In sensitive political contexts from North Korea to Somalia, security concerns have led to restriction of money transfer corridors, making remittances a challenging, and often illegal, endeavor. But legal barriers many times fail to stem the flow of money, as diaspora and refugee populations continue to send funds to friends and family through improvised channels. We survey a few of those hard-to-reach areas to see how money manages to slip in, and if these underground networks might soon go mobile.
North Korea: Smuggling Cash through China
The Korean peninsula presents an interesting snapshot of remittance regulations, and the creative systems that have emerged to subvert them. Sanctions from both the UN and the European Union 
, in addition to strict regulations from both North and South Korea, have virtually blocked all
formal money transfer channels into the North.
While a recently proposed South Korean law may soon op
en the North-South money transfer channels, sending money to the North remains risky and expensive.
However, despite formidable legal barriers, an underground system of cash transfer has emerged to facilitate remittances, and the South Korean government has done little to stop it, as the
money is sent for humanitarian, rather than military, purposes.
The Database Center for North Korean Human Rights estimates that 49 perce
nt of North Koreans in the South regularly send money to families back home, with an estimated $10 million sent to the North by defectors annually. According to North Korea expert Andrei Lankov, the remittance
s are made in cash, and sent through the same intricate network of brokers that smuggles people, letters and mobile phones into North Korea through China.
While these corridors are surprisingly reliable, they also come with a huge price tag. On average, brokers charge 20 to 30 percent of
the total amount remitted, costs that can be prohibitively expensive for a large number of North Korean defectors.
Somalia: Flaunting Anti-Terrorism Laws
Security concerns have also led to the restriction of remittance channels to and from Somalia, where informal money transfer networks have allegedly been used to fund terrorist activities.
While the US Government officially permits remittances (except to individuals prohibited by the Specially Designated Nationals list), banks in Minnesota, home to 32,000 Somali Americans, last year clamped down on wire transfers to the East
To justify the move, they cited fears that the transfers would cause them to violate US anti-money laundering and anti-terrorism laws. In a remittance-dependent country where one-third of the GDP comes from abroad,
and traditional remittance companies like Western Union and MoneyGram do not operate, the banks’ restrictions cut off many Somalis from an important source of income.
While Somali Americans have found other ways to send money back home, primarily through remittance companies in other countries, these options remain relatively limited and expensive. The World Bank remittance portal show
s that funds can only be transferred to Somalia via remittance companies in the United Kingdom, with an average fee of 6.18 percent per transaction.
Iran: Hawala Circumvents Bank Restrictions
In Iran, the flow of remittances has been similarly restricted. Through an array of economic sanctions against Iran, along with the expulsion of many Iranian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), se
nding money to Iranian financial institutions has become nearly impossible.
For example, while US sanctions nominally allow money transfers to Iran for “non-commercial family remittances,” a report from the Asian Law Caucus warns that, in pra
ctice, “funds transfers between US and Iran that do not violate the Iran Sanctions are few and far between.”
But with $1.1 billion in remit
tances sent to Iran in 2010, it is evident that restrictions have failed to stop the flow of money, which inevitably finds a way into the country.
As in much of North Africa and the Middle East, under-the-radar transfers often occur through the Hawala network – an informal system of money transfer that bypasses central authorities. While the network is unregulated, and thus data is hard to collect, estimates from the World Bank show that large v
olumes of money are transferred through the network, with no specific limit on the amount that can be sent.
From Hawala to Bitcoin
While cash-based hand couriers and the informal Hawala networks enable diaspora populations to circumvent restrictive regulations, these systems remain expensive and inaccessible for many would-be remitters – creating pent-up demand for a cheaper, more convenient means to covertly transfer funds. Accordingly, as mobile penetration continues to grow exponentially, even in restrictive economies such as North Korea and Iran, underground value transfer may soon find a new vehicle – the mobile phone.
Although most mobile payment platforms would be subject to the same restrictions as traditional remittance companies, newly emergent virtual currencies like Bitcoin have the capacity to fly beneath government regulations, opening alternate channels for subversive money transfer. Bitcoin, as a decentralized, politically-neutral currency that can be transferred via mobile or online networks, could see adoption in contexts where financial services are restricted but mobile penetration is high (see next article for details about Bitcoin).
In a recent Forbes article,
E-money specialist Jon Matonis argued that Bitcoin could gain traction in the Somali context, where mobile penetration rates are high (33.4%),
the telecommunications sector is strong, and a large portion of the population is already familiar with using mobile phones to send and receive money. In Iran, where cellphone penetration is nearly 112%,
or North Korea, where mobile ownership is on the rise 
and remittances are already facilitated via mobile phones,
wide adoption of a peer-to-peer digital currency such as Bitcoin might not be so far-fetched.
But the use of Bitcoin in these contexts may pose as much of a threat as it does an opportunity. On an international scale, a currency similar to Bitcoin could open channels for money laundering, the funding of terrorist activities or the continued economic support of repressive regimes. Further, as a relatively new and untested platform (surfacing on the Internet only in 2009), Bitcoin could leave remitters vulnerable to fraud or large-scale hacking scandals.
Regardless of these threats, the international community may be powerless to stop the emergence of Bitcoin, particularly in contexts such as North Korea, Somalia, or Iran where there is demand for alternative monetary systems. It will, therefore, be important to observe how Bitcoin develops in these “underground” corridors, as it is in such spaces that opportunities for mobile payments abound, even in the context of significant risk.