Hawala
Also called informal value transfer system (IVTS), hundi
Hawala is an informal way of transferring value in which money is paid to a broker in one country and an equivalent amount is paid out by a partner broker in another, without funds crossing a bank system at the time. The brokers settle the balance between them later through trade, cash or other transfers.
How it works
A sender hands cash to a hawaladar and receives a code. The hawaladar contacts a partner in the destination country, who pays the recipient in local currency once the code is given. No money moves between the two brokers at that point. They record a debt between them and settle it over weeks or months, often by netting many transfers, shipping goods at adjusted prices or moving cash.
Hawala serves migrant communities and places with weak banking, and it is cheap and fast. The same features create risk: records are thin, settlement can run through trade or third countries, and the true sender and recipient are hard to trace. FATF calls these businesses hawala and other similar service providers. Banks see the risk when a hawaladar uses an ordinary account to settle its balances.
The rules
Requires countries to license or register money or value transfer providers, supervise them for AML compliance and sanction anyone operating without a licence or registration. Agents must be licensed, registered or listed by their principal.
Money or value transfer service providers, including informal ones, through national lawA money service business must not operate unless it is on the register kept by HMRC, or by the FCA for authorised firms. Running an unregistered money transfer business is a breach of the regulations.
Money service businesses, including hawala operatorsRequires money transmitting businesses, expressly including informal money transfer systems, to register with FinCEN within 180 days of starting, renew every two years and keep a list of agents.
Money transmitting businesses, including informal value transfer networksCommon questions
Is hawala illegal?
Hawala is not illegal in itself in the UK, EU or US. Operators must be registered or licensed as money transfer businesses and follow AML rules. Running an unregistered hawala is an offence or breach in most countries.
Why is hawala linked to money laundering and terrorist financing?
Transfers leave little paper trail, settlement often runs through trade, cash or third countries, and the parties behind each payment are hard to identify. FATF has documented cases where criminal and terrorist groups used hawala networks.
How do banks spot hawala activity?
Signs include many small cash deposits from unrelated people, frequent transfers to the same overseas countries, business accounts with flows that do not match the stated trade and round sums moving in both directions with other brokers.
