Paper short abstract:

This paper is going to examine the problem of the possible use of Hawala financial assets transmission system with the aim of financing terrorism in Somalia. Advantages and disadvantages of this system will be considered in the context of the lack of a central banking system in this country

Paper long abstract:

Hawala is a unofficial method of transmitting financial assets, relying on personal and ethnical ties. It is a widespread system in many developing countries like India, Pakistan, Afghanistan, some Middle Eastern, North African and Sub-Saharan countries. The assets, which are transmitted through the agency of the hawaladars (transmitters) are usually received within the time of 24 hours from the transfer order. The Hawala system is popular among the immigrant communities who stay in developed countries and support their families in underdeveloped regions. The reason of its popularity is the lack of formal documentation requirements, low costs and element of trust within the same ethnic community. On the other side, such a system is practically undetectable and can be used for the purpose of money laundering and terrorism financing.

This paper is going to consider the possible use of the Hawala system in the process of terrorism financing in Somalia. It will explain the rules of Hawala transmissions and the problematic lack of a formal banking system in Somalia. It will bring a closer look on the topic of financial sources of the Al-Shabab movement and the pirates of Puntland. There will be as well explained the case of the Al-Barakat consortium in USA. The main aim of this paper is to answer such questions: Is the Hawala system harmful in a long-term economic perspective or is it able to substitute the traditional banking system for some time in a region like Somalia? Can Hawala be used to support the Somali terrorists?