Thursday, December 31, 2015

Bitcoin vs. Hawala: The Migrant Market Says Hawala

There are many alleged claims about Bitcoin that I discount, mostly concerning anonymity and privacy, when Bitcoin is used regularly. However, I have often considered a one time use of Bitcoin an interesting possibility for crossing a border with wealth. I generally considered it in line with hawala.

But it seems market participants prefer to use hawala, at least as far as the recent migration into Europe.

WSJ explains (pay attention to the numbers, we are talking serious money here.):
ISTANBUL—Behind the reinforced door of an unmarked office in this teeming immigrant neighborhood, a man who goes by the name of Hawez Zaman moves money the same way his predecessors in the Middle Ages did, in an off-the-books transfer system critical to today’s spiraling migrant crisis in Europe.

The centuries-old system known as hawala enables users to transfer money from one point to another entirely on the basis of trust—largely without a paper trail and often outside the law.

It is the dominant way migrants flooding into Europe pay for their journeys, used for 90% of the transactions in a people-smuggling trade valued at around $2.5 billion a year in Europe, according to European security officials and researchers. It is used for a further $390 billion a year migrants send back home as part of an informal but widely accepted financial system used across the developing world....

In Istanbul each day, Mr. Zaman, a stocky 32-year-old Iraqi Kurd, said he receives up to 200 cash payments of €1,500, or about $1,600, on behalf of migrants from Syria, Iraq and Afghanistan who are paying smugglers for the first leg of the journey from Turkey to Greece on the way into the European Union.

He also moves money every day unrelated to migrant smuggling in amounts from a few hundred dollars to the thousands....

When migrants reach their destination in Greece, Germany or beyond, Mr. Zaman said he makes a virtual transfer to an associate hawala dealer, or hawaladar, who releases the money at the other end to the smugglers.

For each payment, Mr. Zaman said he charges roughly 5%—or a bit more than half the percentage typically demanded by established money-transfer agents. He saves money by not having to pay compliance, infrastructure and other costs that licensed agents have.
Note well, I have always suspected that the high transfer fees at licensed money-transfer agents has a lot to do with government fees and regulations. The cheaper hawala transaction fee seems to support this view.

Hawala is also often quicker—a transfer can be almost instantaneous—and can easily reach people in remote areas. Customers include those with low levels of literacy, no bank accounts or credit cards and sometimes no identification documents.
Bitcoin supporters often promote Bitcoin  on the basis that it is an instant transfer amd suggest that this is the only way t amke an instant transfer. I have always held there is no reason any money transfer couldn't be instantaneous (if it wasn't for government regulations) and the report here of almost instantaneous hwala transfers supports my view.
Criminals, meanwhile, like the absence of transaction records, which eliminates the money trail officials use to discover and prosecute crimes. In the traditional system, short-term records are destroyed when transactions are settled, and the use of Skype, Viber and WhatsApp to organize the payments helps elude detection.

“The ‘follow the money’ method doesn’t apply here,” said Andrea Di Nicola, a lecturer in criminology at the University of Trento. “This is a very serious problem, because the movement of money tells you a lot about how the criminal organization works.”...Mr. Zaman operates illegally in a district that has emerged as a global hub for the hawala trade: Aksaray, a hardscrabble neighborhood close to Istanbul’s Grand Bazaar known as “little Syria.” It is one of the world’s largest crossroads for Syrian refugees. 
Got that Bitcoin supporters?  Hwala can't be traced.
The name, [Zaman],  is one of the pseudonyms the trader uses in his business—different names for different sets of clients.

Mr. Zaman pours profits into expanding his network and paying off local criminals and police to protect the business.

“People fleeing war zones don’t want to use banks or Western Union; Hawala is easier and something they trust,” said Mr. Zaman. Pulling on a Marlboro, he took calls from clients arriving on the Greek island of Lesbos requesting that money be released to pay smugglers. “This is one of the fastest-growing businesses in Istanbul,” he said. “I would migrate myself, but the money is too good.”

Mr. Zaman said he had no qualms about processing payments that go to human smugglers. “Many smugglers are Syrian and they help refugees reach safety,” he said. “We are helping to finance that and helping them get their money out of Syria.”

Fast delivery
Hawala, or “transfer” in Arabic, first flourished among medieval traders who used it to pay for transactions without sending money or gold along treacherous trading routes. It took root over the centuries in the Middle East, South Asia and parts of Africa.

It is now present in virtually every community established by Muslim and Indian migrant workers in Europe, North America and the Middle East. Chinese migrants use a similar system that they call fei-chien, or “flying money.”

There also is a private non-government judicial/guarantee system of sorts that operates within the hawala networks:
 Despite its informal nature, cheating and fraud are rare within hawala networks, which are based on tight ethnic or tribal relationships.

“If someone doesn’t go by the rules, he will be ostracized forever,” said Nikos Passas, a Northeastern University professor who has studied hawala. Moreover, a hawaladar’s family and legitimate business could suffer if he defrauded a customer, he added.

Mr. Passas cited the case of a U.K. hawaladar who gambled away customers’ money, causing losses to fellow brokers in Pakistan and Britain. The broker was kicked out of the network and the other brokers shared the losses, he said. In case of disputes between brokers, an elder hawaladar or a committee hears out the two sides and settles the dispute.



  1. What a beautiful system. Three cheers for hawala. Hawala's strengths are bitcoin's weaknesses and vice versa.

    The neat thing about bitcoin is its technology is evolving to outgrow its weaknesses over time. Hawala is what it is.

  2. The Bitcoin price only refers to the direct monetary costs of acquiring BitCoins - it is an objective factor. The value of BitCoins however refers to its perceived usefulness and benefits to the individual who is acquiring BitCoins - this is a subjective factor. Mark