The Intrinsic Link Between Gold and Hawala: A Global Network Spanning Continents

Introduction to Hawala

In the shadowy world of informal finance, two elements have stood the test of time: the ancient system of Hawala and the enduring allure of gold.

Hawala, a trust-based method of transferring money without the physical movement of currency, originated during the Islamic Golden Age and has evolved to adapt to modern times while retaining its core principles of trust and efficiency. To learn more about the basics of Hawala, check out this Investopedia article.

Gold, on the other hand, has been a universal symbol of wealth and a stable store of value for millennia. Its role in global finance, particularly in informal systems, cannot be overstated.

This article aims to explore the deep interconnection between gold and Hawala, tracing their intertwined paths across history and geography, with a focus on South Asia, the Middle East, and beyond.

Historical Overview of Hawala

The Hawala system emerged during the Islamic Golden Age, a period of significant cultural and economic growth in the Islamic world. As trade routes expanded and merchants needed efficient ways to transfer funds across vast distances, Hawala provided a solution.

This informal network allowed traders to transfer money without physically moving currency, relying instead on a web of trust and honor among hawaladars (Hawala agents). More detailed information about the history of Hawala can be found on Wikipedia.

Islamic merchants played a crucial role in spreading the Hawala network as they established intricate systems of trust to enable smooth cross-border trade. Alongside Hawala, gold became an essential tool for trade and money transfers. Its universal value, portability, and durability made it an ideal complement to the Hawala system, often serving as a physical representation of wealth in informal transactions.

Gold in Traditional and Modern Finance

Throughout history, gold has maintained its status as a stable currency and commodity. Its inherent value, scarcity, and universal appeal have ensured its position as a preferred asset in both formal and informal financial systems. In the context of Hawala, gold’s importance is magnified due to its portability, liquidity, and the cultural trust placed in it across various societies.

Hawaladars often facilitate large-value transfers using gold as a store of value or medium of exchange. This practice allows the movement of substantial wealth across borders without relying on traditional banking systems.

The preference for gold in Hawala transactions stems from its ability to bypass currency controls and its universal acceptance as a form of payment or collateral. To explore Hawala’s relationship with global finance and gold further, you can review this article from the International Monetary Fund (IMF).

The Subcontinent’s Gold and Hawala Network

The connection between South Asian communities in the UK, particularly in London, and their ties to countries like Pakistan, India, and Nepal is deeply rooted in the Hawala system. This network enables efficient money transfers between expatriates and their families back home, often bypassing formal banking channels.

Why is no one asking why there are hundreds of gold traders in Ilford where I was born? Asking for a friend! 😉

In South Asia, gold holds immense cultural importance, symbolizing wealth, security, and tradition. This cultural significance translates into a preference for gold in informal wealth transfers. Hawala facilitates for example the flow of gold between families and traders in South Asia and expatriates in the UK, aiding in everything from dowry payments, house purchases to business transactions.

5. Dubai as a Central Hub

Dubai has emerged as a global center for gold trade and a pivotal node in the Hawala network. The city’s strategic location, free trade zones, and lenient regulatory environment make it an ideal connecting point for the movement of both cash and gold through informal networks.

Dubai’s famous gold souks play a crucial role in facilitating Hawala transfers, particularly between South Asia and the Middle East. These markets serve as meeting points for hawaladars and traders, where large quantities of gold can be bought, sold, and transferred with relative ease and discretion.

Global Trade Routes and the Role of Hawala

The Hawala system is deeply interconnected with global commodity trade, forming a complex web that spans Africa, the Middle East, and Asia. Africa, rich in natural resources, serves as a major exporter of raw commodities, including gold, to markets in Dubai, India, and Singapore.

Islamic countries and banking principles play a significant role in this network. The principles of Islamic finance, which emphasize ethical trading and prohibit interest, align well with the trust-based nature of Hawala. This synergy facilitates the trade of not only gold but also other commodities such as oil, precious stones, and agricultural products.

The Flow of Gold Through Singapore

Singapore plays a key role in the global gold supply chain, known for its business-friendly policies and efficient infrastructure. It is also a crucial node for Hawala operators who use the city-state’s regulatory environment to balance formal and informal financial networks, including Hawala-driven gold trade.

Hawala networks connect Islamic countries with Southeast Asia, including Singapore, enabling the smooth flow of gold and other commodities. Singapore’s business-friendly environment allows it to balance these informal networks while remaining a key player in formal financial systems.

We have worked on such cases where clients are receiving payments from 5 different countries into Standard Chartered Bank Singapore from a Nigerian client for a palm oil transaction that is unable to get any USD in country due to a run on Central Bank of the local currency the Nigerian Naira and so the client felt they had to resort to Hawala as a means of payment.

Standard Chartered Bank flagged the issue and the client had to warn his client against doing it again but in countries where currency controls and runs on the local currency are a problem hawala is a means to an end.

Little India Singapore and the Kilo Bar trade

The kilo gold bar trade in Little India, Singapore, remains a vibrant and lucrative business despite strict regulations imposed by the Ministry of Law. Primarily conducted through cash transactions, the trade continues to flourish, with many transactions exceeding the SGD 20,000 threshold that legally requires reporting under anti-money laundering laws. However, despite these regulations, a significant portion of the trade continues to operate under the radar, largely facilitated by local money changers.

Companies like Brinks play a critical role in the logistical handling of the gold trade, ensuring the secure transport and storage of these high-value assets. Brinks’ involvement further underscores the scale and legitimacy of this sector, though the reliance on cash transactions continues to raise concerns about transparency and regulatory compliance. So how much due diligence are they doing on their clients?

Why hasn’t a closer collaboration between the LBMA and security firms been established sooner to ensure full compliance and transparency in gold cargo tracking?

A potential solution for enhancing transparency in the gold trade could involve closer collaboration between the LBMA and security companies like Brinks to ensure due diligence compliance on all cargos they transport.

By leveraging Brinks’ expertise in secure logistics and LBMA’s stringent Responsible Sourcing standards, both parties can work together to develop a robust system for tracking and tracing shipments.

This partnership with the security companies could lead to the implementation of advanced technology solutions, such as real-time cargo tracking and centralized databases, which would enable more effective monitoring across various jurisdictions.

By aligning efforts, the LBMA and the security companies they could set a new industry standard for ethical and legal compliance, ensuring that all cargos meet regulatory requirements while enhancing the integrity of the global gold trade.

Why won’t Airlines Ban Hand Carry of Gold?

We have seen Ahmed Bin Sulayem Executive Chairman and CEO at DMCC makes cries on line for the Banning hand carry gold in the fight against gold smuggling whilst they still accept Russian Gold (Yes I know there are no sanctions against Russia in Dubai but feel free to accept Dubai is then funding indirectly the war on Ukraine!).

Airlines are unlikely to ban hand-carrying gold because it plays a key role in the legitimate global gold trade, especially in places like Dubai. Changing this would disrupt business for traders who rely on this method. Enforcing a ban would also be difficult, as it would require global cooperation and new security protocols to distinguish legal from illegal gold.

Back in 2015 Indonesia ban on all hand carry for gold being exported (the country did this not the airline), some gold traders stopped bring it to Singapore but by that time they already owned a few homes on Grange Road whilst others carried on using Brinks local partners in the country to export the Indonesian jungle jewellery bangles.

So why doesn’t Dubai just ban hand carry of Gold into Dubai? I wish I had the answer this this question! Feel free to drop us a line with why you think its the case!

Is hand carry gold on aircrafts dangerous?

Yes, especially if its been extracted using mercury! There is another question of what happens to an aircraft carrying gold that’s been extracted using mercury in terms of long term corrosion to the aircraft? Still waiting for answer on that, so watch this space!

Gold, Crypto and Hawala

In recent years, the gold trade has seen a shift towards using USDT (Tether), a stablecoin cryptocurrency pegged to the US dollar, as an alternative to traditional cash. This move towards USDT is driven by the need for faster, more discreet transactions that bypass conventional banking channels. The take up for htis in HK has been fast and Singapore is catching up fast.

By utilizing cryptocurrency, traders can avoid some of the regulatory hurdles associated with large cash transactions, while still maintaining the efficiency and trust-based nature of these deals. The adoption of Gold Trading in USDT reflects the broader trend of digital currencies gaining traction in high-value commodity trades, especially in regions where informal financial networks are prevalent.

While the Ministry of Law continues to enforce stricter measures, the kilo gold bar trade in Little India remains a resilient and adaptive industry, now incorporating both traditional cash and digital currencies like USDT to facilitate its operations.

If you have payment issues like this contact us to discuss legal solutions!

Hawala & Singapore Casinos

It has been made known to me that the Hawala network even operates within the casinos, a cash delivery can me a phone call away. But that being said Singapore is set to tighten regulations to prevent the misuse of casinos for terrorism financing. Under the new rules, casinos will be required to perform due diligence checks on cash deposits of S$4,000 (US$2,950) or more, a reduction from the current threshold of S$5,000. This move aims to enhance oversight and reduce the risk of financial crimes within the gambling industry.

Hawala, Gold, and Regulatory Challenges

The informal nature of Hawala presents significant challenges to international regulatory bodies. By bypassing traditional banking systems, Hawala transactions often escape the scrutiny of anti-money laundering (AML) laws and counter-terrorism financing (CTF) regulations. The physical nature of gold further complicates these issues, as its movement across borders can be difficult to track and regulate.

The combination of Hawala’s trust-based system and gold’s tangibility creates a unique set of challenges for regulatory bodies. The lack of paper trails and the ease with which gold can be melted down and reshaped make it difficult to monitor and control these transactions across international borders. For a deeper dive into the regulatory challenges of Hawala and similar systems, review the FATF’s report on The Role of Hawala and Other Similar Service Providers in Money Laundering and Terrorist Financing.

Gold & Hawala Final thoughts

The intrinsic connection between Hawala and gold highlights the enduring strength of informal financial systems in today’s globalized world. From the historical trade routes of the Islamic Golden Age to modern corridors of global commerce, this partnership has demonstrated remarkable resilience and adaptability over the centuries.

However, in recent years, the Hawala system has increasingly moved toward the use of cryptocurrency as an alternative to traditional methods like gold, especially in response to growing demand for faster, more discreet transactions in the face of tightening financial regulations.

Looking ahead, the role of gold in informal money transfer systems, particularly in Islamic countries and regions with strict capital controls, remains significant. But as cryptocurrency gains popularity within the Hawala network, it offers a new dimension to this system, allowing for seamless cross-border transfers while still bypassing formal financial structures.

Nonetheless, the increasing scrutiny from regulatory bodies and the push for greater financial transparency may compel these systems to evolve further.

The challenge for the global financial community lies in balancing the efficiency and cultural significance of systems like Hawala, now increasingly using cryptocurrency, while addressing concerns about financial security and transparency. As this delicate dance continues, Hawala will likely persist, weaving its way through the intricate fabric of global finance, evolving as it has for centuries.

Disclaimer:

The content provided in this article, “The Intrinsic Link Between Gold and Hawala: A Global Network Spanning Continents,” is intended for informational purposes only. The article is not meant to endorse or promote the use of Hawala or any other informal financial systems for illegal activities, including money laundering or terrorism financing.

The information contained herein is based on historical research and current insights into informal financial systems. Readers are advised to consult with legal, financial, and regulatory professionals regarding the legality and risks associated with the use of such systems in their respective jurisdictions. SE Asia Consulting Pte Ltd, its authors, and affiliates do not assume any responsibility for the consequences of actions taken based on the information provided in this article.