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NOTES AND REFLECTIONS

THE ROLE ‘HAWALA’ IN FINANCING TERRORISM AND MONEY

LAUNDERING: THE NEXUS BETWEEN INFORMAL MIGRANT

REMITTANCES IN EUROPE AND FUNDING OF TERRORIST

ORGANIZATIONS

NOZIMA KHOLMATOVA

2672552K@student.gla.ac.uk

School of Politics and Social Science under the Programme: International Security and Strategic

Studies, University of Glasgow, Glasgow (United Kingdom). ORCID ID - 0009-0008-2589-3286

Introduction

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

the driving force behind contemporary terrorism’ (UK Treasury, 2001).

Admittedly, finances are a fundamental requirement for the execution of all terrorist

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

transfer?

Following the September 11, 2001 attacks, there was heightened scrutiny and regulation

of both formal banking and non-banking financial sectors. As a result, terrorists turned

increasingly to alternative value transfer systems like Hawala, or physical methods such

as transporting money, precious stones, or gold. Despite its widespread use, Hawala

lacks robust legal oversight, allowing for anonymous cross-border money transfers that

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

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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

(Klemar and Cindori, 2017:122).

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

Asian societies might be linked with terrorist-sponsoring. First, I examine hawala and the

reason for the popularity of this money transfer, and second, in the example of

Somalians, I will try to shed light on how diasporas and migrant minorities may facilitate

money laundering on European soil.

Literature review. Contextualising the argument

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

at elucidating the operational dynamics, regulatory concerns, and potential risks

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

specific actions of criminals (Trechsel, 1997:14, Graber, 2009:2; Schneider and

Windischbauer, 2008:394). In this context, the World Bank emphasizes the importance

of distinguishing between money laundering and financing of terrorism due to the

divergent paths taken by these funds. When money is utilized for terrorist activities, it

typically follows a traceable route from its origin through a terrorist organization to the

specific cell executing the attack (World Bank, 2009). FATF underscores the significance

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),

aligning with the concept of monitoring terrorist fund movements. In this regard, the

FATF advocates for a “comprehensive assessment” of the various stages constituting

terrorist financing.

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

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Migrant Remittances in Europe and Funding of Terrorist Organizations

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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

distinguished a detailed analysis of the complex interplay between terrorist financing

sources and the strategic considerations of terrorist organizations. Yet, from the first

page Freeman provides specific examples of terrorist groups, such as the Shining Path,

FARC, ELN, ETA, Pakistani Taliban, and others, and their methods of fundraising.

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,

Freeman identifies the role of popular support, including charitable donations and

contributions from diaspora communities, in financing terrorist organizations. He explains

how popular support signals legitimacy, provides a relatively easy source of income, but

also poses risks such as loss of control or dependence on economic conditions.

Whereas Nikos Passas and Samuel Munzele Maimbo focuses on the relationship between

Islamic institutions and terrorism financing in Europe. Which underscores the

multifaceted nature of terrorist funding, highlighting both legitimate and illegitimate

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

exploit Islamic institutions, such as mosques and cultural centers, as conduits for

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.

Arguably, in the wake of the September 11, 2001 attacks, there has been a growing

acknowledgment, if not consensus, that understanding terrorist financing remains

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

against terrorism”, many of the assumptions underlying regulatory frameworks are yet

to be adequately tested and proven plausible (Witting, 2011). The book authored by

Timothy Witting offers a comprehensive examination of the existence of a profound

disparity between the expansive regulatory measures implemented to combat terrorist

financing and the actual comprehension of the financial and economic dynamics

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

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Migrant Remittances in Europe and Funding of Terrorist Organizations

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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

isolated financial phenomenon, Witting proposes a more nuanced and analytically

rigorous framework for researching and responding to terrorist finance.

The same is true for the financing of terrorism. However, it hsould be noted that majority

of literature explains that terrorist financing exists, it does not describe exactly how such

criminals operate (Bagella et al., 2009; Graber, 2009; Harvey, 2004; Schneider and

Windischbauer, 2008; Takáts, 2007; Trechsel, 1997; Van Duyne, 1994; Walker, 1999).

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.

The specification of Hawala

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

as “Hundi” (collect) is an informal financial money transfer system (Al-Hamiz, 2005)

“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

Kuan in Thailand, and the Black Market Peso Exchange in South America (Klemar and

Cindori, 2017:121).

Admittedly, the expression may be relatively novel in Western vocabulary, but it enjoys

widespread usage in various forms across Africa, Asia and throughout the Middle East.

Thus this paper, acting as a mediator, aims to acquaint (or reacquaint) not only with the

term “hawala” but also with the distinctive security hurdles posed by this concept—an

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

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The role ‘Hawala’ in Financing Terrorism and Money Laundering: The Nexus Between Informal

Migrant Remittances in Europe and Funding of Terrorist Organizations

Nozima Kholmatova

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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,

the number of hawaladars is thought to be between 500 and 2,000 (Bolta, 2010) while

fund movement direction covers Kabul, Peshawar, Dubai, and London. The total volume

of transfers via Hawala is estimated to reach several billion dollars annually. Figures from

2011 (Ratha, 2012) indicate that funds transferred through alternative value transfer

systems amounted to $483 billion, with $351 billion of this sum allocated to developing

countries. Moreover, according to Richardson (2011), approximately 80% of start-up

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

often becomes the sole method of transferring money without the necessity of confirming

their identity.

Hawala and its nexus to terrorism

Terrorism, having become institutionalized and integrated into the realm of the shadow

market, has established its own distinct financial and economic enclave. It possesses the

capacity for substantial autonomous operations not only within its own national

boundaries but also across international borders. The conduct of illicit activities

necessitates the presence of financial institutions and substantial amout of finances

capable of commiting ‘expensive’ attacks’ (Nagy and Somogyi 2023:22). In this instance,

hawala networks prove to be highly advantageous for terrorist activities (Gordon,

2009:4). This system guarantees an inexpensive, discreet, and effective method for

facilitating frequent money transfers across the globe, making it an attractive option for

terrorists (G. Feiler 2007:35).

Prior to the September 11, 2001 attack, Hawala transactions were not prohibited in the

United States as long as they adhered to US laws and were reported to the Financial

Crimes Enforcement Network (Klemar and Cindori, 2017:123). The push for regulating

these systems arose from global apprehension about their potential for facilitating

terrorism financing. Western entities such as the UN, FATF, and IMF held deep suspicions

toward certain informal value transfer systems (IVTS). These suspicions were further

fueled by US narratives regarding the risks associated with IVTS and accusations of their

involvement in the events of 9/11. Consequently, the 9/11 Commission Report

documented the transfer of Al Qaeda funds through hawala networks in Pakistan and the

Middle East before the September 11 attacks (Cooper and Walker, 20016:1125). As

Keller (2005) investigated, the financing utilized by al-Qaeda in 1998 for orchestrating

terrorist attacks on US embassies in Kenya and Tanzania, revealing hawala's role in

facilitating such activities. Given the high risks associated with physically transporting

large sums of cash, many terrorist financiers prefer the discreet hawala system, which

enables the transfer of billions of euros daily without raising suspicion (Neue Zürcher

Zeitung, 2002).

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An illustration of Hawala's utilization in support of terrorist activities is exemplified in the

transcripts from the trial of Muhammed al-Owahali, an al-Qaeda member serving a life

sentence for his involvement in the 1998 U.S. embassy bombing in Nairobi, reveal that

funding for the attack was channeled through a hawala office located in the infamous

Easleigh district of the city, known for its largely Somali population. Similarly, according

to the charges against Faisal Shahzad, the Pakistani American who attempted to detonate

a bomb-laden SUV in New York's Times Square in May 2010, hawala transfers were

utilized to finance the plot (J. Cassara and Ch. Poncy, 2015:68). Shahzad allegedly

received around $12,000 from his handlers in Pakistan, specifically from the Tehrik-e-

Taliban, to execute the attack (CBS News, 2010).

Another the most notable instance involves the exposure of a vast covert hawala network

in Spain, comprising 300 hawaladars operating clandestine offices across Spanish cities,

notably within 250 butcher shops, grocery stores etc., This network handled the finances

of over 150,000 Muslims, many of whom were suspected to be receiving social welfare

benefits from the Spanish state, without any legal oversight. Furthermore, the network

facilitated the payment of salaries to jihadists in Syria, providing approximately $800 for

single individuals and $1,200 for married individuals (Klemar and Cindori, 2017:126).

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).

Multiple studies have shed light on this issue (Nagy and Somogyi 2023:23). Rowald

(2014) et al. highlight that al-Qaeda operates an extensive financial network comprising

companies and bank accounts, while also relying on hawala for fund transfers. Arianti

(2020) documents cases where the Arakan Rohingya Salvation Army in Myanmar

distributed money through hawala. Similarly, the Katibat Imam Al-Bukhari group

reportedly obtained funds from its affiliates through hawala channels (Soliev, 2019:17).

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

hawala (Fair, 2004). Furthermore, hawala is also widely used by the Islamic State to

avoid being tracked down for official banking transactions (Almohamad, 2021).

In summary, these studies underscore the utilization of hawala by terrorist organizations,

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

enforcement agencies.

Funding terrorism: the case of Somalian Al-Shaab Terrorist Organisation

Once Osama bin Laden stated that Jihadists aware of the vulerabilities ‘cracks’ in the

Western financial system. And unofficial payments, far from being mere fissures,

represent vast chasms akin to the Grand Canyon. It is evident that beyond their

legitimate purpose of transferring wages, they are also exploited by criminal and terrorist

groups (Cassara, 2017:4). Islamic charitable organizations are not exception to this list

and are heavily involved in funding terrorism.

According to Daniel Glaser (2011), the US Assistant Secretary of State for Terrorism

Financing, charities—which are widely publicized and encouraged among immigrants—

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Migrant Remittances in Europe and Funding of Terrorist Organizations

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are being used by terrorists as a means of "raising, moving, and utilizing funds." The

charities are better suited to offer logistical cover for the transfer of funds and have

evolved into a front for radicalization and brainwashing. Admittedly, there are diverse

avenues through which terrorist funds flow. As outlined in this paper, tracing terrorist

financing poses challenges, because the role of diaspora and proliferation of Islamic

charities in various contries, some of which harbor a strong radical element. These funds

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

One should be noted that Somalia stands as one of the world's economies highly reliant

on remittances (Cockyne and Shetret, 2012:2). Within Somalia, xawilaad (hawala)

serves as the predominant means for transferring money into, out of, but also recognized

as the most cost-effective, straightforward, and secure method for these transactions

(Witting, 2011:121). With the absence of traditional banking institutions, the hawala

system serves as the sole financial transfer mechanism in Somalia, facilitating family

support, investments, and business transactions. Studies conducted by the United

Nations Development Programme (UNDP) have revealed that 26 percent of Somalia's

entire population relies entirely on transfers, while up to 66 percent depend on it for at

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

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

also as a means of fostering cross-clan relationships, often involving specific clan

members. Bigger xawilad businesses, like Dahabshiil, Amal, and the now-defunct al-

Barakaat have strategically expanded their services across clan lines, operating within

the framework of Sharia (Islamic law) and xeer (Somali customary law). This cross-clan,

pan-Somali approach, rooted in religion and culture, closely mirrors a core ideological

belief of al-Shabaab, emphasizing the significance of Islam (Witting 2011:122).

Al-Shabaab, also referred to as the Somalian Youth Mujahedeen Movement, is a Sunni

Islamist extremist group with the goal of expelling foreign, particularly Ethiopian, forces

from Somalia and implementing Islamic law in the nation. Linked with al-Qa’ida and

recognized as a terrorist organization by multiple countries, emerged as a potent and

radical faction within the Islamic Courts Union (ICU) movement, which gained substantial

support among Somalis in southern and south-central Somalia in early 2006

(WashingtonDC, 2007). The financing of this group partly relies on monetary donations

from Somali diaspora communities situated in Europe, North America, Kenya, and the

Middle East. In Scandinavia, for instance, individuals connected to Al-Shabaaab

reportedly seek contributions from member of Somali communities in Odense,

Copenhagen, and Malmö, many of whom hail from the southern Somali regions where

al-Shabaab holds influence (Witting 2011:123). Investigators from the European Union

claim that this kind of fundraising usually centers on “older, manipulative Islamic

extremists” who can persuade people who might be sympathetic to the cause—including

attendees of family gatherings, mosques, public gatherings, and charity events—to

donate to al-Shabaab. These individuals reportedly do this by presenting stories that

affirm that money given to al-Shabaab not only satisfies the Islamic obligation to give

zakat (madatory donation), but also that the funds will be used to fight against Ethiopia,

the Somali Transitional Federal Government (TFG), and Western states, including the

United States (Washington DC, 2010).

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e-ISSN: 1647-7251

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The role ‘Hawala’ in Financing Terrorism and Money Laundering: The Nexus Between Informal

Migrant Remittances in Europe and Funding of Terrorist Organizations

Nozima Kholmatova

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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).

Conclusion

The analysis of hawala, an informal yet pervasive money transfer system, reveals its role

as a conduit for terrorist financing. Despite being traditionally associated with legitimate

remittances and cross-border transactions, hawala has increasingly been exploited by

terrorist organizations due to its secrecy and accessibility. Moreover, the examination of

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

counterterrorism by illuminating the evolving dynamics of terrorist financing

mechanisms.

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The role ‘Hawala’ in Financing Terrorism and Money Laundering: The Nexus Between Informal

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Nozima Kholmatova

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How to cite this article

Kholmatova, Nozima (2025). The role ‘Hawala’ in Financing Terrorism and Money Laundering: The

Nexus Between Informal Migrant Remittances in Europe and Funding of Terrorist Organizations.

Janus.net, e-journal of international relations. VOL. 16, Nº. 2, November 2025-April 2026, pp. 515-

525. DOI https://doi.org/10.26619/1647-7251.16.2.04