Financial transaction

Oligarchs moved money through Hawala system months before war: expert

  • The Russian oligarchs seem to have planned sanctions months before the start of the war in Ukraine.
  • Insider spoke with Shane Riedel, financial crime expert and CEO of Elucidate.
  • He said the oligarchs transfer money through the informal payment system called Hawala.

Financial crime experts noted an increase in the movement of money by Russian individuals in the months leading up to the war.

Russian oligarchs were hit with Western sanctions amid the war in Ukraine, but they appear to have anticipated the measures by moving money through an informal payment system known as Hawala.

In an interview with Insider, Shane Riedel, financial crime expert and CEO of elucidate, whose company’s job is to examine patterns in the movement of money, spoke about the payment system. “No one is going to this combination of entities” – a financial intermediary for the two proxies, he said.

“No one is looking for a proxy-to-proxy transaction, it’s not going to raise any red flags anywhere,” Riedel added.

the Hawala payment system is an informal funds transfer system that allows funds to be transferred from one entity to another without moving money. There is no file because it does not require documentation.

Graphic showing how the Hawala payment system works.

Information on individual transactions in the Hawala payment system for sanctioned persons, inspired by Markus Taube.

Sam Tabahriti/Insider


In other words, Hawala allows individuals or entities to transact outside of traditional banking systems. It has been used for centuries, but has been made illegal in some countries like India, due to its lack of regulation.

Riedel said that in the months leading up to the attack, starting in November and especially in December, they noticed an increase in transactions involving Russia.

He said: “We saw money coming from offshore to onshore with money coming from onshore to offshore which was disproportionate – over 10% going to or from shell companies or entities that we have assessed as shell companies.”

“That’s far from market-consistent, as your typical deal flow on any given day would be less than 1% involving shell companies,” he added.

Hawala transactions originated in the Middle East and South Asia. Originally, the Hawala networks focused on “terrorism financing angles, sanctions against them, and sanctions evasions,” Riedel said.

Graphic showing how the Hawala payment system works if only one person/entity is sanctioned.

This graph shows how the Hawala payment system would work if only one of the two entities were sanctioned.

Sam Tabahriti/Insider


He pointed to the sanctions imposed on international transactions for Russia, prohibiting it from using SWIFT, or the Society for Worldwide Interbank Financial Telecommunications.

SWIFT is a Belgian communication system that was launched in 1973. It serves as a neutral platform for banks to discuss financial transfers, transactions and transactions.

Riedel said when the sanction was imposed it was in the hope of making it harder for Russia to move money, including the oligarchs. He said, “The Hawala system can be considered one of those most difficult ways to process transactions.”

According to Riedel’s analysis, there was a concentration of activity in a few European jurisdictions, Switzerland, Cyprus or Malta… all of which are jurisdictions where many business service providers are front companies, Riedel said. .

He added: “I use the term shell company quite broadly in this context, it could also be a trust or some other mechanism like that. But before the sanctions were implemented, we saw an extreme increase in inflows and exits from Russia.”

The oligarchs may be using the Hawala payment system to conduct transactions, which could explain how they were able to maintain their luxurious lifestyle and the maintenance of some of their assets such as superyachts.

Riedel concluded: “Nothing is happening now. The datasets we are looking at will no longer show us the traffic, at least between Russia and others, because it has all but stopped.”