The Financial Action Task Force (FATF) has issued a stark warning that underground banking and hawala networks are being systematically exploited by professional money launderers on a global scale. In a comprehensive report released on September 3, 2026, the Paris-based watchdog revealed that more than 80% of reporting jurisdictions now identify these informal value transfer systems as principal channels for professional money laundering activity.
Scale and Scope of the Problem
The FATF’s findings underscore the magnitude of illicit financial flows moving through unregistered hawala and underground banking channels. In some documented cases, more than €500 million has been laundered through these networks within just a few months, demonstrating both the speed and volume at which criminal proceeds can be moved across borders.
While hawala and similar service providers (HOSSPs) can serve legitimate remittance needs, particularly for migrant workers and communities with limited access to formal banking, the report emphasises that providing unlicensed underground banking services constitutes a criminal offence in most countries and violates FATF Standards. These standards explicitly recommend that jurisdictions require such entities to be licensed or registered to operate legally.
Professionalisation of Money Laundering Networks
A central finding of the report is the marked professionalisation of underground banking operations. FATF President Giles Thomson warned that sophisticated, commercially run networks now act as a “serious risk multiplier” for global financial integrity. These networks have evolved into highly organised, business-like structures offering what the watchdog terms “money laundering as a service” – the systematic outsourcing of money laundering functions to specialists operating as a commercialised business model.
The report highlights that these professional networks offer lower commission rates and can move large volumes of value rapidly across borders for organised crime groups. This commercialisation has attracted the involvement of professional service providers, including lawyers, accountants, auditors, notaries, corporate formation agents, financial consultants, real estate agents, and casino or junket operators, who facilitate the integration of illicit funds into the formal financial system.
The Rise of Digital Hawala
Nearly 70% of respondents to the FATF survey identified the integration of new technologies as a defining trend, with a significant shift towards so-called “digital hawala”. This digital transformation involves operators using encrypted messaging applications such as WhatsApp, Telegram, and Signal to coordinate transactions; customers initiating transfers through bank transfers, mobile wallets, fintech applications, or instant payment systems; and operators using virtual assets, including stablecoins, to settle balances between themselves.
The FATF defines digital hawala as the use of digital technologies to facilitate the coordination, execution, settlement, or concealment of funds transfers through hawala or other informal mechanisms. This includes digital communication tools between operators and reliance on digital payment systems, such as cryptocurrencies, for fund movement.
In some jurisdictions, investigators have identified purpose-built “hawala apps” designed to manage all aspects of operations on a single platform – from customer onboarding and operator coordination to settlement through digital payment systems. Additionally, the report notes the emerging use of artificial intelligence-based tools to generate transaction patterns that make illicit fund movements appear legitimate, further complicating detection efforts.
Expanded Criminal Use Beyond Traditional Crime
Historically associated with cash-based crimes such as drug trafficking and smuggling, underground banking and hawala networks now process funds from a far broader range of criminal activities. The FATF report documents their misuse for fraud, cyber-enabled crime, terrorist financing, illegal gambling, and transnational organised crime.
Case studies included in the report illustrate cross-border drug proceeds laundering and terrorist financing facilitated through digital hawala networks. The findings show that both large, networked terrorist organisations and their local affiliates continue to rely on underground banking and HOSSP-based mechanisms to receive donations from abroad, move funds between regional hubs, transfer value into and out of conflict areas, and support decentralised cells and operatives.
The United Nations 1267 Monitoring Team has widely reported the use of HOSSPs by UN-designated terrorist groups over the past decade, and in 2025, the FATF’s Comprehensive Update on Terrorist Financing Risks confirmed that these informal systems remain a core terrorist financing method, particularly in high-risk contexts such as conflict zones, remote or underserved areas with limited formal financial access, and jurisdictions with large informal and cash-based economies.`
Regional Case Studies and Enforcement Actions
The report draws on evidence from more than 50 jurisdictions across the FATF Global Network and partner organisations. One notable case involved an Oman-based hawala network that used WhatsApp, mobile-linked transfers, and e-wallets to facilitate unlicensed cross-border remittances to Pakistan, as detailed in a joint FATF-OECD report.
Indian intelligence agencies have uncovered transnational hawala infrastructure involving shell companies, forged KYC records, manipulated trade documents, and informal settlement networks. These findings validate long-standing concerns over underground money networks and have intensified pressure on jurisdictions perceived as havens for unregulated hawala operations.
In Italy, investigators documented criminals using hawala networks to launder proceeds from human trafficking and car smuggling, with funds eventually channelled to terror groups in Syria. These examples illustrate the global reach and adaptability of underground banking systems in serving diverse criminal enterprises.
FATF Recommendations and Mitigation Measures
Drawing on evidence from over 50 jurisdictions, the FATF report calls for a multi-pronged approach to counter the misuse of underground banking and hawala networks. Key recommendations include:
- Legal clarity: Ensuring that national laws clearly prohibit unlicensed underground banking and HOSSP services, with appropriate penalties for violations.
- Enhanced detection capabilities: Strengthening the ability of financial intelligence units, law enforcement, and regulatory bodies to identify and investigate professional money laundering infrastructure.
- Public-private feedback loops: Fostering information sharing between the private sector and authorities to improve detection of suspicious patterns linked to underground banking.
- Domestic coordination: Improving inter-agency cooperation within jurisdictions to ensure cohesive responses to money laundering threats.
- International cooperation: Facilitating cross-border collaboration to disrupt transnational money laundering networks that exploit jurisdictional gaps.
- Proportionate financial inclusion: Balancing enforcement measures with efforts to expand access to formal financial services, particularly in underserved communities where hawala networks often fill legitimate remittance needs.
The report emphasises that combining targeted prevention and enforcement measures with proportionate financial inclusion efforts is essential to addressing both the supply and demand sides of underground banking misuse.
Implications for Compliance and Regulation
For financial institutions, fintech companies, and compliance professionals, the FATF’s findings signal the need for heightened vigilance and enhanced due diligence protocols. The integration of hawala networks with formal financial channels – through bank accounts, payment service providers, virtual IBANs, prepaid cards, and virtual asset wallets – creates multiple entry and exit points that can be exploited by professional launderers.
Regulators are expected to increase scrutiny of entities operating in high-risk jurisdictions or sectors where underground banking activity is prevalent. The report’s emphasis on digital hawala also underscores the importance of monitoring emerging technologies, including encrypted communications, virtual assets, and AI-driven transaction obfuscation tools.
As the FATF continues to update its standards and guidance in response to evolving money laundering typologies, jurisdictions and private sector actors must adapt their compliance frameworks to address the growing sophistication of underground banking networks. Failure to do so risks exposing the global financial system to significant integrity threats from organised crime, corruption, fraud, and terrorist financing.