The
arrests led to the exposure of an enormous web of Hawala
institutions in Delhi, aided and abetted, some say, by the ISI
(Inter Services Intelligence, Pakistan's security services). The
Hawala network was used to funnel money to terrorist groups in the
disputed Kashmir Valley.
Luckily, the common perception that Hawala financing is paperless is
wrong. The transfer of information regarding the funds often leaves
digital (though heavily encrypted) trails. Couriers and "contract
memorizers", gold dealers, commodity merchants, transporters, and
moneylenders can be apprehended and interrogated. Written, physical,
letters are still the favourite mode of communication among small
and medium Hawaladars, who also invariably resort to extremely
detailed single entry bookkeeping. And the sudden appearance and
disappearance of funds in bank accounts still have to be explained.
Moreover, the sheer scale of the amounts involved entails the
collaboration of off shore banks and more established financial
institutions in the West. Such flows of funds affect the local money
markets in Asia and are instantaneously reflected in interest rates
charged to frequent borrowers, such as wholesalers. Spending and
consumption patterns change discernibly after such influxes. Most of
the money ends up in prime world banks behind flimsy business
facades.
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