The 9/11 Commission’s own staff investigated how the attacks were paid for and reached a conclusion that sits uncomfortably beside everything the United States did afterwards.
The hijackers used wire transfers from overseas, cash and travellers cheques carried in, and foreign bank accounts accessed from inside the country. They opened accounts at Bank of America, SunTrust and a scattering of smaller regional banks. Twelve of them used the same bank. Their transfers ran from five thousand to seventy thousand dollars and were, in the Commission’s phrase, utterly anonymous among the billions moving daily through the global system. No financial institution filed a suspicious activity report on any transaction by any of the nineteen before the attacks.
And the Commission’s appendix on plot financing states it without qualification: the extensive investigation revealed no evidence that the hijackers used hawala or any other informal value transfer mechanism to fund the plot in whole or in part.
The attacks were financed through the regulated banking system, by people using it exactly as millions of others do.
Within two months the President of the United States stood at the Financial Crimes Enforcement Network, flanked by the heads of Justice, Treasury and State, and announced action against hawala, the settlement layer underneath the entire gray-market logistics economy.
What hawala actually is
Before the policy, the mechanism, because almost every account of this subject gets the mechanism wrong in a way that makes the policy look more sensible than it was.
A sender in one country gives cash to a broker, a hawaladar, along with the recipient’s details and often a passcode. The broker contacts a counterpart in the destination country, agreeing the amount, the exchange rate and the fee. The counterpart pays the recipient in local currency, usually within hours. The two brokers settle between themselves later.
The critical feature is in that description and it is easy to miss. No money crosses a border. There are two entirely domestic cash transactions and a debt between two people. Nothing transits the international financial system, because no international transaction occurs.
That is why hawala defeats border controls, and it is not because hawala is secretive. A wire transfer is an instruction routed through correspondent banks, each sitting in a jurisdiction with reporting obligations, which is why a wire can be frozen, traced and reported. A hawala transfer presents no such object. There is nothing in transit to intercept.
Settlement between the brokers happens later and by several routes: netting against flows running the other way, reverse transactions, over- or under-invoiced trade in physical goods, occasional bank transfers, gold, or cash. Invoice manipulation by hawaladars has been documented in American case law.
The economics explain the persistence better than any cultural account. Hawala moves value in hours where banks take days. Commissions run around two percent against bank charges, exchange spreads and account-opening requirements that can be far higher. It functions where banks have no branches, where capital controls bite, and where official and parallel exchange rates diverge. In parts of Somalia and Afghanistan it has been the only channel through which funds can be transmitted at all.
The overwhelming majority of its volume is migrant workers sending wages home. It is, in its ordinary operation, the financial infrastructure of labour migration, and the trade this subject documents is a rounding error on top of it.
Al-Barakaat
The response to 9/11 produced one flagship action, and the United States government’s own subsequent investigation is the most damning document about it.
Al-Barakaat, founded in 1985, had more than a hundred and eighty offices in forty countries by 2001 and was Somalia’s largest private employer. It existed primarily to move money to Somalia, a country with no functioning banking system, which is why it existed at all. Somalia had no central bank, no correspondent banking relationships and no mechanism by which an ordinary wire transfer could reach a recipient in Mogadishu, so a different way had to be found and al-Barakaat was it.
On 7 November 2001 the United States designated it. The President called it the quartermasters of terror. The United Nations and the European Union followed. Assets belonging to sixty-two people across ten countries were frozen in the combined action against al-Barakaat and a second entity.
Then the examination. The 9/11 Commission’s staff monograph devoted a chapter to the case, and its findings are worth quoting in substance.
Analysts working the designations were told they did not need evidence that each al-Barakaat entity took part in terrorist financing; it was sufficient to show that the main entity itself was implicated. The designations relied on what the Commission called a derivative designation theory, in which no direct proof of culpability was needed, with business directories used to justify closing individual branches.
An investigation conducted with Emirati cooperation revealed no smoking gun, testimonial or documentary, showing that al-Barakaat funded al-Qaeda or any affiliated group. The Commission’s chapter heading states the conclusion flatly: no direct evidence that al-Barakaat funded terrorism.
And then the sentence that should govern any assessment of the policy. Commission staff uncovered no evidence that closing the al-Barakaat network hurt al-Qaeda.
The United Nations estimated that the freeze cut remittances to Somalia substantially, in a country where remittances were a principal source of household income and where there was no banking system to absorb the displaced volume.
The last al-Barakaat representatives were removed from the American list in August 2006. The company had been destroyed, the evidence was never produced, and the delisting took five years. Somalia’s largest private employer was removed from the economy on a theory its own government’s commission subsequently described as requiring no direct proof.
What al-Qaeda actually used
The honest version of this story is more complicated than either camp’s, and the Commission documented both halves.
Before 9/11, al-Qaeda did rely heavily on hawala and couriers to move substantial sums for its activities in Afghanistan. Usama bin Laden and the organisation made significant use of hawalas in Pakistan, the United Arab Emirates and Afghanistan, and hawala became particularly important after the 1998 East Africa embassy bombings.
At the same time, al-Qaeda operational cells outside Afghanistan made extensive use of the formal financial system, sending and receiving international wire and bank-to-bank transfers.
So both statements are true and they describe different functions. Hawala moved organisational money within a region where formal banking was absent or hostile. Formal banking moved operational money to cells in countries where banks were everywhere and transactions below reporting thresholds were invisible.
The 9/11 plot was the second category. The amounts were small relative to the system they moved through, the transactions were unremarkable, and the attack was financed for something in the range of four to five hundred thousand dollars through institutions subject to every control the United States had.
Which produces the awkward finding. Hawala was a real part of al-Qaeda’s finances. It was not the part that paid for 9/11, and the policy response treated it as though it were.
The regulatory architecture that followed
The response was fast, international, and durable.
In October 2001 the Financial Action Task Force issued eight Special Recommendations on terrorist financing, with Special Recommendation VI addressing alternative remittance systems and requiring that money and value transfer services be licensed or registered and subjected to anti-money-laundering obligations. It was later folded into the consolidated recommendations.
Section 359 of the USA PATRIOT Act brought informal value transfer systems explicitly within the American money transmitting framework, which made operating an unregistered hawala a federal offence and produced a stream of prosecutions.
The intent was to formalise. Register the brokers, impose record-keeping, apply customer identification, and bring an unmonitored channel into view.
In places with functioning states and a regulatory culture, that partly worked. In places without them, it did two things instead. It criminalised the only available financial infrastructure, and it created a formal-sector liability that made the problem worse by a route nobody intended.
De-risking, which is the part that backfired
The second-order effect is the one that reshaped the system, and it came from banks rather than from regulators.
Faced with heavy penalties for anti-money-laundering failures and limited ability to verify what a money service business in a conflict zone was doing, large banks did the rational thing and exited the relationship. Correspondent banking ties to high-risk jurisdictions were closed. Accounts belonging to money transfer operators were shut.
That is de-risking, and its consequence is perverse in a specific and predictable way. A remittance corridor that loses its formal channel does not lose its volume. The money still has to reach the family in Mogadishu or Kabul, because the family is dependent on it. So the volume moves to whatever channel remains, and the remaining channel is the informal one.
The regulatory effort to bring hawala into the formal system, combined with the liability regime that made serving hawala operators dangerous for banks, pushed volume out of the formal system and into hawala.
Twelve years after Special Recommendation VI, the Financial Action Task Force’s own report on hawala and similar service providers acknowledged that two competing and conflicting views still stood, that these providers remain in many cases the only channel through which funds can be transmitted in parts of Somalia and Afghanistan, and that terrorists continued to use them.
That is a standard-setter reporting, a decade on, that the measure neither eliminated the misuse nor supplied an alternative to the people who depend on the system.
Why this matters for cargo
The connection to aircraft is direct and it is the reason this sits where it does.
A charter flight into a contested airfield requires payment. The operator wants money, the broker wants a commission, the crew want wages, the fuel supplier wants cash, and the ground handler at the destination wants paying in whatever currency works there. The crews in this trade are nationals of several countries with bank accounts in none of the relevant ones, which is its own settlement problem.
A wire transfer for that flight creates a record in multiple jurisdictions with a payer, a payee, an amount, a date and a stated purpose. It is the single most traceable artifact the entire transaction will generate, considerably more revealing than a flight plan or a cargo manifest, and it is the one piece of evidence that would survive a hostile investigation intact.
Hawala removes it. The customer settles locally in one currency, the operator receives locally in another, and the obligation between the two brokers nets out against unrelated flows over subsequent weeks, most of which are migrant remittances having nothing to do with anybody’s cargo. No instruction crosses a border and no correspondent bank sees anything.
Which completes the architecture the preceding lectures have assembled. The aircraft carries a registration from a state that sells them. The operating company is licensed in a free zone that does not publish its owner. The crew hold licences from somewhere else. The cargo is described on paper as something plausible. And the payment is a ledger entry between two men who have never met the customer.
Every element relocates a checkable fact into a jurisdiction that will not check it. Hawala is simply that principle applied to money, and it is the oldest of the techniques by several centuries, predating flags of convenience, free zones and air cargo by roughly a thousand years.
The gold connection
There is a specific interaction with the commodity that funds a great deal of this trade, and it is worth isolating.
Hawala brokers settle their mutual balances by several routes, and physical gold is one of them. Gold is dense, portable, universally valued, and carries no origin once refined, which makes it an excellent settlement medium between two brokers who have accumulated an imbalance.
That means a gold trade and a hawala obligation can be the same transaction viewed from two angles. A shipment of refined metal moving from one jurisdiction to another can discharge a debt between brokers that arose from entirely unrelated remittances, and the commodity flow and the value flow are then impossible to separate without seeing both ledgers.
For an organisation financing itself by extracting and exporting gold, that is an unusually convenient property. The commodity is the product and the settlement mechanism simultaneously.
What the brokers are actually risking
The system’s resilience is frequently attributed to secrecy and it is more accurately attributed to collateral of a different kind.
A hawaladar pays out against an instruction from a counterpart who owes him nothing enforceable. There is no contract a court would recognise, no security, and no recourse. If the counterpart defaults, the loss falls entirely on the broker who paid.
What makes that survivable is that the brokers are usually bound by something stronger than contract: family, clan, community, long trading relationships, and a reputation that is the whole of their business. A hawaladar who fails to settle does not face litigation. He faces exclusion from the only network that gives his business any value, in a community that will know within days.
That is a genuine enforcement mechanism and it is more reliable in its own domain than a commercial court in a failed state. It is also why the system cannot easily be infiltrated or scaled by outsiders, and why a new entrant with no standing cannot simply open a desk.
The regulatory implication is awkward. The feature making hawala trustworthy is the same feature making it opaque. You cannot keep the trust network and remove the closed community it runs on, because they are the same thing.
What formalisation actually achieved
Two decades on, an honest ledger on the regulatory project is mixed rather than empty, and the successes deserve statement alongside the failures.
Registration regimes in states with functioning administration brought a substantial volume of remittance activity into view that was previously invisible. Licensed money transfer operators in the Gulf, South Asia and Europe now file reports, maintain customer records and are subject to supervision. Prosecutions of unregistered transmitters have disrupted specific criminal networks.
The travel rule, requiring originator and beneficiary information to accompany transfers, closed the anonymity that the 9/11 hijackers’ wire transfers exploited. That is a real improvement addressed at the channel that was actually used.
What did not work was the attempt to apply the same framework in places with no administration to apply it. A registration requirement in Somalia in 2002 was a demand that a state which did not exist license an industry that was substituting for it.
And the aggregate effect on the corridors that mattered most was negative, because de-risking removed the formal option without removing the demand. The policy succeeded where there was already a banking system and failed where there was not, which is the opposite of where it was needed.
The claims that do not hold up
An audit, since this subject attracts more confident misinformation than almost anything else in the field.
Hawala funded 9/11 is contradicted directly by the 9/11 Commission’s own investigation, which found no evidence of informal value transfer in the plot.
Hawala is a terrorist financing system describes a tiny fraction of volume in a system overwhelmingly used by migrant workers remitting wages, and misdescribes a settlement mechanism as a purpose.
Hawala is illegal is false as a general statement. It is lawful and regulated in many jurisdictions and unlawful only where operators fail to register under local money transmitting rules, which is an offence of licensing rather than of substance.
Hawala leaves no records is wrong. Hawaladars keep ledgers, because the entire system is built on settling obligations between brokers and an unrecorded obligation cannot be settled. The records are private rather than absent, which is a different problem.
Al-Barakaat was a hawala is a point the Commission itself made: it was a money remitter with similarities to hawala rather than a hawala network, and the distinction mattered to the investigation.
The crackdown on hawala was effective is contradicted by the Commission’s finding that closing al-Barakaat produced no evidence of damage to al-Qaeda, and by the Financial Action Task Force’s own acknowledgment a decade later that misuse continued.
Formalisation is the answer ignores the de-risking consequence, in which formalisation plus liability drove banks out of the corridors and pushed volume back into the informal system.
Hawala is a relic that digital payments will replace misreads the demand. It persists where banking does not reach, where currency controls bind, and where exchange rates diverge, which describes a great deal of the geography this subject covers, and digital rails inherit the same correspondent-banking chokepoints that made hawala attractive.
What hawala after 9/11 is actually telling us
Two findings, and the second one generalises past money entirely.
The first is that the response targeted the wrong system for an understandable reason. Hawala is foreign, informal, poorly documented in English, and genuinely used by bad actors. Formal banking is domestic, familiar, regulated and respectable, and it was the system that actually moved the money. The instinct to act against the unfamiliar channel is not corrupt. It is a bias, and the cost of it was borne by Somali families whose remittances stopped. The same instinct recurs wherever an unfamiliar structure is easier to designate than a familiar one.
The second is structural and it is the point this subject keeps arriving at. Hawala is not a method of concealment. It is a method of ensuring that the thing an investigator would want to examine never comes into existence.
A concealed transaction can be uncovered. An unrecorded one can be reconstructed from the records of the parties. But a transaction that never crossed a border cannot be found at the border, because the border is not a place it ever was. The same logic governs a flag that relocates an aircraft’s legal identity and a corporate register that exists and is not published. In none of those cases is anybody hiding. In every case the fact that would answer the question has been moved into a jurisdiction with no obligation to answer it.
A system that predates European banking by roughly a thousand years, built by traders who needed to move value across territory without carrying it, turned out to be the perfect instrument for a trade that moves cargo across borders without being seen to. Nobody designed it for that, any more than anybody designed a Soviet freighter for it. It simply has the property, and the property was always the point.
The hijackers wired the money through SunTrust. Somalia lost its remittances. Those two facts are the entire lesson, and the trade this subject documents went on settling its accounts exactly as it had before.
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