FATF Warns Hawala Is Going Digital

By Anjali Sharma
WASHINGTON – According to a new report by the Financial Action Task Force on Friday said that underground banking and hawala are no longer operating largely through traditional cash-based networks, with criminals increasingly turning to encrypted messaging, fintech platforms, stable coins and even dedicated apps to move illicit money across borders.

FATF report said that over 80% of reporting jurisdictions identified underground banking and similar service providers among major professional laundering channels, while individual cases involved over EUR 500 million in just months.

The scale of the shift is significant. More than 80 per cent of jurisdictions that responded to the FATF identified underground banking, and hawala and other similar service providers among the principal channels or techniques used for professional money laundering.

Some cases examined by the global watchdog involved more than EUR 500 million being laundered through such schemes within a matter of months.

The FATF report pointed to the emergence of what it describes as “money laundering as a service”. Instead of criminals handling the laundering of their proceeds themselves, specialist networks are increasingly taking over the task as a commercial operation.

These networks can operate across borders, process large volumes rapidly, and offer lower commission rates.

The report described increasingly sophisticated and scalable structures capable of providing laundering services to organized crime groups.

HOSSPs can have legitimate uses, the report said underground banking or unregistered HOSSP services are generally criminal offences in most countries.

FATF Standards recommended that countries require such service providers to be licensed or registered.

The watchdog has also flagged the involvement of professionals and businesses beyond the traditional financial system.

Lawyers, accountants, auditors, notaries, corporate formation agents, financial consultants, real estate agents, casinos, and junket operators have been identified as facilitators in such schemes

Technology is changing the mechanics of these networks as well, the report said.

It added that 70% of respondents identified the integration of new technologies and a growing move towards “digital hawala”.

The operators are using encrypted messaging platforms such as WhatsApp, Telegram, and Signal for coordination.

It acknowledged that customers can initiate transactions through bank transfers, mobile wallets, fintech applications, and instant payment systems.

Virtual assets, including stable coins, are also being used by operators to settle balances among themselves, it added.

The FATF report identified the use of AI-based tools and the development of purpose-built “Hawala apps”.

The professional money launderers are increasingly connecting underground networks with the formal financial system. Bank accounts, payment service providers, fintech platforms, virtual IBANs, prepaid cards and virtual asset wallets can serve as entry and exit points in laundering cycles.

According to the report, these developments can make professional laundering operations faster, harder to detect, and capable of operating across a wider geographical area.

The FATF assessment also pointed to a widening range of crimes feeding these networks.

Underground banking systems are no longer confined to laundering cash generated through activities such as drug trafficking and smuggling.

Fraud, cyber-enabled crime, terrorist financing, illegal gaming and gambling, and transnational organized crime are among the criminal economies now linked to their use.

The case studies examined for the report include underground banking systems used to move proceeds from large-scale cross-border drug trafficking and digital hawala networks used to finance members of a terrorist organisation.

FATF President Giles Thomson warned that the professionalization of the infrastructure had increased the threat posed by such networks.

“This emergence of sophisticated, commercially operated cross-border money laundering networks is a serious risk multiplier, making it easier for criminals to cover up their activities that harm people and communities around the world.”

He called for greater action by governments and the private sector.

“Whether through dedicated coordination channels or innovative investigative tools, I urge public and private partners around the world to put the good practices identified in this report into action to detect and disrupt this infrastructure that is sustaining organized crime.”

The report draws on evidence from more than 50 jurisdictions across the FATF Global Network and its partners.

It called for targeted prevention and enforcement alongside legal clarity, stronger detection capabilities, and better domestic and international coordination.

The FATF also stressed public-private feedback mechanisms and proportionate financial inclusion measures as part of efforts to disrupt professional laundering networks.