‘HAWALA’ is an ancient but an informal,unregulated mode of transaction,that usually occurs so as to smuggle foreign currency to & fro your country or from one place to others. This works & operates quite similarly like a Bank ,but without any paperwork, questioning & accountability.
It is similar to the casual banking system, which often operates within our family & relatives, that is entirely based on trust.
Suppose You live in Chennai & you are in dire need of Rs.5000. So, you call up your parents in Siliguri & ask them for money. Now, if you don’t have a bank account .
your parents ask one of the relatives living in Chennai to give you Rs.5000. Your relatives recover the money back from your parents.
Same thing happens incase of transactions via Hawala system.
There are hawaldars or hawala brokers which takes money from one place put a password and the person to whom the money is intended to has to give it to hawala brokers next to them to get the money. No real transaction or moving of money actually takes place, the hawala guys pays to the person with his own pocket solely based on trust. This is why its so difficult to track and is illegal. If someone doesn’t pays or does something not been agreed upon he is excommunicado or banned from carrying out transactions further.
It takes way less processing fees than bank or any other official organisation and the money can get delivered in hours or days. All needed to do is to find a genuine Hawaldar and hand over money and get that secret code.
Why it’s Illegal ?
- It acts as a great source for hiding & cashing out black money into white money.
- No questioning & no limits to the amount of cash,being transferred, with its purpose being a mystery.
- High chances of money being used to fund terror organizations, bribing officials, illicit money,drug money,trafficking money etc.
Also, this system is completely based on trust. There are absolutely no legal procedures followed. Moreover, this is a way of moving wealth acquired through illegal means anonymously,without levitation of taxes & its purpose undefined.
What is the Punishment of hawala?
Prevention of Money Laundering Act, 2002 is an Act of the Parliament of India enacted by the NDA government to prevent money laundering and to provide for confiscation of property derived from money-laundering came into force by july 1 2005
The Act prescribes that any person found guilty of money-laundering shall be punishable from three years to seven years and where the proceeds of crime involved relate to any offence under paragraph 2 of Part A of the Schedule (Offences under the Narcotic Drugs and Psychotropic Substance Act, 1985), the maximum punishment may extend to 10 years instead of 7 years