“Hawala” has long been a method of both legitimate money transfer among Muslim nations, as well as a method of financing terror organizations through illicit and difficult to trace channels. It’s a system based not on checks, balances, account numbers or debts, rather, it’s based on honor. The brokers who operate hawala (hawaladars) base their entire careers off this honor system.

Long story short, hawala is a payment method that allows two people to transfer money very quickly. If you refer to the diagram below, it works as such: Person A wants to pay Person B for something. Person A tells B that the password is “Ironclad.”

Person A then pays Broker X the sum of money, with a little extra for the broker. A also tells X the password.

Broker X knows that Broker M is in Person B’s hometown — Broker X tells Broker M to “pay Person B the allotted amount.” The money never actually moves from X to M.

Broker M approaches B, and asks for the password. “Ironclad,” B says. Now Broker M knows that Person B isn’t just some random person about to receive a hefty payday. Broker M immediately pays person B from his own accounts.

This whole process, while it sounds complicated, is actually quite simple and can occur in under a day. The the two brokers (X and M) can settle up between each other on their own time, also splitting the extra transaction fee for themselves.

Read more about how the mechanics of hawala works here.