We write (and tell our clients) consistently about how difficult it is to obtain the bank account information of litigation opponents without first getting a court order. There are people out there who will charge you to trick banks into divulging this information, but they break the law when they do this.
If you are ever tempted to hire one of these people, see if they can tell you how they obtain the information because you would like to submit the methodology to legal analysis. They may well hang up on you.
Still, we do get our hands on account information some of the time. Either our clients have legal access to it (they are joint account holders, for instance) or they have gone to the trouble of getting a court order.
On our other blog this week, The Divorce Asset Hunter, we thought it would be useful to begin an occasional series about what happens we do, legally, get access to bank accounts. We explained this week the idea that an account may answer a lot of questions, or may just open the door to another set of puzzles to solve.
Today’s installment deals with a time-tested way to move money around the world secretly, known in South Asia as Hawala or Hundi, and in China by the term “flying money” among many.
The Hawala system is one of money transfers based entirely on trusted non-bank networks that may use the banking system as a portion of the transfer process. It may consist of entirely legal or illegal transactions. It may work like this:
Mr. A in Asia wants to send $10,000 to Mr B in Baltimore. Mr. A gives the local equivalent of $10,000 in currency, gold, diamonds or something else to a member of a Hawala network in his city in Asia. That person contacts another member of the network in Baltimore, who makes an entry that he needs to deliver $10,000 (minus small fees for the network members on both ends) to Mr. B. Mr. B gets his money, and the only documentation is a book entry within the network, and perhaps an email or text message.
These systems need to settle up. If the network member sends more to the member in Baltimore than the Baltimore member sends the other way, reconciliation can happen through the banking system, through intermediaries in places such as Dubai, or in trade transactions that can involve mispriced invoices.
In a simple example, if the Baltimore member of the network buys $30,000 of jewelry from the member in Asia, he can receive an invoice for $40,000. His overpayment of $10,000 will settle the imbalance resulting in the transaction between Mr. A and Mr. B.
The kinds of businesses that participate in Hawala networks (as opposed to the people who make use of the networks) are often those that routinely engage in foreign trade (travel agents, import-export agents, foreign exchange bureaus, and used car dealers who ship older vehicles overseas.) In examining bank account information of these and other businesses, there are several indicators that suggest a higher likelihood that the account holder is part of a Hawala network. These include repeated small deposits from a variety of local individuals in round numbers and fewer large transfers to parties in a known Hawala center, such as London or Dubai.
For example, Mr. D is small jewelry dealer in New York. He receives deposits in similar round amounts of $1,000 or $2,000 from a variety of individuals, and then pays out one much larger amount to an account in Geneva. There’s plenty of jewelry sold in Switzerland, but not the kind usually on view in Geneva. More probing would be in order.
Sometimes for the purposes of negotiation during a divorce or another kind of dispute, it’s not even necessary to unravel the whole Hawala network. The idea that illicit transfers may be uncovered may be enough to induce the other side to settle quickly. Nobody likes the IRS to get involved in their affairs any more than it already is. A Hawala arrangement may be legal, but it may conceal income that has not been declared.