NEXYTE_AML_Hawala_eBook

by Cognyte

Decoding and Disrupting Illicit Hawala Networks with Decision Intelligence

How Decision Intelligence Can Help
Key Decision Intelligence Capabilities
About NEXYTE
The Hawala Problem
What is Hawala?

Executive Summary

In this report we explore the Hawala financial system, why it poses a unique and elusive challenge for law enforcement authorities, and how the capabilities of decision intelligence platforms can mitigate the significant difficulties involved in investigating Hawala networks and stopping the criminals and terrorists who take advantage of them. These capabilities include:

Entity resolution
Unified investigative workspace
Advanced search and alerts
Visual link analysis
Automated risk scoring

The Urgent Need for Better Investigative Tools for Hawala

In today's high-tech era, criminals often leave digital footprints that aid law enforcement and financial regulators in investigations. Ironically, it's the offline, low-tech crimes that confound authorities the most. This is evident in the recent surge in illicit use of the Hawala system, as criminal and terror groups increasingly take advantage of this centuries-old money transfer system to evade authorities. Despite their best efforts, law enforcement agencies struggle to combat the illicit movement of funds via the Hawala system, due to its decentralized, unregulated, and low-tech nature.

Transactions are typically recorded in paper notebooks with cryptic codes and token numbers denoting transactions between anonymized parties, offering investigators little to work with. However, there is a global push for urgent action against Hawala activity in both developed and undeveloped countries, especially in Europe, where waves of immigration have changed local demographics. Law enforcement is contending with a surge in money laundering and terror funding via Hawala networks, as well as the popularity of the Hawala system amongst criminal and terrorist groups.

This has prompted law enforcement to seek new technologies, including AI-driven decision intelligence platforms, to extract meaningful insights from the low-tech data sources associated with the Hawala system.

What is Hawala?

Since the Middle Ages, Hawala networks have practiced an off-the-books method of remittance that sidesteps traditional banks and regulators, relying instead on networks of brokers coordinating money transfers in a system underpinned by a strict honor code. Trust is the ultimate currency among Hawaladars. With roots in the Middle East, Asia and parts of Africa, Hawala networks have also spread to Europe, the Americas and elsewhere in recent years. The Hawala system is particularly popular among migrants transferring money to and from their families back home, and in regions underserved by traditional financial institutions, or where trust in established institutions is eroded.

While many use Hawala networks for legitimate transactions, Hawalas often function as international controller networks (ICNs), which are organized crime groups that specialize in laundering illegal funds across borders. They provide a professional service to criminals, helping them to hide the origin of their money and move it around the world without detection. ICNs, including Hawala and others such as underground Chinese banking networks, have been increasingly co-opted in recent years by criminal and terrorist organizations wishing to evade authorities.

How Hawalas Work

In a typical Hawala transaction, funds are transferred between countries through trusted intermediaries, known as Hawaladars, who settle the debt between themselves and deduct a small fee without physically moving any money. This system provides a crucial service in regions where interest charges are forbidden by Islamic law, offering a cost-effective alternative to traditional wire services.

Steps of Hawala transaction

The off-the-books nature of Hawala networks makes them vulnerable to exploitation by organized crime groups, money launderers and terrorist networks. In fact, it is estimated that between €300 and €700 million in illegal proceeds from migrant smuggling moves through Hawala networks annually across central and western Mediterranean routes. In Afghanistan, which supplies 80% of the world's opium, Hawala is the preferred method for international money transfers. In Western Europe, it is estimated that up to €1 million per month of illegal proceeds from drug trafficking are funneled through Hawalas networks.

The substantial sums involved underscore the urgency for regulatory measures, as well as better investigative tools. There is a debate in many countries, notably in the EU, as to whether to integrate Hawalas into the formal financial sector to enhance oversight or to intensify efforts to deter their use, particularly in contexts like migrant smuggling and drug trafficking, where Hawalas serve as primary conduits for illicit funds.

How Decision Intelligence Can Help

What is Decision Intelligence?

Decision intelligence is the practical application of analytics, machine learning and AI technologies to augment and improve human decision-making, which in the law enforcement domain can enable analysts and investigators to conduct investigations faster and more effectively. Decision intelligence platforms leverage technologies such as data fusion, machine learning analytics and AI enrichments in addition to collaboration and data visualization tools.

These platforms enable organizations to automatically collect, fuse and analyze data from virtually any source, on a massive scale, in order to generate data-driven insights and decisions. This allows investigative teams to detect anomalies, identify patterns of suspicious activities, assess risks and uncover new leads.

How Decision Intelligence Can Help Authorities Combat Illicit Hawala Networks

Investigating Hawala activity is fraught with challenges, due to the fact that most transactions are purposefully not recorded digitally, and because of the complex web of ties that spans continents. In the coming years, it is expected that an increasing number of countries will enhance oversight over Hawala networks and will push to digitize the data associated with Hawala networks. In fact, the EU has passed laws regulating money transfers and payment institutions, which include Hawala, but still faces challenges in enforcing these laws when it comes to Hawala networks.

Even with regulations in place, investigators will still need to contend with vast data sets such as bank accounts, police records, and money exchange registrations, often fragmented across disparate databases, a challenge exacerbated by limited time and an abundance of false positives. They will also need to prioritize which transactions and Hawaladars to investigate, identify Hawalas that are at high-risk of being used for money laundering, and optimize resource allocation amidst competing investigative priorities.

![Record from a Dutch collector showing a token number being used for each "withdrawal" or handover]

Source: FATF Report, October 2013

Decision intelligence platforms, such as Cognyte's NEXYTE platform, integrate data fusion and advanced analytics to uncover illicit Hawala activities, assess risks, expedite decision-making, and streamline investigations currently conducted in a siloed manner. Leveraging machine learning insights, investigators can determine which funds and account holders are more likely to be involved in illicit activities, and can map out Hawala networks and identify key hubs over time. Fusing and analyzing all data in one platform is crucial, enabling analysis of both structured (databases) and unstructured data (such as images, audio, video and handwritten text) to enrich profiles and correlate them with various records like police reports and financial data, aiding in the de-anonymization of suspects.

Using a decision intelligence platform allows investigators to visualize Hawala networks, establish relationships and hidden links automatically, and receive a comprehensive investigative picture that traditional methods may take years to reveal, if ever. By uncovering hidden connections, decision intelligence can help to decode encrypted data from Hawaladars' notebooks, exposing illicit activities, and paving the way for authorities to disrupt the network. In addition, if authorities enforce digitization of Hawala networks, it becomes easier to cross-reference data sources and validate transactions via the banking system, enable regulatory compliance, and flag suspicious activities.

Key Decision Intelligence Capabilities for Combating Illicit Hawala Networks

The following decision intelligence capabilities can accelerate investigations of Hawala networks:

1. Unified investigative workspace

A decision intelligence platform fuses all available data sources, no matter the format or type, to provide a single, unified view for the entire organization. Data from lawful interception, web content and information gathered from informants, as well as other unstructured data, is fused in the decision intelligence platform, allowing investigators to easily access all relevant information, and apply AI and machine learning tools to visualize and analyze the data.

![Fused data sources in a decision intelligence platform]

2. Advanced search and alerts

Decision intelligence platforms provide automated intelligence rules and alerts that can easily be defined by an investigator for each investigation. The capability to create automated rules and alerts is critical, as it proactively pushes crucial information to the investigator, significantly reducing the risk that important information will be missed, and minimizing the need for time-consuming manual searches. Investigators can easily build rules and alerts to surface suspects, for example those suspected of being involved in terror funding, using multi-source queries.

![User-defined intel rule for surfacing suspected Hawaladars]

3. Entity resolution

The ability to create holistic entity profiles by connecting and classifying all available data connected to entities, such as individuals, accounts, and transactions, helps investigators to surface suspicious patterns and activities. Conducting this analysis manually on a mass scale would be virtually impossible. Any flagged inconsistencies or anomalies automatically increase the risk scores of the relevant entities.

![Entity profile including data visualization from all available sources]

4. Visual link analysis

This powerful capability enables investigators to validate their analysis and map out the full Hawala operation and network. Using visual link analysis, investigators can trace several levels of relations to identify hidden relationships between individuals and groups involved in illicit Hawala networks.

![Visual link analysis of individuals, groups and assets involved in a Hawala operation]

One of the methods for mapping and visualizing Hawala networks is based on AI-powered image analytics for detecting inferred relationships between individuals based on their appearance in available photos. As Hawala networks are hard to track using traditional intelligence data sources, such as bank transactions, inferred relations from images can potentially uncover hidden connections between those involved in illicit Hawala money transfers.

![Visual link analysis based on AI-powered inferred relations from an image]

Automated risk scoring

A decision intelligence platform can utilize machine learning models, tailored for Hawala use cases, to automatically assign a risk score for all relevant entities, such as accounts, individuals, businesses, and transactions, based on user-defined use cases. This allows investigators to better prioritize their work and decide which leads to follow.

![Risk alert screenshot showing a critical suspicion level with terror affiliation, matching 3 out of 4 threat criteria including abnormal Hawala transactions, recent entry to country, and unemployment status]

Automatic risk alert

Authorities around the world face serious challenges in tracking suspicious financial activities carried out via Hawala networks. By harnessing decision intelligence, authorities can effectively address these complex challenges, and proactively utilize investigative insights based on AI and machine learning to counter illicit money transfers.

About NEXYTE

NEXYTE, Cognyte's decision intelligence platform, accelerates decision-making and boosts financial investigations through multi-source data fusion and machine learning analytics. NEXYTE enables authorities to significantly improve the accuracy and effectiveness of their investigations and risk assessment, leading to faster case resolution and increased recovery of illicit funds.

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About Cognyte

Cognyte is the global leader in investigative analytics software that empowers a variety of government and other organizations with Actionable Intelligence for a Safer World™.