The use of cryptocurrencies for hawala in the Islamic finance

  • Marco Valeri Università Niccolò Cusano
  • Rosario Fondacaro Università Niccolò Cusano
  • Cinzia De Angelis Università Niccolò Cusano
  • Andrea Barella International University College of Turin
Keywords: stable coins, Islamic finance, blockchain, hawala

Abstract

This paper aims to evaluate where the application of new fintech solutions like blockchain and cryptocurrencies can be considered as an opportunity to build bridges between Islamic and western culture in order to create a trusted money transfer with low commission and a big transparency and trust.  The research question is: Can an Hawala systems based on DLT technologies be considered compliant both with anti-money laundry regulations and with Sharia values?  This is a conceptual paper relying upon an understanding of the literature in the fields of technology, sociology, anthropology, criminology and regulatory, as applied to the topic of Islamic practice known as Hawala and emerging new disruptive technologies like Distributed Ledger Technology.  The research has been conducted by a literature reviewing on Scopus data base by searching the following keywords: Islamic finance, cryptocurrencies, hawala, stablecoin, globalcoin, money laundering, blockchain.  The searching period was set on the last 10 years.  The paper discusses some scenarios to define new fintech Hawala system in an evolving scenario of cryptocurrencies, social network commitments and different type of blockchain where it can be digitally transformed by using new fintech technologies while became compliance with anti-money laundering regulations with the respect of Islamic values.  As practical implications, this paper could help to encourage researcher and entrepreneurs to evaluate and propose a digital transformation approach with the aim to maintain ancient tradition and, at the same time, apply new technology that improve the life of citizens.  As social implications this paper expands upon the understanding of how new fintech solution can be easily be integrated in the real life by using common devices like a mobile phone to be used as wallet for the daily expenses and to receive money from relatives from western countries.  The originality/value of this paper is that it covers the literature gap in the field of new fintech solutions applied to Islamic finance by providing a likely proposal by integrating popular tradition, regulations and new technologies.  The research limitations and implications are related to that this is a conceptual paper; case studies haven’t been treated, so it is not able to say definitively if the outcomes discussed can be defined as an effective solution and can be developed in the real global society, in a future prospective it’ll be possible to continue to make researches in this field of application with fintech technologies and Islamic Finance.

References

Antonopoulos, Andreas M.(2010). Mastering bitcoin, unlocking digital cryptocurrencies.

O’Reilly Media, Inc. p. 15

Elasrag, H. (2019). Blockchains for Islamic finance: Obstacles & Challenges. MPRA Paper No. 92676. Available at https://mpra.ub.uni-muenchen.de/92676/

European Commission (2017). Report from the commission to the European parliament and the council pp. 3. 9-11

Europol (2016). Changes in modus operandi of Islamic State terrorist attacks. p.7

Finma (2019). Available at https://finma.ch/en/news/2019/09/20190911-mm-stable-coins/

Habib, S. F. (2018). Fundamentals of Islamic finance and Banking. United Kingdom. UK: John Wiley & Son Ltd.

Hughes, A., Park A., Kietzman J. & Brown C. (2019). Beyond Bitcoin: What blockchain and distributed ledger technologies mean for firms. Business Horizons, 62, 273-281.

Ilias, S. (2010). Islamic finance: overview and policy concerns. Available at http://www.fas.org/sgp/crs/misc/RS22931.pdf

Libra Association Member (2019). An Introduction to Libra. Available at https://libra.org/en-US/white-paper/

Muedini, F. (2018). The Compatibility of Cryptocurrencies and Islamic Finance. EJIF – European Journal of Islamic Finance. manca il numero del giornale No.10

Mohamed, H.(2016). The Blockchain and Islamic Finance: Islamic Finance Toda pp. 27-30.

Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Available at https://bitcoin.org/bitcoin.pdf

Naqvi, S. M. I. H., Shafique B., (2019). Khan A.A. Shariah Compliant Model of Currency Management – Expanding Landscape of Islamic Finance from Micro to Macro Level. EJIF – European Journal of Islamic Finance No 12.

Nikolai Durov (2017). Telegram Open Network pp. 127,128

OneGram whitepaper (2019). Available at https://onegram.org/whitepaper

Passas, N. (2004). Indicator of Hawala Operations and Criminal Abuse. Journal of Money Laundering Control Vol. 8, No.2, pp. 168-172.

Redin, D.M., Calderon, R., Ferrero, I. (2013). Exploring the Ethical Dimension of Hawala.

Journal of Business Ethics, Vol 124, No. 2, pp. 327-337.

Rubasundram, G.A. (2019). The Dark Web and Digital Currencies: A Potent Money Laundering and Terrorism Opportunity. International Journal of Recent Technology and Engineering Vol. 7, No. 5S.

Saberi, S., Kouhizadeh, M., Sarkis, J. & Shen, L. (2019). Blockchain technology and its relationships to sustainable supply chain management. International Journal of Production Research, 57 (7), 2117-2135.

Schneider, F. (2013). The Financial Flows of Transnational Crime and Tax Fraud in OECD Countries: What Do We (Not) Know? . Public Finance Review 41(5), pp. 677-707

Shanmugam, B. (2004). Hawala and Money Laundering: A Malaysian Perspective. Journal of Money Laundering Control Vol.8, No.1, pp. 37-47.

Sharif, K., Mahama, H., Farooqi, N. (2016). Management, control and governance of hawala networks in the gulf cooperation council region. Asian Academy of Management Journal of Accounting and Finance Vol.12, No. 2, pp. 65-93.

Shehu, A.Y. (2003). The Asian Alternative remittance System and Money Laundering.

Journal of Money Laundering Control Vol.7, No. 2. pp. 175-185.

Soudijn, M.R.J. (2016). Rethinking money laundering and drug trafficking. Some implications for investigators, policy makers and researchers. Journal of Money Laundering Control Vol.19, No. 3. pp. 298-310.

Journal of Financial Crime Vol. 25, No. 8, pp.287-293. Tether Legal (2019). Abailable at https://tether.to/legal/

Threan, J. (2002). Underground and parallel banking system. Journal of Financial Crime Vol. 10 No.1, pp. 76-84.

Wang, Y., Hugh Han, F., Beynon-Davies P. (2019). Understanding blockchain technology for future supply chains: a systematic literature review and research agenda. Supply Chain Management: An International Journal, 24/1 (2019), pp. 62–84.

UK Treasury. United Kingdom Gov 2017. National risk assessment of money laundering and terrorist financing 2017. . 41

Yaya J. Fanusie (2018), Survey of terrorist groups and their means of financing. House financial services committee. p. 9

Trehan, J (2002), Journal of Financial Crime Vol. 10, No. 1, 2002, pp. 76-84

Hazik, M (2016), The Blockchain and Islamic Finance, Islamic Finance Today, 2016, p 27-30

Teichmann, F.M.J. (2018), Financing terrorism through hawala banking in Switzerland, ournal of Financial Crime Vol. 25 No. 2, 2018 pp. 287-293

Biancone, P. P., & Radwan, M. (2019). Social Finance and Financing Social Enterprises: An Islamic Finance Prospective. European Journal of Islamic Finance.

Biancone, P. P., & Radwan, M. (2018). Social Finance And Unconventional Financing Alternatives: An Overview. European Journal of Islamic Finance,

Biancone, P. P., & Radwan, M. (2018). Sharia-Compliant financing for public utility infrastructure. Utilities Policy, 52, 88-94.

Biancone, P. P., Secinaro, S., & Kamal, M. (2019). Crowdfunding and Fintech: business model sharia compliant. European Journal of Islamic Finance, (12).

Biancone, P., & Secinaro, S. (2016). The equity crowdfunding italy: a model sharia compliant. European Journal of Islamic Finance, 5, 1-10.

Biancone, P. P., & Radwan, M. (2016). EUROPEAN COMPANIES: EVALUATION FOR SHARIA COMPLIANCE "OPPORTUNITIES AND CHALLENGES". European Journal ofIslamic Finance.

Biancone, P. P., & Radwan, M. (2015). Sharia Compliant "Possibility for Italian SMEs". European Journal of Islamic Finance, (1).

Published
2020-10-11
How to Cite
Valeri, M., Fondacaro, R., De Angelis, C., & Barella, A. (2020). The use of cryptocurrencies for hawala in the Islamic finance. European Journal of Islamic Finance. https://doi.org/10.13135/2421-2172/4145