Transfers on which no bank will make money. How Russians bypass currency bans

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Actual for today,

Hawala helps Russians transfer currency without paying a penny to any bank

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History

On March 9, 2022, the Central Bank prohibited Russian citizens from cashing out their foreign currency accounts – you can receive money in your hands only in rubles and at the Central Bank exchange rate, and they also introduced a limit of $10,000 on withdrawals from old accounts.

Currency restrictions also affected transfers abroad – even close relatives can be sent no more than $5,000 per month (or the equivalent in another currency). Disconnection from SWIFT and the departure of foreign payment systems Visa, Mastercard, and JCB from Russia have made cross-border transactions difficult to access.

Currency restrictions forced Russians to look for alternative ways

The principle by which hawala works, sometimes also called the “parallel system” or the Iranian method, is thousands of years old. The method of international mutual settlements, known since ancient times, is based on the transfer of funds through mutual compensation of debts without moving these same funds.

In 2012, when Iranian banks were also cut off from SWIFT as a result of sanctions, a significant part of the Iranian population and even their Central Bank regularly resort to hawala! Today, searches for windows when doors are slammed are also carried out in Russia. And among the relocants. Who needs hawala?

You may be a Russian citizen who has lived abroad for a long time, but has real estate, accounts, inheritance and other assets in your home country. Or you are a parent whose children study in the EU zone. Or you are a typical relocant, and from time to time you need recharge from good people from your homeland.

The Iranian method is unique in that it is quite reliable and proven, and when making cross-border payments, not a single bank in the world receives a cent or a penny from the client!

Disclaimer:

We do not motivate you to use hawala and hawala-like services. The material does not constitute financial, investment (or any other) recommendation, and is written solely for educational purposes. According to Article 15.25 of the Administrative Code, the fine for citizens and individual entrepreneurs for carrying out illegal currency transactions, including the purchase and sale of foreign currency, bypassing authorized banks, can range from 75% to 100% of the amount of the illegal currency transaction. Also, a gray exchange may fall under Article 172 of the Criminal Code of the Russian Federation (illegal banking activities). If such activity was committed by an organized group and resulted in income on a particularly large scale, the punishment may be up to 7 years in prison.

Kate’s Case

Russian woman Ekaterina has been living and working in Boston, USA for more than 20 years. In Russia, however, she still has real estate, lease agreements, business and friendly connections. This summer, a woman put her apartment in the center of Moscow up for sale, a deal quickly emerged, and the question arose about transferring the proceeds to an “unfriendly country.”

Ekaterina herself was unable to come to the deal. Realtors helped carry out the purchase and sale, and the amount from the apartment ended up in the hands of Vasily’s relative.

How does Iranian hawala work in this case?

At local Boston forums and in fraternities, Ekaterina is looking for an intermediary – a person with Russian roots who needs to support financially, for example, elderly parents living in Russia. Such an intermediary is being sought.

Let’s call him Vitaly. Ekaterina and Vitaly meet in the USA, Vitaly hands over dollars in cash to Ekaterina. Ekaterina writes to her relative in Russia Vasily, who is still holding the money received from her apartment in his hands: “Vasya, you received 5 thousand dollars, give the equivalent to Vitaly’s parents.”

Vasya multiplies 5000 by the ruble exchange rate according to the Central Bank and takes the ruble amount to Semyon Semyonovich and Marfa Petrovna, Vitaly’s old parents. Of course, the amount from the sold Moscow apartment is several times higher than the financial assistance to Vitaly’s parents, but this only means that Ekaterina needs to find several of these “Vitali”, but special communities on social networks, forums and chats today do an excellent job with this task.

Marina’s Case

Marina, russian woman, who has lived in Europe for a long time, used the hawala principle to create a “bank for friends.” Informal banking appeared in a group on facebook* (Meta* and its social network facebook* are recognized as an extremist organization, their activities are prohibited in the Russian Federation).

— I have accounts in both Russian and European banks. I can help myself and others without having to perform any cross-border transactions. Everything happens in two stages. For example, a person needs to transfer money from Europe to Russia. He sends me money to my European account in euros, and I transfer the same amount in rubles from my ruble account to where he needs it.

Transfers in the opposite direction – from Russia to Europe – work in the same way,” she said. Calculations are also made at the current ruble exchange rate. But Marina takes a commission of 1% of the transfer. According to her, on the very first day of the launch of the “homemade exchanger” in March 2022, she received 20 requests for transfers.

The requested amounts were small and reached several thousand euros. There are different types of deals. Marina remembered two Italian women who, through her mediation, transferred money to Russia to buy cats from breeders; the amount was large – it could be used to buy real estate in Italy. Marina also transferred money from Russia to the United States to pay for the couple’s wedding ceremony.

One way or another, technically Marina does not carry out cross-border transfers at all. Money moves in two separate flows between accounts within two countries: one flow in Russia, the other in Europe. Transfers within countries are allowed in both countries, so the “exchanger for your own” does not violate any laws.

Demand for currency will only increase if there is a shortage of it

The demand for cross-border transfers, as well as for the currency itself, in Russia will not weaken, even if Russia declares itself a 100% dedollarized zone, and the circulation of currency in the country is completely prohibited.

On the contrary, the more scarce a resource foreign currency becomes, the higher the demand for it. The market itself, however, is becoming gray and underground, but it is impossible to stop such transactions by any prohibited measures, experts say. This market will exist exactly until restrictions on any kind of transactions in dollars and euros are lifted.

Some people need to go abroad, some have children studying there or relatives are being treated, many still use the dollar as a means of saving.

What do Russians and the ancient inhabitants of the planet have in common?

In ancient centuries, when there were no banks, hawala successfully functioned on several continents – in Ancient India, the Arab Caliphate, Iran, and now in 2022 it reached modern Russia.

A year later, despite some easing of currency restrictions, the risks of blocking transfers in the interests of Russians are still high. A much-hyped crypto is not a panacea: crypto exchanges also easily block crypto wallets of Russian owners, and initiatives to de-anonymize crypto are actively supported by many countries.

Well, finally, cryptocurrency is clearly not a simple thing for the average person. How long ago have you sent stablekins from your wallet to your grandson in Europe? Hawala, as researchers of financial systems believe, began to be used 8 thousand years ago on the territory of Ancient Hindustan.

Since then, it has confidently walked through centuries and eras, and has not lost its relevance even under the pressure of monetary institutions.

True opinions

Some economists propose to go not along the path of prohibition, but of preventing the use of hawala for criminal purposes. One of them is the deputy director of the International Monetary Fund (IMF), Mohamed El-Korchi, in his article “The Hawala System” back in 2002, who stated that as long as people have reasons to use hawala, such systems will exist and even expand.

If the formal banking sector is going to compete with the shadow money transfer business, it needs to focus on improving service quality and reducing fees,” El-Korchi said. “In addition, the authorities need to constantly work to modernize and liberalize the financial sector, as well as eliminate its inefficiencies and weaknesses that create inconvenience for users.

References & Contacts

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