in the absence of detailed documentation, resulting in more anonymity than available through traditional banking procedures. The process involves a customer transferring funds to an agent, who then coordinates with another agent in a different location to facilitate payment to the intended recipient of the transferred value.

The operation of IVTS can be traced back thousands of years to when banking systems of the nature currently enjoyed did not exist and it was necessary for communities to facilitate cross-border transactions. Such systems were known as ‘hawala’ or ‘hundi’.

IVTS are not inherently illegal and, as mentioned, have represented a form of making cross border payments for many years. However, by their very nature of being outside the regulated banking system, anonymity, and lack of formal documentation they are readily accessible to those engaging in fraudulent financial activity such as money laundering.

Hamraj Kang explains the nature and operation of IVTS and the potential for illegal exploitation.

Potential for Money Laundering

While IVTS is relied upon for the conduct of many legitimate and entirely innocent transactions, the absence of regulation and oversight make them vulnerable for fraudulent activity such as money laundering and terrorist financing.

The anonymity and lack of documentation generally make it difficult for law enforcement agencies to detect the movement of illicit funds and prevent illegal activity.

The increasing involvement of IVTS in money laundering transactions has given rise to greater scrutiny by law enforcement agencies. These agencies may seek to have those funds frozen or forfeited.

Efforts to monitor illegal activity include international collaborations, implementation of increased surveillance, and imposition of regulatory frameworks.

The Financial Action Task Force (FATF), which combats money laundering and terrorist financing worldwide, provides recommendations and guidance to assist in the implementation of measures to prevent the misuse of IVTS.

FATF recognises that a balance must be drawn to maintain the financial services provided by IVTS to those sections of the community reliant upon them and has issued recommendations and guidelines to enhance transparency, accountability, and risk mitigation measures.

Registration in the UK

The operation of an IVTS, being a money service business, requires formal registration with HMRC in the UK, ensuring compliance with regulatory requirements.

In R v Jiang [2022] EWCA Crim 1516 a Chinese national who had engaged in IVTS in the UK, received payments in GBP in the UK and made onward remittance in RMB in China, on behalf of Chinese expats in the UK.

Upon conviction of running an unregistered money service business in the UK, his business was forfeited.

How Can We Help?

Over the span of twenty-five years, KANGS has earned nationwide recognition for its dedicated efforts in representing clients facing allegations of criminal misconduct of every nature.

We have successfully represented Money Service Businesses in disputes and investigations by HMRC. We work proactively with our clients, initiating early discussions and negotiations with all law enforcement agencies to swiftly secure favourable and cost-effective resolutions.

Please do not hesitate to reach out to us using the contact detail below:

Tel:       0333 370 4333

Email: info@kangssolicitors.co.uk

We provide an initial no obligation consultation from our offices in London, Birmingham, and Manchester. Alternatively, we provide initial consultations by telephone or video.

Hamraj Kang

Hamraj Kang
Senior Partner

Email Phone Mobile
Tim Thompson

Tim Thompson
Partner

Email Phone
John Veale

John Veale
Partner

Email Phone
Financial Investigations, Tax & HMRC
HMRC faces the ongoing challenge of tackling ‘Supply Chain VAT Fraud’ and recovering unpaid VAT. VAT fraud is a common occurrence, particularly within sectors like the building industry and in a recent article titled ‘Umbrella Company Fraud,’ we detailed how this type of fraud is operated by the creation of fictitious supply chain companies in […]
30/04/24
Financial Investigations, Tax & HMRC
The Finance Act 2024 (‘The Act’), received Royal Assent on the 22 February 2024. Among its provisions is the implementation of several tax reliefs and exemptions, new criminal offences related to Tax Avoidance Schemes, and an increase in maximum terms of imprisonment for individuals convicted of tax offences. Hamraj Kang highlights the Act to the […]
11/04/24
Civil Fraud, Financial Investigations
National Hunter is an agency operated by Experian Decision Analytics, which is part of Experian, the multi-national credit reporting company, and is dedicated to preventing credit fraud through its anti-fraud data sharing system. It represents a substantial number of financial institution members, including finance companies, mortgage lenders, and banks. Data is stored containing information from […]
08/04/24

Get in touch

Need legal assistance? Contact our experienced team for prompt and professional support.
Your privacy is important to us and all details you share will be kept confidential.