Challenges resulting from hawala banking for anti-money laundering and anti-terrorist financing policies of Swiss banks

Abstract

Purpose The purpose of this paper is to illustrate threefold how hawala banking poses a problem for Swiss banks implementing anti-money laundering (AML) and anti-terrorist financing (ATF) policies as a fulfilment of Switzerland’s UN commitment. Design/methodology/approach The first author interviewed compliance officers and suspected criminals on hawala banking mechanisms. The authors formally recorded interviews with compliance officers, but interviews with suspected criminals were not recorded to maximize their potential forthrightness. In total, the authors conducted 70 formal interviews and developed a questionnaire based on this, which was sent to 200 compliance officers. The authors subjected the interviews to qualitative analysis and developed a system of categories that the authors assessed by means of triangulation. By substantiating proposed theoretical challenges with empirical findings, future recommendations for regulatory procedures are based on analytical evidence. Findings This study finds that hawala presents significant challenges for AML and ATF policies. Whilst it is possible to mediate the first two challenges laid out herein, it is the third hurdle that proves insurmountable. Ultimately, tolerating hawala banking passively counteracts any active effort made by implementing AML and ATF policies. Originality/value Whilst the existing literature sufficiently connects hawala banking to terrorist financing, this study details how existing compliance measures are circumvented and the implications on the perceived commitment of Switzerland against financial crime.

Practical considerations regarding the implementation of economic sanctions by Swiss financial service providers

“…Internal audits, employee training and KYC checks have become commonplace and necessary "paperwork" for a transaction. In this regard, the highest threat to Switzerland as a global financial center is its potential participation in the financing of terrorism, sanction circumvention or money laundering as a financial intermediary (Teichmann and Wittmann, 2022a). The highest risk identified has been at the level of private banks and universal banks which operate on the international markets (Financial Action Task Force, 2016).…”

“…Familiarity of this criminal tactic has become widespread through money laundering risk awareness. The risks of criminals being able to misuse legal persons to conceal beneficial ownership remains high (Teichmann and Wittmann, 2022a). Often, the inexperience of compliance officer is a contributing factor in the identification process.…”

Combating terrorist financing in Switzerland in the light of current changes in Afghanistan

“…Commercial banks in Afghanistan, however, enjoy a higher level of supervision than the hawala system (Rahimi, 2020). For this reason, bankers often complain about lax compliance obligations that clearly create an unfair commercial advantage for the hawala industry (Teichmann and Wittmann, 2022a, 2022b). After all, with the hawala system, transactions are carried out via phone conversations and WhatsApp messages (Valeri et al , 2020) with minimal formal documentation, making this system an optimal mechanism for terrorist financing in Afghanistan.…”

The Criminal Liability of Bank-Affiliated Notaries for the Confidentiality Principle of Banks in Connection with Deposit Collateral Agreements

“…Under this law, banks and their affiliates are required to maintain the confidentiality of customer information obtained through their business activities, including deposits and transactions. This information may only be disclosed in certain circumstances, such as when required by law enforcement or regulatory authorities (Teichmann & Wittmann, 2022). Failure to comply with the provisions of the Bank Secrecy Law can result in serious legal and financial consequences for banks and their affiliates (Johan, 2022).…”