There is a new way of doing hawala transactions now, and it involves the use of a highly liquid cryptocurrency -- USDT.
USDT, which is called Tether after the company that launched the coin in 2014, is a stablecoin pegged to the US dollar.
The USDT-led hawala transactions are fairly easy to initiate. It starts with a social media post.
Moneycontrol was recently forwarded a few such posts where people offered to sell USDT for cash (see below). Market sources told Moneycontrol that these are usually sent out by agents of hawala networks that can move money particularly to crypto-friendly cities like Dubai.
This was found on Twitter...
...and this was one of the many messages found on Telegram groups...
Hawala transaction is an informal money transfer system that is often used to evade taxes or to move money that was earned through illegal activities.
Usually, it involves a well-entrenched and trusted network of individuals working for select clientele or their referrals.
The sender gives a unique identifier --like the photo of a currency note-- to the courier, and the receiver will need to produce the currency note to get delivery of the cash. In the new form, it is more open to people outside these closed networks, according to sources.
The new way involves putting a post on selling USDT for cash. If a person wants to send money to another jurisdiction, then he/she can 'buy' this USDT for the amount of money he wants to transfer.
How does it work?
Let's take this example. A puts up a post saying that he wants to sell, say USDT 10,000 (worth around Rs 8.6 lakh). B, who is looking to secretly transfer Rs 8 lakh to Dubai, buys USDT from A. A get rupees and B gets USDT. B goes to Dubai with the USDT. In Dubai, A's associate will buy back the USDT coins, paying dirhams to B.
For all of this, A and associates will charge a fee from B.
The net benefit is that B has transferred money across geographies without going through a regular banking channel. Also, B could send money to a friend C in Dubai, without going through the regular banking channels
Why USDT?
"This crypto is used in such transactions because it is a stable coin and therefore the fluctuations are less. USDT is also highly liquid like gold, and you can use it for regular transactions in various crypto-friendly geographies," said an insider.
"When USDT is being sold for cash, it is usually for hawala transactions.
"Otherwise, they convert cryptocurrencies into fiat currencies like the rupee through an established exchange. But when you go through an established exchange, it will only accept pay-ins and pay-outs through banking channels,. But if you want to transfer cash outside of the banking channels, USDT can be used this way," the source added.
USDT is also being used to fund illegal operations in the market for pump-and-dump scams, said market sources. In a pump and dump scheme, fraudsters typically spread false or misleading information to create a buying frenzy that will “pump” up the price of a stock and then “dump” shares of the stock by selling their own shares at inflated price.
