FATF Report: Underground Banking, Hawala Drive Professional Money Laundering
The Financial Action Task Force ("FATF") found that underground banking, hawala, and other similar service providers are increasingly operating as highly professionalized, cross-border money laundering networks.
In a report, the FATF noted that while these informal, decentralized value-transfer networks can serve legitimate remittance needs, they are highly vulnerable to exploitation. The report found that criminal misuse of these systems is a widespread global phenomenon, with more than 80 percent of reporting jurisdictions identifying them among their principal professional money laundering channels. The FATF said some cases involved more than EUR 500 million laundered through underground banking and hawala-based schemes within a few months. The report's Dutch example, Operation Klaver, involved roughly EUR 500 million over eight months.
The report detailed the emergence of "money laundering as a service," where underground banking systems are organized as scalable, commercially operated businesses. The FATF warned of increasing integration with the formal financial sector, as professional money launderers use bank accounts, fintech platforms, payment service providers, and virtual asset wallets as entry and exit points. Nearly 70 percent of respondents identified a growing shift toward "digital hawala," which utilizes encrypted messaging applications, virtual assets, stablecoins, and artificial intelligence tools to coordinate and settle balances.
The FATF concluded that the criminal use of these systems is no longer limited to cash-based crimes such as drug trafficking or smuggling. The report found that criminals are now using these networks to launder proceeds from a broader spectrum of illicit activities, including fraud, cyber-enabled crime, terrorist financing, and illegal gaming. The FATF urged jurisdictions to strengthen their ability to detect and disrupt these networks through targeted prevention, improved detection capabilities, and international cooperation.