German police raided an international hawala shadow-banking network suspected of illegally transferring millions of euros to Turkey on Tuesday. The raid is controversial because Hawala practices are not illegal across the EU.
Following a yearlong investigation, police searched 60 apartments and offices across Germany, signalling 27 suspects and arresting six. The raids took place mostly at jewellers and gold-trading companies in North Rhine-Westphalia, according to Süddeutsche Zeitung and the public broadcasters WDR and NDR. There were also raids in Hesse, Berlin and the Netherlands.
The hawala system is often used by migrants for remittances; it is estimated that this particular network transferred up to €1 million a day and over €200 million in total. People using the service deposit into the bank account of a network participator in one country and another operator withdraws the equivalent amount elsewhere, passing them to a final recipient for a commission that is typically lower than a bank fee and offering a better exchange rate. However, the system relies entirely on trust.
Informal banking is illegal under Germany’s Payment Services Oversight Act (ZAG), which specifies that it is forbidden to offer services similar to those of a bank without a banking license. However, the law is not consistently enforced in Germany and it is not the same elsewhere in the EU.