Introduction

Because of the sanctions and regulations that remain in place governing transactions between the United States and Iran, individuals are rightly careful when transferring money between the two countries. In particular, the United States has prohibited the use of the hawala system to transfer funds to and from Iran. But because the hawala system takes its name from the general word for an ordinary wire transfer or deposit, many people think that any form of “havala” (or “hawala”) is prohibited as well. This is not the case, as the United States has authorized certain types of transfers to and from Iran

“Havala”: a General Verb

The confusion about the types of permitted fund transfers stems from the use of the Persian verb “havala” to describe the informal fund transfer system hawala. “Havala”, from the Arabic verb tahweel, has the general meaning of “to transfer”, and Persian speakers use “havala” to describe any fund transfer, for example, through Western Union, Venmo, a third country bank or any other type of deposit into a bank account. The United States government permits transfers to and from Iran through third country banks for certain types of transactions, such as remittances, inheritance, or sales of real property. The verb, however, could also denote a transfer through the hawala system, which is not allowed under the Iranian Transactions and Sanctions Regulations (ITSR).

Hawala System: a Specific Method of Transferring Money

As many are familiar, the hawala system is an informal method of transferring money between countries that relies on personal networks and trust. For example, Customer A in Iran wants to transfer money to his family in the USA. He goes to a hawaladar (or broker in charge of arranging these types of transfers) in Iran and gives him a sum of money to transfer.  The hawaladar then finds a customer in the USA who wants to send money to his/her family in Iran. The hawalader then deposits the funds he received from Customer A into an account Customer B provides in Iran. The hawaladar in return asks Customer B in the USA to deposit the dollar equivalent of that amount to Customer A’s family member’s account in the USA. Therefore, both customers A and B are able to successfully send funds to their families through this system without ever actually moving money across borders or through banks.

Many prefer the hawala system to formal banking options because it is often more convenient, quicker, and requires less documentation than banks for legitimate transfers between expatriates and their home communities. Moreover, hawala networks thrive where the formal bank sector is weak or where no formal banking relationship exists, such as between the United States and Iran.

The very features that make the hawala system attractive for users are also the reasons why authorities are concerned to scrutinize and regulate these sorts of transfers: because of their opacity hawala transfers could facilitate the financing of terrorism, money laundering, or the circumvention of sanctions. For these reasons, governments have started asking hawaladars to record their transactions and have even prohibited the use of hawala to transfer funds between certain countries, as the United States has with Iran. Moreover, the use of hawala for illicit activities means that individuals making innocent use of the hawala system may unwittingly be implicated in a criminal conspiracy. For example, settling liability between transferring and receiving hawaladars may involve serious illegal activity, such as fraud, sanctions evasion, or narcotics trafficking.

We, therefore, strongly discourage the use of the hawala system to transfer money between the United States and Iran. When sending or receiving funds to and from Iran, you should only work with currency exchange brokers who send funds through third country banks and you should never allow direct deposits of any kind into your account from within the United States. And, as always, please be sure that your transfer is compliant with current U.S. sanctions law and that you submit all the proper documentation to your bank prior to each incoming wire.

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