Hawala system in Norway high risk for money laundering, terror financing

The poorly-controlled hawala alternative remittance system in Norway has created a high risk situation wherein money laundering and terrorism financing can take place in the Nordic country, public broadcaster NRK reported on Friday.

According to the Financial Supervisory Authority of Norway, only 700 million kroner (84 million U.S. dollars) out of the four billion kroner (481 million U.S. dollars) that are sent out of Norway annually via the hawala system are conducted by controlled companies.

Hawala is an informal system of transferring money based on personal relationships and is traditionally popular in Arab countries and the Indian subcontinent. The money is usually paid to an agent who then instructs an associate in other country or area to pay the final recipient.

"I always ask control questions," said Ganeshan, who works in a shop in Oslo and whose company is an agent for a big foreign payment institution and transfers money using the hawala principle, when speaking with NRK.

Ganeshan said he was also familiar with the fact that criminals could misuse the services and send illegal money out of the country.

"We notice when criminals arrive. They usually come as a group, but only one of them enters the shop, while the others wait outside," he said.

Although hawala is a legal money transfer service used between countries that do not have a functioning banking service, the financial supervisory authority believes that Ganeshan's suspicion is valid.

In the supervisory authority's risk estimation regarding money laundering and the financing of terrorism, hawala financial services are considered to be in a high risk area, the agency's section chief Ole-Jorgen Karlsen told NRK.

He said the agency was especially worried that hawala business can be a channel for transferring abroad money that comes from criminal activity, such as human trafficking, prostitution, narcotics and illegal labor, as well as financing terrorism in the world's conflict areas.

There are 13 companies that have licences to run a hawala business in Norway. They send reports to the financial supervisory authority regularly, but they still make up only a small part of companies that are run by the hawala principle.

There are also 590 agents working for foreign companies in Norway. They do not need the licence, but send reports to the home country of the foreign company, as well as to the currency register.

According to the financial supervisory authority, there is a lack of control of hawala agents' business in Norway. This large number of agents in Norway makes it challenging for the Norwegian authorities to have an overview of the final destination of the money transfers, Karlsen said.

The National Authority for Investigation and Prosecution of Economic and Environmental Crime (Okokrim) is also concerned about the quality of the follow-ups on these agents and would like to have more transparency, supervision and knowledge within the industry.

"Neither we, nor other authorities, have the overview or the numbers, but there is no doubt that we are talking about hundreds of million of kroner every year. This business is suitable to transfer money in a fast and effective way," said Sven Arild Damslora, head of Okokrim's department of financial intelligence. Endit