Why FBI is following the money in Times Square bomb case

Three Pakistani men arrested Thursday in connection with the case of alleged Times Square bomber Faisal Shahzad may be connected to an informal money-moving network that terror groups are increasingly using to finance their activities.

The three men may not have known how Shahzad intended to use the money in question, say the officials. Indications are they are not terrorist financiers per se, but links in an informal network of brokers, known as hawala, used to transfer cash quickly and easily over long distances.

“Hawala is a popular value transfer method that predates the Western financial system and remains less expensive, and at times more widely available, than modern banking for transmitting legitimate funds around the world,” writes John Rollins, a specialist in terrorism and national security with the Congressional Research Service, in a March report on terrorists and transnational crime.

Thursday’s high-profile law enforcement sweeps netted two men in Massachusetts and one in Maine, according to the FBI. Sen. Susan Collins (R) of Maine said there is no direct connection between the arrestee from her state and Faisal Shahzad.

Law enforcement officials instead indicated that the Times Square bomb suspect may have used hawala money-moving services provided by the men.

Hawala dealers, also known as hawaladars, operate as part of an informal financial network used to bypass the traditional banking system.

Here's how it works: Say a man in Pakistan wanted to send cash to a colleague in the US. He would visit a hawaladar in his own country and hand over the money, plus a fee of about 5 percent.

The Pakistani hawaladar would communicate with a trusted counterpart in the US, and indicate who should get the money, and how much. The US hawaladar would then make the payment. Usually, no money for that individual transaction actually travels between the two countries. The US hawaladar would simply carry the debt until one of his clients needed to send money to Pakistan. Then the whole process would be carried out in reverse.

Hawaladars are supposed to obtain a license in the US, but few do. It’s a system that immigrants often use to send remittances back home, and that families abroad use to send money to, say, students in the US.

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