The Financial Action Task Force (FATF) has warned that hawala and other underground money-transfer networks are becoming increasingly important tools for professional money launderers, with criminal groups using technology, fintech platforms and virtual assets to move illicit funds across borders.
In a new report published on September 3, the global financial-crime watchdog said underground banking and hawala networks are no longer limited to traditional cash-based transactions. Instead, increasingly sophisticated operators are turning them into commercially organised services capable of moving large amounts of money rapidly and across multiple jurisdictions.
The scale of the threat is significant. More than 80% of jurisdictions that responded to the FATF’s assessment identified underground banking, hawala and similar service providers as important channels or techniques used by professional money launderers. In some cases examined by the FATF, more than €500 million was laundered through underground banking and hawala-based schemes within only a few months.
Hawala networks are becoming a professional business
Hawala is an informal system for transferring value that can operate outside traditional banks. It can have legitimate uses, particularly for remittances and communities with limited access to formal financial services.
The problem highlighted by the FATF is the increasing criminal exploitation of these systems.
According to the report, some underground banking operators have evolved into highly organised businesses offering what the watchdog describes as “money laundering as a service.” Instead of criminals attempting to hide their proceeds themselves, specialist networks provide laundering services for organised crime groups for a fee.
These networks can move substantial amounts of value across borders while potentially offering lower costs and faster transactions than traditional financial channels. The FATF said their growing professionalisation has made them more scalable and resilient.
The distinction between legitimate and criminal hawala activity is therefore important. FATF is not describing every hawala operator as criminal. Rather, it is warning that unregistered or underground services can create vulnerabilities that professional money launderers can exploit.
Digital hawala is changing how illicit money moves
One of the most significant findings is the rapid emergence of “digital hawala.”
Nearly 70% of respondents identified the integration of new technologies and the growing use of digital tools in these networks. Operators can use encrypted messaging services such as WhatsApp, Telegram and Signal to communicate and coordinate transactions.
Customers may initiate transfers using bank accounts, mobile wallets, fintech applications and instant-payment systems. Operators can then use virtual assets, including stablecoins, to settle balances between different participants in the network.
The FATF also identified the use of AI-based tools and even purpose-built hawala applications.
This technological shift creates a major challenge for financial investigators. Traditional enforcement techniques designed around physical cash and face-to-face transactions may be less effective when criminal networks use multiple digital platforms and jurisdictions simultaneously.
Criminal networks are connecting hawala with the formal financial system
Another concern raised by the FATF is that underground networks are not necessarily operating completely outside the formal financial system.
Professional money launderers are increasingly using bank accounts, fintech platforms, payment service providers, virtual IBANs, prepaid cards and virtual-asset wallets as entry and exit points for illicit funds.
This creates a complicated environment for banks and financial institutions.
A transaction may appear to involve a legitimate financial service, while the underlying network controlling the money could be part of a larger laundering operation. Criminals can potentially move funds through several layers of accounts and platforms before converting or transferring the value again.
The FATF says this growing connection between underground banking and the formal financial sector can allow criminals to exploit regulatory gaps and make investigations more difficult.
Money laundering now extends beyond drug trafficking
The FATF report also highlights how the criminal use of these networks has expanded.
Historically, underground banking systems have often been associated with crimes such as drug trafficking, smuggling and other cash-intensive activities. The latest assessment shows that their use now extends across a much broader range of criminal economies.
These include fraud, cyber-enabled crime, terrorist financing, illegal gambling and transnational organised crime. The report includes operational case studies involving large-scale cross-border drug proceeds as well as digital hawala networks used to provide financing to terrorist organisations.
This diversification makes underground financial networks a broader threat to financial security because they can serve multiple types of criminal organisations simultaneously.
Professional advisers can also become part of the network
The FATF has also identified the involvement of professionals and businesses outside traditional financial services.
Lawyers, accountants, auditors, notaries, corporate formation agents, financial consultants, real-estate businesses and casino or junket operators can potentially become facilitators within professional money-laundering structures.
The finding does not mean that these professions are inherently linked to criminal activity. Instead, the FATF is warning that legitimate professional services can be exploited to establish companies, move assets, disguise ownership or create layers between criminals and their money.
This makes beneficial-ownership transparency and effective customer due diligence increasingly important for authorities and businesses.
FATF calls for stronger international cooperation
The FATF’s assessment draws on evidence from more than 50 jurisdictions across its global network and identifies measures governments and private-sector organisations can use to detect and disrupt professional laundering networks.
The watchdog is calling for stronger legal frameworks, improved detection capabilities, better cooperation between governments and financial institutions, and stronger international coordination.
It also stresses that authorities need to distinguish between legitimate financial services and criminal activity. Excessive restrictions on informal money-transfer systems could potentially affect people who legitimately rely on them for remittances and financial access.
The challenge is therefore to target criminal networks without unnecessarily cutting off legitimate users.
Why the FATF warning matters for banks and fintech companies
The report has important implications for banks, fintech companies, payment providers and cryptocurrency businesses.
As criminals increasingly combine informal networks with formal financial services, institutions need to look beyond individual transactions and identify unusual patterns across accounts, payment platforms and jurisdictions.
The rise of digital hawala also means that compliance systems need to keep pace with new payment technologies. Encrypted communications, instant payments, mobile wallets, stablecoins and AI-powered tools can make transactions faster and more difficult to trace.
For financial institutions, this could mean greater investment in transaction monitoring, customer verification, risk assessment and information-sharing with law-enforcement agencies.
A new challenge for global financial regulation
The FATF’s latest findings show that hawala has entered a new phase. The underlying concept of informal value transfer is not new, but technology is giving criminal networks the ability to operate more quickly, cheaply and internationally.
The emergence of commercially organised “money laundering as a service” could make it easier for criminal groups to outsource the most difficult part of hiding illicit proceeds. At the same time, the integration of underground networks with fintech, banking and virtual-asset infrastructure creates new challenges for regulators.
For governments, the task now goes beyond simply identifying cash-based hawala networks. Authorities increasingly need to understand how informal money-transfer systems interact with the digital financial ecosystem.
The FATF’s message is clear: criminal networks are adapting faster, becoming more professional and using new technology to move illicit money across borders. Governments, banks and fintech companies will need to strengthen cooperation and detection capabilities if they want to disrupt the financial infrastructure supporting organised crime and terrorist financing.
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