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Experts indicate desperate Russian oligarchs could come to use payment systems known as Hawala to move funds and evade sanctions as a last resort. Hawala is a legal, trust-based payment system that allows an individual to transfer funds without moving any money. Nevertheless, because these systems confer anonymity, they sometimes are used for illegal and illicit purposes.
Here’s how the system works. Hawala dealers keep informal records and journals that record credit and debit transactions which they subsequently settle. Now, suppose Alexandra (‘A’) wishes to transfer money to Bartolomeo (‘B’) in another city or country. ‘A’ approaches a local hawala dealer and gives the dealer money. The dealer records a credit in their journal. B contacts a hawala dealer in his city. The dealer transfers the funds to B and records a debit in their books. The two dealers subsequently settle their ‘deal’ in any mutually agreeable way. Most, importantly, the transaction provides both A and B with anonymity.
The system often is used for legitimate purposes, for example, migrant workers transferring money home. Experts indicate it is relatively easier to find Hawalas in countries that have relatively higher migrant worker populations than it is to find such in other countries.
However, the system sometimes is used for illegal and illicit purposes given the anonymity it provides. For example, in 2013 an International Financial Task Force found informal payment systems pose severe risks because they exist outside the conventional banking system and lack oversight. Additionally, the US Treasury Department in 2020 targeted individuals that used Hawala to eliminate ISIS revenue sources.
Experts suggest payment systems such as Hawala may be used by Russian oligarchs with sanctioned bank accounts. They note, however, they only might use such a system as a last resort and out of desperation because rather than one large transaction, hundreds of thousands of smaller transactions would be required.
Experts also are careful to point out that the presence of a hawala dealer does not indicate the presence of any illicit or illegal behavior. In many ways, using Hawala simply is a least cost way of moving funds. Why, for example, would someone pay a Western Union dealer $8 for a transaction when using a hawala dealer would cost a fraction of that?
