‘Hawala’ underground banking is very common in many Middle Eastern countries, but is prohibited in the Netherlands. However, both large and small Dutch companies were involved. And so, possibly unknowingly, he became involved in money laundering practices.

Romy van der Burgh and Linda van der Pol

The money counting machines go off and on, an old man crouching out in a three-foot-wide suit with Iraqi dinars slung over his shoulders. In this busy bazaar in the Iraqi-Kurdish capital, Erbil, one room is entirely dedicated to the exchange and transfer of money. Men pace with phones to their ears and stacks of bills in their arms, past counters stocked with dinars, Syrian pounds, Iranian rials and US dollars.

Anyone who wants to make a payment from here to a bank account anywhere in the world, including the Netherlands, can take their cash to one of the small offices that surround the market square. “People give me a bank account number, for example in the Netherlands, and they pay me a small commission. Then it will be in that account within a day or two,” explains banker Abdul-Ahad Kamal.

It sounds clear. But this way of transferring money, ‘hawala banking’ in the jargon, carries money laundering risks. Research platform Investico and Argos tracked payments from countries including Lebanon, Iraq and Syria to Denmark and ultimately to the Netherlands. There, possibly millions of euros in dirty money ended up in the bank accounts of very ordinary companies, from small SMEs to FrieslandCampina.

clandestine banking

Hawala payments can be considered as a form of underground banking and is widely accepted in many Middle Eastern countries. Sometimes it’s even the only way to make payments, because regular banking doesn’t always work reliably.

With hawala, no money is transferred between two bank accounts. Instead, the paying party delivers cash to its paying agent in a local money market. The receiving party can then collect the same amount from their own local paying agent in their own country.

Those two paying agents maintain a kind of balance between themselves, let’s say an abacus, in which they know about each other how much they still owe each other. So, if someone from Iraq buys EUR100 worth of powdered milk abroad, the paying agent in Iraq has a debt of EUR100 to the paying agent in the other country. Until another payment comes out the other way around 100 euros, because someone from that other country later buys from Iraq for that amount. Then those debts cancel each other out and everything is back in balance.

Denmark’s Marty Byrde

Therefore, the parties that use it to send payments back and forth are not criminals per se. But because there is so much cash involved, the payment method is vulnerable to malicious people who can get in the way.

The Danish criminal investigation department also became aware of this last year. She was very busy with Operation Ozark, a file named after the Netflix thriller of the same name. In it, Marty Byrde, a shrewd accountant posing as a discreet businessman, manages to launder hundreds of millions of dollars for a drug lord.

Denmark has its own Marty Byrde, as it turned out when the Copenhagen court sentenced 45-year-old Hassan Ahmed in the summer of 2022 to five years in prison and a hefty laundering fine of around €17.4 million. Through twelve Danish companies, including a candy store, various cleaning companies and a Norwegian employment agency, Ahmed pumped black money into the white circuit.

This arises from 3,400 bank transactions totaling more than 80 million euros, supplemented by police documents and receiver reports, which the Danish investigative journalism television program money hunters (Pengejægerne) received from the Danish authorities and later shared with Investico and Argos, among others.

black contacts

Of the 80 million euros in the money laundering investigation, it turns out that no less than 7 million euros ended up in bank accounts of Dutch companies. The Dutch companies had sold items to customers in Lebanon, Iraq and Syria, among others. That could be anything from powdered milk to pigeon feed to seed potatoes to farm machinery. Customers in the Middle East paid for those products through the hawala system.

But the hawala payments did not go directly between Iraq and the Netherlands, for example, but rather through Denmark as a stopover. For example, Ahmed, meanwhile sentenced, saw his chance to mix black money with the payments from Copenhagen.

Ahmed, a kind of middleman, instructed the ordinary Danish companies to transfer the payments to the Dutch companies, which still had to pay for the items sold. Danish companies received black cash in return. This is how that black money was laundered. In turn, Danish companies could use the cash to pay their employees without declaring, thus avoiding taxes.

Bottle feeding paid for by a Danish construction company

In the end, the Dutch seller received a payment for his powdered milk or pigeon feed, but from a completely unknown part of a completely different country than where the actual buyer was located. That’s special and should raise alarm bells: why don’t I get my money from the client in Iraq, but from a confectionery, a cleaning company or an installation company in Denmark?

Ausnutria, an international dairy producer with five factories in the Netherlands, regional headquarters in Zwolle and sponsor of the SC Heerenveen shirt, received in 2020 and 2021 consecutively almost two tons from a welding company, 70,000 euros from a construction company and something least 15,000 euros from a company established in a restaurant.

All pretty unlikely consumers of infant formula. Ausnutria says the payments related to child nutrition deliveries to a customer in the Middle East. “It’s a turbulent world there, regular banks are hardly available,” says a spokesperson. “From what we understand, the money in Iraq is given to some kind of money office. They told us that this office was certified by the government.”

FrieslandCampina received more than 160,000 euros from Denmark for a ‘mixture of unsweetened condensed milk and vegetable fat’ for a client in Libya. And the Dutch branch of the American company Medtronic, the world market leader in medical technology, received eighteen payments from various companies in the Danish networks for deliveries to an unknown destination.

Cannot rebuild route

Both the Dutch sales companies and customers in the Middle East say they were unaware that a rogue intermediary in Denmark was involved in the payments. “Our banking system is complicated,” says Hind al-Rikabi, a businesswoman in the pharmaceutical industry, from her Iraqi-Kurdish office. “International payments that we make through the bank often bounce or get blocked in Europe.”

For an order for medical products from a Dutch company, he went to a local money market in Kurdistan, he explains. He doesn’t know exactly how his money gets to the Netherlands from that market. Dutch sellers can’t rebuild the money route either.

“We are not detectives in the sense that we always go after those transactions and we can’t,” says Dalawan Mostafa, the owner of an offal exporting company, which received payments from Denmark. “All we can do is require our client to send proof of payment.”

payments slide

Although in some places hawala is the only way to transfer money over long distances, in the Netherlands it is considered an illegal form of banking. Paying agents are barely regulated in a formal sense, says Erwin van Veen, a Middle East expert at the Clingendael Institute. “And many countries in the Middle East have no idea how big the sector is. Both aspects are, of course, invitations to money launderers.’

Banks, for their part, don’t always notice third-party payments. “If a payment comes from another European bank account, say Denmark, it doesn’t immediately raise a red flag in our system,” says an ING spokesperson.

The bank also considers that it is the responsibility of the companies themselves not to accept or investigate such payments. Large companies seem to be aware of the risks, and also of their own responsibility in this regard.

No more third party payments

FrieslandCampina must confirm ‘regretfully’ that it accepted money from a Danish welding company for a 2020 delivery and says it has not accepted third-party payments since. “Business partners using such payments are requested to stop doing so. If this request is not met, the relationship will be terminated, precisely to prevent FrieslandCampina from unknowingly engaging in potentially improper activities,” a spokesperson said.

Ausnutria says it does not ‘in principle’ accept third-party payments: it would have allowed this for a time with an Iraqi client because there was no regular bank available that could make payments. Healthcare company Medtronic declined to comment, but said its goal is to “act in accordance with the high standards of ethical behavior in the medical device industry wherever it operates.”

The trustee of one of the Danish companies that has been used for money laundering thinks differently. To accommodate creditors, including presumably the Danish tax authorities, it is trying to recover the Dutch payments. The very fact that these payments were made through a clandestine and untraceable banking system makes Dutch companies vulnerable.

Because they cannot prove that the payments were legitimate, the bankruptcy trustee writes in a bankruptcy report: ‘Neither of the foreign companies could explain why a Danish company that does welding work had to act as paying agent, or how that company got money from companies in the Middle East.’

This publication was made possible through the support of the Postcode Lottery Fund of Free Press Unlimited.

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