The Hawala System is a traditional method of money transfer used in many parts of the world, including Africa. In the past, it was mainly used to send money to family members and friends living in other countries.
However, in recent years, there are allegations that the Hawala system is being used for illegal activities, such as money laundering and the smuggling of gold.
What is the Hawala system?
The Hawala system is a trust-based system of money transfer, where money is sent and received without any physical movement of funds.
Instead of moving money physically between countries, a Hawala operator receives money from one customer in one country and then instructs another operator in the destination country to pay out an equivalent amount of money to the beneficiary. The Hawala operator settles the transaction at a later date, typically through a network of intermediaries who help to balance the books.
The Hawala system is attractive to people who want to send or receive money quickly and cheaply. It is also popular in countries where the formal banking system is not accessible, either because of a lack of infrastructure or because of political or economic instability.
How is the Hawala system used for gold smuggling in Africa?
Gold smuggling is a lucrative business in Africa, and the Hawala system is often used to launder the proceeds. Criminal networks use the Hawala system to move money and gold across borders without detection.
In the Hawala system, there is no need to physically move the gold across borders, which makes it an attractive method for smuggling. The Hawala operator receives payment from the buyer in one country and instructs the seller in another country to release the gold to the buyer. The buyer can then sell the gold for cash, which can be deposited into a bank account or used to purchase other goods.
Because the Hawala system is based on trust, there is no paper trail or record of the transaction. This makes it difficult for authorities to detect and trace the movement of funds and gold. The anonymity provided by the Hawala system also makes it a popular method for terrorists and other criminals to finance their activities.
The Negative Impact of Hawala Gold Smuggling On African Economies
The smuggling of gold has a significant negative impact on African economies, particularly on countries that rely on the export of gold for foreign currency earnings. When gold is smuggled out of a country, it results in a loss of foreign reserves, which can lead to a shortage of foreign currency. This, in turn, can lead to inflation and a devaluation of the country’s currency.
For example, Zimbabwe has one of the largest gold reserves in Africa, but the country is struggling with an economic crisis, with hyperinflation and a shortage of foreign currency. The country’s gold output has declined significantly in recent years, partly due to smuggling.
According to a report by the International Crisis Group, the smuggling of gold out of Zimbabwe is estimated to be worth $1.5 billion per year, which is equivalent to 30% of the country’s annual gold production.
The loss of foreign reserves due to gold smuggling also impacts the ability of African countries to import essential goods and services, such as food, fuel, and medical supplies. This can lead to shortages and higher prices, which can affect the lives of ordinary people.
Furthermore, gold smuggling has a negative impact on the formal mining sector in African countries.
Formal mining companies are required to pay taxes and royalties to the government, which contribute to the country’s revenue. However, when gold is smuggled out of the country, these taxes and royalties are not paid, resulting in a loss of revenue for the government.