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September 30, 2005

Tom Delay and Islamic Hawala

You know, if our key leaders embraced other aspects of Middle Eastern culture this much, we might be making some real progress in the Struggle Against Violent Extremism.

Tom Delay on Hardball with Chris Matthews:

CHRIS MATTHEWS, HARDBALL HOST: A difficult day. The charge from the prosecutor down there, which the grand jury acted on, was that a bunch of people got together, including you, and sent a bunch of corporate checks up to the RNC in Washington. That's corporate contributions, illegal to use in Texas legislative races.

In exchange, you said, now send that same money down. You earmarked it for these legislative races, thereby circumventing the spirit of the law, which is no corporate contributions. Is that a fair estimate of the charge?

REP. TOM DELAY (R-TX), MAJORITY LEADER: I don't know. It is not in the indictment. I don't know what he's charging me with.

MATTHEWS: Well, I'm reading it from it....

DELAY: You take soft money and use it for legal stuff. If you have more than you need, you send it to one of your friends. It's like your brother-in-law sending you money to pay your rent. And then you send back hard money that can be used in the races. It is not a quid pro quo. In fact, the amount of money you're talking about is different.

MATTHEWS: Yes.

Well, let me ask you this. Let me ask — because Tom Davis is going to be on this show. And the argument we're getting from other people is that there's nothing wrong with you urging some corp or anybody that your former PAC — putting the PAC you're on the board of — to give, say, give a bunch of money to the RNC. They need money. It's a good Republican cause, and then calling up the Republican National Committee and say, why don't you give some money to these legislative candidates? We'd like them to win down there.

That's legal.

DELAY: Yes. It's totally legal.

Hawala as defined by Wikipedia:

Hawala (also known as hundi) is an informal value transfer system used primarily in the Middle East, Africa and Asia.

Its origins are not entirely clear, but it is believed to have been used first in the financing of long-distance trade in the early medieval period on trading routes such as the Silk Road, the Eastern Mediterranean and the Indian Ocean. Hawala is mentioned in texts of Islamic jurisprudence as early as the 8th century. In South Asia, it appears to have developed into a fully-fledged money market instrument, which was only gradually replaced by the instruments of the formal banking system in the first half of the 20th century. Today hawala is probably used mostly for migrant workers' remittances to their countries of origin.

In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or hawaladars. A customer approaches a hawala broker in one city and gives a sum of money to be transferred to a recipient in another, usually foreign, city. The hawala broker calls another hawala broker in the recipient's city, gives disposition instructions of the funds (usually minus a small commission), and promises to settle the debt at a later date.

The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers; the transaction takes place entirely on the honor system. As the system does not depend on the legal enforceability of claims, it can operate even in a defunct legal and juridical environment. No records are produced of individual transactions; only a running tally of the amount owed one broker by the other is kept. Settlements of debts between hawala brokers can take a variety of forms, and need not take the form of direct cash transactions....

Hawala is attractive to customers because it provides a fast, convenient and safe transfer of funds, usually with a far lower commission than that charged by banks. Its advantages are most pronounced when the receiving country applies distortive exchange rate regulations (as has been the case for many typical receiving countries such as Pakistan or Egypt) or when the banking system in the receiving country is underdeveloped (e.g. due to weak legal environment in places such as Afghanistan, Yemen, Somalia).

Furthermore, the transfers are informal and not effectively regulated by governments, which is a major advantage to customers with tax, currency control, immigration, or other legal concerns. For the same reasons, governments disfavor the system, and accusations have been made in recent years that terrorist funding often changes hands through hawala networks.

Posted by Mike at September 30, 2005 05:48 PM

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