PARIS: Hawala and other underground banking networks are increasingly adopting virtual assets, fintech platforms and digital communication tools to conceal and move illicit wealth across borders, according to a joint report by the Financial Action Task Force (FATF) and the Organisation for Economic Co-operation and Development (OECD).
The report, prepared with input from around 45 jurisdictions and organisations, including Pakistan and India, highlighted the growing use of underground banking and other high-risk or unregistered money transfer services to facilitate illicit finance.
It warned that such systems remain vulnerable to money laundering and terrorist financing, with some cases involving more than €500 million being laundered through underground banking and hawala-based schemes within a matter of months.
According to the report, the criminal misuse of underground banking and high-risk or unregistered money service providers is a widespread global problem. More than 80 per cent of reporting jurisdictions identified these systems as among the main channels or techniques used by professional money launderers.
The report cited a case in Oman involving a hawala network that used social media and mobile money services to facilitate remittances to Pakistan.
The Central Bank of Oman (CBO) received information through its whistleblower channel about individuals allegedly operating an unlicensed cross-border remittance business to Pakistan. The activity came to the authorities’ attention after a sudden decline in legitimate customer remittances through certain corridors.
Further inquiries, including engagement with customers and monitoring of social media, led authorities to a WhatsApp group called “XX Money Exchange”. The group was reportedly operated by foreign nationals to advertise foreign exchange and remittance services among expatriate communities in Oman.
The suspected hawaladars offered exchange rates below formal market rates and charged little or no fees. Customers transferred money either in cash or through mobile-linked accounts, after which the operators provided screenshots showing payments made through e-wallets to corresponding wallets in the destination country.
The report said the scheme exploited low-cost remittance channels in destination countries, including fee-free transfers to Pakistan through systems such as Raast, as well as exchange-rate differences offered by some digital wallet and payment providers.
Omani authorities identified six suspected individuals believed to be part of a connected hawala network, with transactions worth approximately $72,293 recorded over a one-year period.
The report also highlighted a money laundering case in India involving proceeds from illegal online gambling. Indian authorities identified a professional money laundering network linked to an online gambling platform offering sports betting, card games and other forms of wagering.
The platform operated through a decentralised network of “panel operators” responsible for handling customer deposits and withdrawals. These operators reportedly used UPI, online banking, digital wallets, mule accounts and accounts opened using stolen identities to move funds.
A portion of the proceeds was converted into cash and transferred overseas through hawala and other underground banking channels. The funds were subsequently brought back into India as purported foreign investment from the UAE, disguising their criminal origins, according to the report.
The report was prepared with contributions from experts from 32 jurisdictions, alongside 22 FATF members and three observers Europol, Interpol and the United Nations Office on Drugs and Crime (UNODC).
While underground banking and other high-risk money transfer services can have legitimate uses, the report said unlicensed or unregistered services were criminal offences in most jurisdictions and were inconsistent with FATF standards. The standards recommend that countries require entities providing such services to obtain appropriate licences or registration.
The FATF and OECD said underground banking and hawala networks had evolved into increasingly organised and commercially operated structures. Their growing sophistication has contributed to the emergence of “money laundering as a service”, in which specialised networks provide laundering services to criminal groups.
Such networks can offer lower fees and rapidly move large amounts of money across borders, making them attractive to organised criminal groups.
The report also warned that professionals including lawyers, accountants, auditors, notaries, corporate service providers, financial consultants, real estate agents, casinos and junket operators could be involved in facilitating money laundering schemes.
Another major concern is the growing connection between underground networks and 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.
The report identified the emergence of “digital hawala”, noting that nearly 70 per cent of respondents had observed the integration of new technologies into hawala operations.
These networks increasingly use encrypted messaging applications such as WhatsApp, Telegram and Signal to coordinate transactions. Customers can initiate transfers through bank accounts, mobile wallets, fintech applications and instant payment systems, while operators may use virtual assets, including stablecoins, to settle balances.
The report also pointed to the use of artificial intelligence-based tools and purpose-built hawala applications.
According to the FATF and OECD, these technologies can make professional money laundering operations more efficient, help conceal illicit funds and expand the geographical reach and resilience of underground banking networks.
The report stressed that the criminal use of these systems was no longer confined to cash-intensive crimes such as drug trafficking and smuggling.
Criminal networks are increasingly using underground banking and digital hawala systems to launder proceeds from fraud, cybercrime, terrorist financing, illegal gambling and transnational organised crime, it said.
Drawing on evidence from more than 50 jurisdictions, the report provides a global assessment of how professional money laundering networks operate and outlines measures to help governments and the private sector detect, investigate, prosecute and disrupt such activities.
It called for a combination of targeted prevention and enforcement measures, financial inclusion policies, clearer legal frameworks, stronger detection mechanisms, greater cooperation between public and private sectors, improved domestic coordination and enhanced international cooperation.
