HUMANITARIAN ACCESS TEAM (HAT) SITUATION REPORT Hawala Registration in Idleb Governorate JUNE 15, 2017 Executive Summary Since mid-May 2017, Hay’at Tahrir Al-Sham has taken several noteworthy steps toward regulating the hawala sector in northwestern Syria. These actions could pose a significant challenge to international and local humanitarian organizations implementing projects in northwestern Syria due to potential donor-compliance issues related to Hay’at Tahrir Al-Sham. This report provides a brief overview of the hawala market in northwestern Syria, a summary of the steps that Hay’at Tahrir Al-Sham has recently taken to establish control over this sector, an analysis of the goals of Hay’at Tahrir Al-Sham recent actions, and an assessment of the immediate impact with respect to the hawala market. On May 9, Hay’at Tahrir Al-Sham attempted to formally regulate the hawala industry in Idleb by establishing a new governing body, the General Institution for Cash Management and Customer Protection, and demanding that hawalas in northwest Syria register and pay associated fees. Hay’at Tahrir Al-Sham’s attempt was initially unsuccessful; few hawala agents in northwestern Syria accepted Hay’at Tahrir Al-Sham’s new regulations. Subsequently, Hay’at Tahrir Al-Sham waived all fees, and as a compromise, hawala agents in Idleb governorate registered with Hay’at Tahrir Al- Sham. This regulatory initiative occurred shortly after multiple large-scale fluctuations in the USD-SYP exchange rate, the consequence of a substantial cash infusion into opposition-controlled Idleb in mid-April as a part of the Foah and Kefraya evacuation negotiations. Ostensibly, Hay’at Tahrir Al-Sham’s regulations sought to stabilize the exchange rate. In reality, Hay’at Tahrir Al-Sham’s initiative is also very likely an attempt to impose formal administrative control the hawala industry, especially through small-scale hawala agents, and thereby build Hay’at Tahrir Al-Sham-affiliated governance institutions in northwestern Syria. Despite the fact that nearly all hawala agents in Idleb have registered with Hay’at Tahrir al-Sham, registration should be viewed as something of a formality, with little operational impact. Hawala networks in Idleb wield considerable influence, as much of the region’s economy is dependent the availability of hard currency. These hawala networks are also deeply enmeshed in the social and economic fabric of northwestern syria, and are connected across borders through family and pre-existing commercial ties. Therefore, Hay’at Tahrir Al-Sham is unlikely to further consolidate control over existing hawala networks in the immediate term due to the social and economic power of hawala traders. While hawala registration, thus far, has not caused any operational impact on hawala agents, the HAT recommends that humanitarian organizations consult with their attorneys and donors on the implications of Hay’at Tahrir Al-Sham’s actions on their use of hawala in Idlib and on any additional due diligence measures that might be necessary. Idleb Governorate: 12 June 2017 Sheikh El-Hadid Afrin Deir Jmal Kafrnaya Jandairis Mayer Nabul Zahraa Hayyan Turkey Andan Daret Azza Haritan Qabtan Eljabal Tilaada Maaret Elartiq Kafr Hamra Termanin Harim Anjara Dana Aleppo Sarmada Abzemo Eskat Big Orm Atareb Tal Shgheib Tal Hasel Tal Aran Kafr Takharim Kelly Jeineh Wdeihi Abin Samaan Armanaz As-Sara Zarbah Zardana Mashehad Maaret Elnaasan - Maaret Elhaski Hafasraja Darkosh Kafraya Maar Tamsarin Teftnaz Tal Heddiyeh Iss Hadher Foah Banan Idleb Sarmin Afs Janudiyeh Mastumeh Korin Eastern Marj Akhdar Jazraya Orm Eljoz Kafrlata Najiyeh Mhambal Maar Dibsi Rami Khan Elsobol Abul Thohur Border Crossing Ehsem Maasaran Roads Balyun Qastun Bara Contested Areas Maar ShurinGhadqa Kansafra Government of Syria Karfuma Telamnas Kafr Oweid Kurdish Forces Kafr Nobol Has Jarjnaz 0 5 10 20 Eastern Deir Kilometers Armed Opposition Groups Hawala Networks in Idleb Hawalas are a mechanism to transfer capital through a network of agents operating internationally. Despite the presence of formal banking services, hawalas have been prevalent throughout Syria since well before the onset of the conflict; for example, in 2006 the Government of Syria formally recognized hawalas and required that hawala agents register.1 Since 2011, the prominence and reliance upon hawalas has increased, and hawalas currently operate in both Government of Syria and armed opposition-held areas. Hawala networks in opposition-held areas have typically not been required to register, while those in Government of Syria-held areas must. Hawala networks rely on a substantial amount of trust between all actors involved in transactions. Hawalas normally function in the following way: the sender of funds approaches a hawala agent in their country and provides cash and a copy of the intended recipient’s ID. The hawala agent then sends the recipient’s ID to a hawala agent in Syria.2 The hawala agents may or may not be associated with the same company, but would normally have a preexisting relationship. With ID on hand for verification, the recipient in Syria approaches the pre-identified hawala agent and receives cash, minus a transaction fee. Both hawalas maintain careful records to ensure accuracy regarding credit and debits between each hawala agent in the process.3 1. Prior to the Syrian conflict, hawalas were used primarily to allow migrant workers to send remittances home to their families. 2. Fees, typically a percentage of the transferred cash, are either added to the initial cash sum, or subtracted from the distributed sum, depending on a mutual arrangement between the sender and recipient. 3. Although no physical cash has been traded, each agent balances their books in one of two ways: by directing the same amount cash transfers back to the sending agency, or having a third party intermediary either deliver cash across borders or through banking systems via wire transfers to the receiving agent’s account in a third country. Typically, this takes place as each hawala party’s cash reserves begin to shrink substantially, and is not necessarily on a set schedule. MERCY CORPS Situation Report: Hawala Registration in Idleb Governorate A 2 Outside Syria Inside Syria Pre-existing Relationship Sender 1 Recipient 1 $ $ $* Transaction 1 $* Sending Hawala Recipient Agent Pre-existing Relationship Hawala $* $* $ Transaction 2 $ Reconciliation of Books Recipient 2 Sender 2 Pre-existing Relationship $* Non-Cash based transaction $ Physical-Cash based transaction Pre-existing Relationship Northwestern Syria is an almost entirely cash-based economy and is heavily reliant on cross-border hawala networks in the absence of a functioning banking system. While hawala networks have local branches throughout the governorate, the central point of almost all hawala networks is the town of Sarmada, located in Dana subdistrict, due to Sarmada’s proximity to the Turkish-Syrian border; Sarmada benefits from cross-border trading and smuggling activities, and thus there are large amounts of accessible cash reserves for hawala agents. The reputation and credibility of a hawala agency depends on a number of factors, to include the existence of a headquarters or a branch office in Sarmada, as well as cross-border family and commercial connections. Broadly speaking, there are three categories of hawalas in northwestern Syria, based largely on the amount of accessible capital, which in turn determines their function. Small-scale hawala agents typically control approximately 20-30,000 USD; these agents typically act as currency exchanges and deal in small personal remittances. There are approximately thirty small-scale hawala agents in Idleb. Medium-scale hawala agents and large-scale hawala agents serve a similar purpose and differ only in scale of transactions. Medium-scale deal in sums between 100- 300,000 USD, and there are approximately twenty medium hawala agencies in Idleb. Large-scale hawala agents deal in sums of one million USD or more, and there exist approximately four large-scale hawals in Idleb. Medium- and large-scale hawala agents are typically used for commercial trade, donor-supported NGO activities, and other non-humanitarian activities. Due to the vital importance of the medium and large-scale hawala agencies to the economy in Idleb, these agencies generally exist outside of the influence of many of the key political and military actors in northwestern Syria. This is largely due to the their intricate cross-border networks, their affiliation with prominent families in Idleb, and their vital economic role in Idleb. Thus, armed opposition groups in Idleb have not had the capacity to enforce oversight over medium and large-scale hawala agents; Hay’at Tahrir al-Sham’s recent attempt to implement registration and fee requirements is thus the first large-scale attempt to register hawala networks under any governance body in Idleb. MERCY CORPS Situation Report: Hawala Registration in Idleb Governorate A 3 Hay’at Tahrir Al-Sham Attempt at Centralization On May 9, Hay’at Tahrir Al-Sham attempted to formally centralize hawala networks in Idleb by establishing a new ‘public’ body, called the General Institution for Cash Management and Consumer Protection. This newly founded institution’s mandate is to “administer and supervise the currency exchange market and financial transfers” in areas in Idleb under Hay’at Tahrir Al-Sham control. Subsequently, on May 11, Hay’at Tahrir Al-Sham announced three requirements for hawala agents: first, registration