This essay investigates the critical role of financial resources in the execution and

persistence of terrorist activities. Emphasizing that terrorism cannot endure without

funding, it draws on statements from prominent political figures and highlights the

necessity of finances for organizational infrastructure, recruitment, propaganda, and

execution of attacks. Following the increased scrutiny post-September 11, 2001,

alternative value transfer systems like Hawala have become pivotal for terrorist financing

due to their anonymity and lack of regulation. The essay examines how Hawala, a

of Hawala and terrorism financing, proposing new mechanisms for prevention and

regulatory improvements.

As evident from the statements made by former President George W. Bush and former

Secretary of State Colin Powell, money is regarded as vital for the planning and execution

of terrorist activities, underscoring the notion that terrorism cannot persist without

financial support. Comparable sentiments have been echoed by European leaders. In

alignment with his American counterparts, British Chancellor of the Exchequer (later

Prime Minister) Gordon Brown affirmed that ‘the readily available financial resources are

activities, often characterized as an “energy source” or a “lifeblood” for both terrorists

and their organizations. Funds are required for various purposes including the

development of organizational infrastructure, recruitment, propaganda, training,

planning, executing terrorist attacks (Simonovski and Ünsal, 2018), providing retirement

pensions, acquiring weapons, explosives, paying bribes, obtaining communication

equipment, transportation, forging documents, and more (Freeman, 2012:3). This

underscores the necessity for long-term and reliable sources of funding (Simonovski and

Ünsal, 2018). Without financial resources, terrorist groups cannot function effectively as

organizations or carry out attacks. Nonetheless, questions persist: How do different

terrorist groups acquire funds? What are the potential sources and methods of financial

can facilitate terrorist financing (Klemar and Cindori, 2017:124).

Despite the widespread use of such money transfer systems by minority ethnic

communities in numerous countries (for instance, Sri Lankan immigrants in Canada

financing the Tamil Tigers through these channels), as well as within ethnic Muslim

immigrant enclaves across Europe, North America, and certain regions of the oil-rich

Middle East (Ballard, 2012), there has been limited academic inquiry into comprehending

the underlying causes and sources devoted to researching hawala funding system

Thus, this essay will fill the gap by seeking to answer the question of how hawala which

is regarded as a traditional form of the money transfer system in some Asian, and East

The empirical understanding of the hawala system, a traditional informal money transfer

mechanism, is subject to constraints owing to its clandestine nature and the challenges

associated with its study. Despite its significance in facilitating international financial

flows, comprehensive empirical research on the hawala system remains scarce. However,

notable efforts have been made by institutions such as the International Monetary Fund

(IMF, 2005), the World Bank (Passas and Maimbo, 2003), and the Financial Action Task

Force on Money Laundering (FATF, 2013) to shed light on its workings and implications

(UNODC, 2023). These institutions have undertaken various studies and analyses aimed

associated with the hawala system.

Although the majority of FATF recommendations devides financial industry: placement,

layering, and integration as three stages of money laundering, it does not explain the

of monitoring the “direction and utilization of funds related to terrorism, as this data

informs the necessary enhancements or implementations of controls” (FATF, 2019:39),

Nontheless, criticisms around the researching hawala and money laundry is that the vast

majority of the literature currently in publication concentrates either on efforts to

estimate the volume of money laundering or on institutions and processes designed to

prevent it (Takáts, 2007:4, Bagella et al., 2009:896). And these estimations lack

persuasiveness, as accurately assessing the global volume of crime would require the

ability to quantify worldwide criminal activities—a formidable challenge given the scarcity

of data and the limited understanding of the true scope of organized crime (Van Duyne,

1994:62, Harvey, 2004:339, Walker, 1999:36). While, there is widespread recognition

that money laundering remains a significant global issue (Schneider, 2008:309).

Consequently, efforts to combat money laundering have thus far fallen short

(Maximilian,2022).

In “The Sources of Terrorist Financing: Theory and Typology” Michael Freeman

Furthermore, illegal and legal activities as sources of funding for terrorist groups

according to Freeman highlights how these activities can provide reliable income,

enhance legitimacy or undermine state legitimacy, offer geographical flexibility, and

sometimes lead to loss of control or unwanted attention from authorities. Additionally,

multifaceted nature of terrorist funding, highlighting both legitimate and illegitimate

channels used by extremist groups. Which elucidates how Islamist terrorist organizations

fundraising and recruitment. Passas and Maimbo finding out the Islamic banking system

and its susceptibility to abuse for terrorism financing. Authors explain the structure of

Islamic banks, including the pivotal role of Sharia Committees, and highlights the

potential diversion of ‘Zakat’ funds to terrorist groups. The collaboration between Islamic

banks and international networks of correspondent and offshore banks further

complicates efforts to trace terrorist financing. Finally they underscore the challenges

posed by the lack of common legislation in Europe and the political sensitivity surrounding

investigations into Islamic banks.

acknowledgment, if not consensus, that understanding terrorist financing remains

insufficient. Despite significant efforts in what is often referred to as the “financial war

employed by terrorist actors. This discrepancy is highlighted by various experts within

the government and the financial sector, who admit to a lack of clarity in identifying the

indicators of terrorist financing. These challenges underscore the necessity for a coherent

and systematic approach to understanding terrorist financing, one that transcends the

conventional focus on uncovering the sources and mechanisms of funding. Moreover

Witting challenges orthodoxies surrounding terrorist finance, advocating for a more

contextualized understanding that emphasizes the socio-political dimensions of terrorist

actors’ interactions within local and global political economies and social movements. By

reframing terrorist financing as part of broader socio-political dynamics rather than an

Thus the aim of this research is to further elucidate, step by step, how intelligent criminals

use hawala banking to finance terrorist organizations and to use these findings to develop

new prevention mechanisms. This research aims to close the gap described above. In

particular, it will examine how criminals can use the hawala in Europe to launder money

or finance terrorism. This will be achieved by analyzing which concrete steps they would

have to take and which resources they would need to be successful.

Arguably, before contemplating about hawala system and its role in financing terrorism

it worth to define what Hawala means. In doing so, we will refer here to John Cassara

and Saeed Al-Hamiz’s definition, which define Hawala (Arabic: ةلاوح – transfer) also known

“without money movement” (Cassara, 2006), that exists and operates outside the

“traditional” banking system and financial channels. Hawala does not pay taxes and is

outside of economic regulation. The main component of the hawala system is the network

of hawala brokers (Bowers, 2009:379). They are responsible for facilitating transfers

between countries. Notably, the funds do not physically cross international borders;

rather, the sender provides the funds to a hawaladar-service providers in one country

and receives a confidential code from to another hawaladar to receive the equivalent

amount in local currency. Although, hawala is far from being a recent development. In

fact, this informal method of transferring value has roots in antiquity. Its modern

iterations are also recognized under different names such as Fei ch‘ien in China, Phoe

informal and opaque means of transferring value (Bowers, 2009:379).

The sustained appeal and growing demand for Hawala as an alternative financial

mechanism can be attributed to several key characteristics: Firstly, its inherent secrecy

plays a pivotal role in its enduring allure. This multifaceted appeal directly addresses the

apprehensions of money launderers, providing a shield against disclosure and legal

ramifications, while also alleviating concerns among terrorist financiers regarding

potential disruptions to their activities (Turner, 2011). Secondly, the widespread

dissemination of Hawala across more than 20 Asian and Pacific nations underscores its

global presence and accessibility (Klemar and Cindori, 2017:122-123). In Afghanistan,

capital for small-scale entrepreneurs was facilitated through Hawala channels. Thirdly,

Hawala transactions primarily benefit immigrant workers residing in developed countries.

This is because many of them initially place their trust in representatives of the Muslim

communities in hosting countries, who, in addition to running small businesses in EU

countries, facilitate these illicit transactions. Finally, a significant portion of migrants may

be residing in the country illagally or with expired visas. In such circumstances, hawala

These operations were conducted from concealed and anonymous Hawala stations,

categorized as modern Hawala due to the provision of value transfer services from

butcher shops, grocery stores, etc. (Ranstorp, 2016).

The Khalistan Liberation Force funded its activities through criminal means in India,

receiving financial support from the Sikh diaspora in Canada and the United Kingdom via

elucidate its role in financing terrorism, and highlight the challenges encountered by law

enforcement agencies.

are often channeled through the international hawala network (V.Chadha, 2014:40).

least half of their basic needs (Houssein 2005:89).

However, hawala in Somalia serves not only as an informal money transfer system but

In this way, through the UK-based Somali community, Al-Shabaab has managed to

secure substantial funding, estimated to be in tens of thousands of pounds, given their

population size of around 250,000 (Shay, 2021). While some British Somalis voluntarily

contribute to the terrorist organization, a portion of the money sent back to relatives in

Somalia is diverted by extremists. Additionally, Muslims often donate to Islamic charities,

typically through cash transactions via hawala (Nagy and Somogyi 2023:24).There's a

strong likelihood that some of these donations to Islamic charities have inadvertently

financed terrorism, unbeknownst to the devout immigrant workers (Patel, 2017).

specific case studies, such as the Somali diaspora's contribution to funding Al-Shabaab,

underscores the global reach and impact of terrorist financing networks. By elucidating

these connections, this work contributes to a deeper understanding of how terrorist

organizations exploit informal financial systems and diaspora communities to sustain

their operations. This study not only identifies gaps in existing research but also proposes

avenues for future investigation. By emphasizing the need for nuanced, context-specific

approaches to understanding terrorist financing, it advocates for a shift away from

conventional frameworks towards more holistic and interdisciplinary methodologies. Due

to word limit of this essay, it has some limitations and requires further research on this

issue. In essence, this work serves as a critical contribution to the field of

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