TO better understand the financial systems behind the Daesh-Maute terrorist organization, one must understand a few basic facts about any kind of modern warfare: First, vacuous articles and misleading propaganda videos get circulated on both mainstream and social media to protect the vested interests of spiritually bankrupt leaders on both ends of the war spectrum.

Second, the spoils of war get divided not only among vicious terrorists but also among a few misguided or coopted politicians, military and police officers.

Third, greed knows no limits, and it grows little by little, continuously. In war time, greed tends to grow exponentially. In a few tragic cases during the Marawi siege, incorruptible team leaders or members of the military were allegedly shot to death by their own teammates over looted cash and gold.

HOW HAWALA WORKS An initial transaction can be a remittance from a customer (CA) from country A, or a payment arising from some prior obligation, to another customer (CB) in country B. A hawaladar from country A (HA) receives funds in one currency from CA and, in return, gives CA a code for authentication purposes. He then instructs his country B correspondent (HB) to deliver an equivalent amount in the local currency to a designated beneficiary (CB), who needs to disclose the code to receive the funds. HA can be remunerated by charging a fee or through an exchange rate spread. After the remittance, HA has a liability to HB, and the settlement of their positions is made by various means, either financial or goods and services. Their positions can also be transferred to other intermediaries, who can assume and consolidate the initial positions and settle at wholesale or multilateral levels.

Given only small sums are required to stage a deadly attack, even modest amounts of funding from foreign terrorist groups pose a significant risk to the region’s security.

In Marawi City, the major private remittance centers are found in Bangolo, Mindanao State University Campus and the Marawi City Hall. In Marawi City, Western Union, M. Lhuillier, Cebuana Padala, Palawan Express, Moneygram, LBC and Transfast are the major players in the remittance business.

According to the Bangko Sentral ng Pilipinas, the volume and value of remittances are high for the period January to October 2017 compared with the figures of the previous year. Specifically, in Region 10, one branch of the largest BSP-registered private remittance center recorded a 200-percent increase in internal remittances from P15,000 per day in February 2017 to P43,000 per day in October 2017. The remittance center processes foreign remittances at a steady bulk of 25 percent and internal remittances at 75 percent. The remittance centers also processes requests from non-local residents who transact with their office.

One branch of the second largest BSP-registered private remittance center registered a 200 percent increase in internal remittances from P10,000 per day in February 2017 to P38,000 per day in October 2017. Last year’s remittance figures went up from P10,000 in January 2016 to P25,000 per day by October 2016. The remittance center processes foreign remittances at a steady bulk of 30 percent and internal remittances at 70 percent. The remittance center also processes requests from non-local residents who transact with their office.

The largest BSP registered pawnshop in Region 10 reflected a daily transaction of P10,000 in 2016 compared to P40,000 in 2017, representing a 200 percent increase. Internal remittances accounted for 60 percent while foreign remittances accounted for 40 percent from 2015 to 2016. Then in 2017, internal remittances accounted for 80 percent of the total transaction compared to 20 percent for foreign remittances.

According to a local Labor department official, there were no marked increases in OFWs deployed in the period January to October 2017. Moreover, there was only one large enterprise that opened in the area during the period. The absence of new work possibilities for the locals does not explain the large increase in internal remittances.

In the absence of any plausible explanation, the evidence points to the possible terrorist financing carried out by the ISIS Central to its newly recruited local fighters, who may be sending the cash remittances to their respective families.

In addition, this marked increase in internal remittances may also be explained by narco-politics dominating the areas of Lanao del Sur and Lanao del Norte. The drug trade may be fueling increasing remittances. These possible explanations can only be fully determined through an increased regulatory power and framework by central bank officials in this region. There is a need to study internal remittances in the same manner that the government closely studies OFW remittances.

Hawala/padala system

Informal value transfer transactions are based on trust and rarely leave any traces. Informal value transfer methods are defined by counterterrorism author Nikos Passas as: “...any system or network of people facilitating, on a full time or part time basis, the transfer of value domestically or internationally outside the conventional, regulated financial institutional systems.”

Money is transferred between two parties living in two different countries but cash does not cross borders. The money never enters the conventional banking system. The transaction is based upon a single communication between the two “hawaladars” and is usually not recorded or guaranteed by written contract between them. (seediagram).

Passas notes that terrorist organizations such as Kashmiri, Hamas, Jemaah Islamiyah, and al Qaeda have been known to use hawala transfers. According to Matthew Levitt, director of the Stein Program on Counterterrorism and Intelligence of The Washington Institute for Near East Policy, the hawala is a perfectly legitimate form of financing.

In the local setting, there are hawala/padala informal remittance centers around the 15 barangay (viilages) of Cagayan de Oro. Most of the relatives of the OFW workers based in Qatar, Kuwait United Arab Emirates and Saudi Arabia resort to this system of remittances. Previous ADB estimates state that the amount coursed through informal systems and “padala” practices could amount to a minimum of $1.5 billion per year.

The qualities of simplicity and anonymity of the operations of the hawala/padala system have also attracted individuals and groups engaged in criminal activities such as money laundering, gambling, smuggling or the financing of terrorism. Clients use that system because of its quick and cheap international remittance service. Criminal elements also engage its services to hide the origin or destination or break the audit trail of money.

Economic and cultural factors underpin the attractiveness of the hawala system. It is less expensive, swifter, more reliable, more convenient, and less bureaucratic than the formal financial sector. Hawaladars charge fees to generate income. The fees charged by hawaladars on the transfer of funds are lower than those charged by banks and other remitting companies, due to minimal overhead expenses and the absence of regulatory costs to the hawaladars. To encourage foreign exchange transfers through their system, hawaladars exempt expatriates from paying fees. In contrast, they reportedly charge higher fees to those who use the system to avoid exchange, capital, or administrative controls. These higher fees often cover all the expenses of the hawaladars.

The system is swifter than formal financial transfer systems partly because of the lack of bureaucracy and the simplicity of its operating mechanism; instructions are given to correspondents by phone, facsimile, or e-mail; and funds are often delivered door to door within 24 hours by a correspondent who has quick access to villages even in remote areas. The minimal documentation and accounting requirements, the simple management, and the lack of bureaucratic procedures help reduce the time needed for transfer operations.

Law enforcement officials need to identify funds early on in order to nip terrorist activities in the bud. These efforts include—but are not limited to—taking action on money laundering activities, remittance services, and the hawala system. While we are fully aware that terror funding cannot be solved easily, it should awaken as much determination and creativity as possible. The main goal is to make all financial transfers by Daesh-Maute as difficult as possible.

Contact the authors: [email protected] and [email protected]