Trade-Based Money Laundering

Chapter 5Chinese Flying Money

I once gave a presentation to Italian law enforcement officials about hawala. As per the discussion in Chapter 4, I initially explained that hawala was probably invented in South Asia centuries ago long before the advent of Western banking. One Italian wagged his finger and objected. He declared that, “Hawala was invented in Italy!”

“What do you mean?” I asked.

“Don't you remember your history? Back in the Renaissance, Italy as we know it today didn't exist. It was composed of a number of city-states such as Venezia, Firenze, Milano, Pisa, Roma, Napoli, and many others. There was active commerce between them, but they didn't have modern banking. Roads were poor and unsafe. Robberies were common on the highways. Piracy was a risk at sea. If a businessman in Venezia wanted to send money to another businessman in Napoli as compensation for the purchase of goods, he would not want to risk sending gold coins as payment. So the city-states developed a system of commerce where debts were covered by value transfer and exchange. It was very efficient. The money stayed in place, but payment was made. They didn't call it hawala. But it was the same system.”

The reason why an introduction to a chapter on Chinese informal money transfer system begins with a shared anecdote about hawala in Renaissance Italy is because for all intents and purposes, modern Chinese underground financial systems also have their origins in antiquity and are quite similar to other ...