Home Research Projects Other Research International Informal Banking Systems Operating in the Greater Toronto Area Conclusions and Recommendations

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International Informal Banking Systems Operating in the Greater Toronto Area

PART THREE

IX. Conclusions / Recommendations

As stated previously, contradictory statements and major occurrences of participant reluctance makes further empirical research in the area necessary to support the trends observed in this study and to research / observe new ones.

During this research, it was extremely difficult, if not impossible, to estimate the actual funds transferred in and out of Canada by the financial agents. Given certain responses by the participants regarding the monetary ranges (e.g., “anything from half a million to three quarters,” or, “up to two hundred thousand,” or, “any amount”), it can be concluded that the amounts involved are substantial.

However, other researchers/estimates are more specific. For example, Pakistani officials estimate that over $5 billion in transactions occur through Hawala networks every year. One third of these transactions reportedly consist of the repatriation of funds from expatriate Pakistanis to their families. Pakistani nationals may hold between $40 billion and $60 billion in overseas financial assets—an amount roughly equivalent to the country's gross domestic product (Looney, 2002:2).

In the case of India, Interpol places the size of Hawala system at possibly 40 percent of the country's gross domestic product. In 1998, the most recent year for which data is available, estimates place the amount of money in the country's Hawala system at $680 billion, roughly the size of Canada's entire economy (Looney, 2002: 3; Baldauf, 2002:12).

However, none of the research studies explain or illustrate the process by which these estimates were determined. Moreover, as this study assumed that the process is integrally tied to cash economies, other researchers have tied it with the black market economy, smuggling, trafficking and terrorist financing to illustrate the serious potential threat posed by these systems (Passas, 2002). But these are all ‘potential’ or ‘allegations’, as it is impossible to determine the size of the black market economy (Naylor, 2002:7-11) or estimate the amount involved in these other activities. It is even less possible to determine the actual amount transferred through the informal banking systems.

The historical role of these systems as reliable, trusted, efficient and cheap and often, as the only method possible (as in Afghanistan or to remote villages in Pakistan or India), has to be given due importance before associating them with criminal activities. Most importantly, before implementing regulations against them to prevent criminal abuse, their values and requirements should be recognized and taken into consideration. Blunt regulations will force these systems underground and fail to prevent their mis-use. The differences in culture have to be understood and accommodated, for effective enforcement of any regulation.

Moreover, it was observed that the process is based on demands from the recipient jurisdictions. For example, it could be due to social customs, lack of infrastructure or national economic policies of the recipient countries that causes the system to flourish. The demand has to be addressed on the recipient side, as regulations on the supply side (the Source Countries) may not be adequate to prevent abuse. As traced by economic historians, from Prohibition to prostitution, from gambling to recreational drugs, never in history has there been a black market defeated from the supply side. The supply side controls act much like price supports in agriculture - to encourage production and increase profit. At best a few intermediaries get knocked out of business, but as long as demand persists, the market is served more or less as before (Naylor, 2002:11).

Regulation in recipient countries plays an integral role in curbing or regulating the process. For example, the Intelligence Unit set up to crack down on Hawala transactions in India (Times of India: 2004) or the licensing process undertaken by the Pakistani government has resulted in the recipients preferring to use legal channels to transfer funds. This client choice from the recipient country helps in preventing mis-use because it compels the sender-clients to use legal channels instead of the informal ones.

Most participants were suspicious and reluctant to discuss their activities and the related problems. They were not clear about their on going obligations. Education plays an important role in these circumstances, and forming a Self Regulatory Organization (SRO) of the participants is highly recommended. This would help in educating the participants and prevent the mis-use of the system to a great extent, as all participants, although reluctant, needed their problems addressed. An organization, such as a SRO can supervise the compliance requirements of the government, at the same time it can be a self-regulating and an independent organization consisting of the participants. For example, in a different context, the National Association of Securities Dealers is the Self Regulatory Organization for broker dealers in the United States. The registered broker dealer members pay a membership fee for the organization and it addresses and oversees the functioning. It ensures that the government regulations are complied with at the same time, addresses its members’ problems.

The creation of a Self Regulatory Organization consisting of the financial agents and other agents that offer other financial services can be of great assistance to the government and to the financial agents. By encouraging the creation of such a body the government will not incur any costs. Typically, in such organizations the members of the Self Regulatory Organization pay a membership fee, thus, the organization pays for itself through membership fees. The problems of the financial agents as well as the government’s concerns regarding the potential abuse of the system can be dealt with efficiently.

It is noteworthy that when the interviewer mentioned the creation of such an organization to some of the interviewees, they were interested about the idea and were willing to discuss the possibility with other financial agents, other individuals in the same or related financial business and the government. Most approved and considered it an asset.

A separation of immigration from financial issues is also recommended. However, given the current climate it is debatable if a separation of the issues is feasible. If immigration issues are separated from financial issues, a number of solutions can be found. It was observed that this process is primarily used by illegal immigrants. Other factors assisting the process, such as home delivery of funds and cost efficiency are being addressed by various recipient jurisdictions. For example, in India and in the United Arab Emirates, certain institutions have undertaken the home delivery process, and other financial companies, such as the UAE Exchange Centre, LLC, etc. are equally cost effective as the financial agents. It is the transfer of remittances by illegal immigrants that needs to be addressed. If there can be a separation of immigration issues from financial issues, the informal banking process may not be as attractive to clients.

Lastly, and most importantly, further empirical research is strongly recommended. This recommendation is proposed as a result of frequent instances of participant reluctance, contradictory statements during interviews and clarification requests that resulted in avoidance of further discussions or denial of previous statements. Further research is recommended to reconfirm these findings and trends.