A Mideast Money-Laundering Bust
Italian authorities, with the help of the U.S. Drug Enforcement Administration and Britain's Serious Organized Crime Agency, have unmasked an international money-laundering ring based in Dubai that uses the hawala trust-based system of money remittance.
The investigation, dubbed "Operation Khyber Pass," began as a typical drug bust but led authorities to a Dubai-centered international financial organization spanning from South America to Australia. In Italy, it marks the first time authorities have found proof of the hawala system, rather than couriers, being used to move drug money. "We're encouraged by the cooperation we're getting from Dubai authorities," says Tom Pasquarello, a U.S. DEA official who collaborated with the Italians in the investigation.
The hawala system, which originated in India, typically works this way: a Pakistani taxi driver in New York who wants to send cash to his family in Pakistan turns the cash over to an agency. The agency is typically a company with some other activity such as an import-export business. For a fee, the agency telephones its branch in Pakistan and instructs the branch to deliver the equivalent sum very quickly to the driver's family. Later, the Pakistani branch of the agency and the New York branch settle their intercompany debt with a wire transfer or an exaggerated bill for imported shirts.
As part of Operation Khyber Pass, named after the famed mountain pass between Afghanistan and Pakistan, Italian tax police arrested several Pakistanis living in Carpi, a town near Modena in northern Italy. They also issued an arrest warrant for an Indian named Kumar Jain Naresh, known as "Patel," who lives in Dubai and allegedly runs what authorities call an "informal bank," where deposits come in from drug sales around the world, and transfers go out to drug barons in places like Turkey.
The Pakistani ringleader arrested in Carpi along with his four brothers and several cohorts owns a hair products store, which investigators allege is a major hawala center bringing in drug receipts from all over northern Italy. According to Italian police, phone calls from the hair-care store to Dubai would authorize money transfers to be made from Patel's "bank" in Dubai to drug exporters, mainly in Turkey. The Italian authorities said they had been able to trace the money transfers only as far as Turkey, though they allege that heroin refined in Turkey and sold in Italy is made from poppies grown in Afghanistan. Later, the cash collected at the hair products store would head out via wire transfers from Italian bank accounts under a variety of names, or sometimes via couriers, to banks in London and Rotterdam, where it would eventually make its way back to Dubai.
Pasquarello says the DEA is involved in additional ongoing investigations in the U.S. and other countries around the world that have also found a link to Patel's "bank" in Dubai. An Interpol report on the hawala system points to Dubai as a major hub for hawala transactions, given the large population of expatriate workers from India and Pakistan, and Dubai's large gold market. Dubai was also traditionally lax on illicit financial transactions until 2001 when, under pressure from U.S. authorities, the country's central bank imposed reporting requirements.
Italian authorities estimate that Patel handles around $4 million per day in payments to drug cartels in Turkey, South America, and Asia, and that he skims a commission of 7% to 11% off of the transactions. At a press conference held in Milan, authorities also said they had evidence some of the money was linked to illegal weapons sales. One of the Pakistanis arrested in Carpi is the treasurer of a cultural association that an Italian parliamentary investigation had previously linked to Al Qaeda, the Italian officials said.
Yet Moises Naim, editor of the Washington-based magazine Foreign Policy and author of a book on money laundering titled Illicit cautions that an obsession with terrorism could distract governments and law-enforcement authorities from the far larger phenomenon of global illicit trade, including drug and prostitution trafficking.
"Illicit trade has become economically enormous, and is capable of undermining governments," Naim says. While globalization and technology have improved law-enforcement capabilities, he maintains that global criminal activity has benefited more and is transforming the international economic system—subverting rules, creating new economic actors, and reconfiguring the map of international political and economic power. "This is the reason to be concerned."