Explained: What is hawala transaction? How is it linked to gold smuggling in Kerala?

The seizure of gold from the diplomatic baggage at the Thiruvananthapuram International Airport early this month has exposed the hawala racket's inextricable link to gold smuggling. 

Investigators have found out that this smuggling racket has connections with more than 20 hawala rackets in the country. 

But what exactly is hawala? How the money is being transferred? And, more importantly, why do expatriates prefer to send money back home through the hawala channels? This explainer will answer all your questions.

What is hawala? Why is it so popular?

Hawala is an unofficial mode of transferring money to India from abroad. 

It is the easiest and fastest way to send money home for the Indian expatriates working in the Gulf countries.

Those who wish to send money need not go to the bank or other authorised money transfer companies. They just have to make a phone call and the agents of the hawala racket will arrive at their doorsteps to collect money.

Speed is another reason for its popularity. The amount (based on the day's market rate) will reach home the same day. In emergency cases, the transaction will happen even faster.

What are the other advantages of hawala deal?

The hawala rackets use many methods to lure customers. One such offer is the 'three-instalment' scheme. This is aimed at the people who are in need of emergency financial help. This is a big hit in the United Arab Emirates (UAE).

It works like this. Suppose a cash-strapped expatriate in UAE, who is left with only 2,000 Dirhams, has to send 5,000 Dirhams to her home in India on an emergency. This scheme comes handy for her. She can pay 2,000 Dirhams as the first instalment and an amount equivalent of 5,000 Dirhams will be delivered to her home immediately. The expatriate has to pay the agent two more instalments of 2,000 Dirhams each in the next two months.  

That is, for 5,000 Dirhams, the agent is to be paid 6,000 Dirhams — a usurious interest of 1,000 Dirhams for two months.

Many hawala agents in the UAE have become millionaires through 'three-instalment' schemes.

How does hawala transaction happen?

It is a well-coordinated effort. It involves the collection agent in a foreign country,  black money providers and hawala operator in Kerala.

This is how it works. After collecting the money from expatriates, the agent deposits it in the Dubai office of the black money providers.

As soon the information is received for a transaction, a black money racketeer in Kerala or outside the state will keep an equivalent amount ready.

The hawala dealer will then take a photo of a Rs 10, Rs 50 or Rs 100 note and WhatsApp it to the businessman with black money. This will then be given to a member of the group receiving the hawala money. The codeword for this note is ‘token’.

If the same currency note is exchanged, the one with the black money will give the deposited amount to the members of the hawala operator. This has been done to prevent impersonation. An amount equal to the value of the ‘token’ note is also paid. 

Sometimes, smuggled gold is also given. Just that, money has to be made by selling it.

Black money is brought to Kerala in vehicles from Bengaluru, Salem, Coimbatore, Chennai, Mumbai and Pune. The agent in the Gulf provides the address of the intended receiver. Carriers then deliver the money home.

How does the money reach Kerala?

The hawala money would be brought by vehicles across the border. Each vehicle would carry Rs 3 to 5 crore. The code for Rs one crore is ‘oru petty (one box)’.

Those accompanying the cash are paid Rs 5,000 per trip. Remuneration is higher for those travelling to Mumbai and Pune.

The gangs carry guns in the wake of repeated attacks on hawala vehicles.

Are hawala transactions so simple?

No, it is not. Most of the hawala transactions are centred in Dubai. Saudi hawala dealers also depend on Dubai to transfer money. The hawala amount is taken to Dubai from Saudi Arabia in a vehicle or it is transferred to a hawala agent in Dubai through the bank.

The hawala channel is decided based on not only Gulf currencies, but also on the change in the dollar and gold rates.

The hawala dealers study currency rates. Every morning, they buy the currency whose value is likely to increase during the day and sell it in the evening. There is a possibility of both profit and loss — profit if the currency value increases, loss if it decreases. Priority is given to foreign currencies that will receive the highest exchange rate in Indian Rupees.

Hawala dealers in Dubai are ready to deliver any amount in any currency anywhere in the world — if, for instance, someone requires urgent money in a foreign land for business purposes, they just have to contact the hawala dealers, who will set an exchange rate to ensure profit.

It is mostly the money of the expatriates that changes many hands this way.

Another way is to give hawala money to gold smugglers. Smugglers buy gold, bring it to Kerala India and sell it. From the sale of gold, an amount equal to the hawala given in the Gulf is transferred to the hawala agent in Kerala. Both smugglers and hawala operators benefit alike.

Does hawala money reach India through official route?

Yes, it happens. Hawala dealers make use of the ‘drawback’ benefit scheme, which was provided by the central government to encourage handloom exports, to send money.

Earlier, the export of handloom products was entitled to a drawback of up to 7%. That is, if handloom products worth Rs 100 are exported, the exporter would get Rs 107 — Rs 100 will be paid by the buyer in Dubai and Rs seven will come from the Central government.

Some used the hawala channel to cheat the government.

To get the drawback benefit, they would make fake exports

The Customs Department has detected stones, wooden blocks, and torn clothes and rags being exported as handloom to obtain the drawback benefit. In some other cases, exorbitant prices have been quoted for cheap clothes.

An agent in Dubai would receive the fake consignment and destroy it. In return, crores of hawala money equivalent to the price quoted for the so-called handloom clothes will go to the account of the ‘export company’ in India.

The amount will then be withdrawn from the account and distributed to the homes of expatriates. At the same time, the ‘exporter’ will seek the 7% drawback benefit by stating that he has received the amount for the exports.

Since the export would be fake, it would not cost the ‘exporter’ much. But hawala money would end up reaching India through the official route.

The other way to use the official channels to route hawala money is by exporting goods showing a price much higher than the original amount.

If a consignment worth Rs one crore is exported by showing a price of Rs 4 crore, a hawala amount of Rs 3 crore will reach India through banks along with the Rs one crore, the actual price of the export.

A few years ago, hawala money came to Kerala in the form of vehicles. How did it happen?

It was a significant event in the history of hawala transactions that shocked many because of the audacity with which the scheme was planned and executed.

It happened between 1995 and 2000 when scores of Mahindra Jeeps from Mumbai arrived in Mongam village in Malappuram district. The vehicles have been addressed to different people in the village.

Soon, Mongam became a market for major vehicles, including Mahindra Jeeps. It did not create any suspicion in the beginning, but later it was found out that the jeeps were instruments for transferring hawala money. The brain behind it was a Mongam native who was also a hawala dealer.

This was his modus operandi. He bought gold in Dubai with hawala money. He then smuggled it to Mumbai and sold it. With the proceeds, he bought Mahindra Jeeps in the names of people he knew in Mongam. He got the Jeeps delivered in Mongam and sold them. The money from the sale was delivered to the expatriates. 

What is reverse hawala?

It is the process of sending money through the hawala channels from Kerala to foreign countries, including the UAE. Kerala's hawala dealers have links in every nook and corner of the world. These links ensure delivery of local currency anywhere in the world.