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Undiyal money transfer a threat to security

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Lessons from Wele-Suda

Along with the arrest of notorious drug kingpin Gampola Vidanalage Samantha Kumara alias Wele Suda on January 12, the hawala remittance system also commonly called the undiyal system has once again caught the attention of authorities. An informal money transfer system (IMTS), it was through this that supporters of the terrorist group LTTE were able to pump funds in to the organization during the height of the war. Once a legitimate and accepted form of money transfer used mainly by migrant workers, today it has been hijacked and compromised by corrupt officials, money launderers, organized crime syndicates, terrorists and drug traffickers as proved in the case of Wele Suda.

One can define the undiyal system, a shadowy money transfer network as being a backdoor western union system operating across borders. For example an individual in the United Kingdom, seeking to transfer 500 GBP to their loved ones in Sri Lanka, would pay the money plus a commission to the undiyal agent whose agent in Sri Lanka would hand over the cash remitted to the intended party free of any further charge. While no questions are asked the transfer is done within the day therefore being more attractive to the public than the relatively slow bank transfers.

According to Police Spokesperson SSP Ajith Rohana the Sri Lankan agents of Wele Suda were able to transfer large amounts of money received through drug sales from Sri Lanka back to him using this form of transfer. “Even though we have not been able to calculate the exact amount, the money sent will probably amount to millions of rupees as he has been operating from abroad for the past five years” he said.

The undiyal system has been in existence in Sri Lanka for at least two decades. During the war while there was a major crack down on undiyal agents for their links to the LTTE, according to Police Spokesperson SSP Ajith Rohana the system has since spread rapidly in the country. “Undiyal agents can be found in almost all the major towns in the Colombo district like Kotahena, Grandpass, Wellawatte and Maradana” he said adding that it is also spread across areas that has a predominant Muslim and Tamil presence like Batticaloa, Vavuniya and Jaffna.

The system is simple and easy to take advantage of.  There are no documents nor any records, being a system based on trust and the verbal commitment of their counterparts. This also makes tracing such transactions a nightmare for the authorities even though the transactions are illegal in Sri Lanka under the Money Laundering Act according SSP Ajith Rohana. Globally there is still limited knowledge on informal funds transfer systems and the extent to which they are misused for illegal purposes.
However according to SSP Rohana the Police will monitor the situation more diligently in light of the revelations made by the drug lord on making use of the undiyal system in drug trafficking.

The undiyal remittance systems are a fast, safe and cost-effective way to transfer funds without using formal financial institutions. “It is all a matter of convenience for the people” SSP Rohana said, explaining the constant demand for undiyal agents. “While the Police can monitor the situation, the greater responsibility in curbing these agents is up to the Financial Investigations Unit of the Central Bank” he said.

While foreign governments have attempted to curb dangers posed by the undiyal remittance system through enforcing registration of such agents and imposing laws the system has successfully been able to remain underground. 

The undiyal system may serve legitimate purposes for migrant workers or poor people, however its specific characteristics make it vulnerable to those wanting to launder the proceeds of criminal activity.

It is clear that such Illegal flows of moneys are difficult to track or separate from legal money flows. While empirical evidence and information on the extent and use of alternative remittance systems for money laundering activities remain thin, anecdotal or non-existent, it’s clear now that the undiyal system is a threat to our country’s economy, safety and security. Without the undiyal system it is likely that terrorists like Osama bin Laden and the LTTE would have found it impossible to finance their terror activities, and Wele Suda too would have been unable to create his drug empire.

However as long as there are reasons for people to prefer such systems, they will continue to exist and expand. If the formal banking sector intends to compete with the informal remittance business, it should focus on improving the quality of its service and reducing the fees charged. Therefore, a longer-term and sustained effort should be aimed at modernizing and liberalizing the formal financial sector, with a view to addressing its inefficiencies and weaknesses as obviously the economy and more importantly the security of the country is a high price to pay for a matter of ‘convenience’

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