New Delhi: Traditional hawala channels, including the movement of funds in cash and their reaching the ultimate beneficiary through face-to-face interactions, are giving way to digital technologies in the vast majority of cases, the Financial Action Task Force (FATF) has said in a report on emerging trends in money-laundering.
The global watchdog against illicit financial transactions said that the operators are now relying on a combination of digital services—including encrypted messaging, cloud storage, social media, lending applications, and gaming platforms—to manage customer onboarding, co-ordination, and settlement.
In its latest report, titled ‘Investigating Professional Money Laundering, Underground Banking, and the Use of Hawala and Other Similar Service Providers’, the financial watchdog said that the hawala network has been shifting towards what it defined as ‘digital hawala’, which involves, in some capacity, the role of digital technologies.
The FATF defines digital hawala as the use of digital technologies to facilitate the co-ordination, execution, settlement, or concealment of a funds transfer through hawala or other informal mechanisms, including the use of digital communication tools between the operators involved and reliance on digital payment systems, such as cryptocurrencies, for the movement of funds.
“One of the most significant developments identified in the report is the digital transformation of underground banking and Hawala and Other Similar Service Providers (HOSSP) activity, including the use of digital technologies to facilitate the co-ordination, execution, settlement, or concealment of informal value transfer, including for PML (professional money-launderers),” the FATF said in its report.
The anti-money laundering watchdog observed that this rapid digital transformation of hawala networks and the money-laundering system would increase the speed and opacity of illicit networks, thereby expanding the geographic reach and network of hawala networks.
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Cash still king
In the first broader theme, the FATF said that hawala operators have been using encrypted messaging applications such as Telegram and Signal, as well as digital tools to communicate between clients and among themselves, and to maintain records.
“These communications are often ephemeral, encrypted, and fragmented across platforms and jurisdictions,” the FATF said in the report. However, in this broad category, the final settlement continues to take place through traditional methods of payment, such as cash or trade.
In some cases, the FATF has also found the presence of ‘hawala apps’, which are built to manage all sorts of activities on one platform—from onboarding customers or operators to coordinating with them and settling through a digital payment system.
“These tools may function as integrated ecosystems rather than standalone applications, enabling cross-border operations with limited visibility, reduced physical presence, and high operational flexibility. In some cases, purpose-built applications have been identified,” the FATF said.
In some cases, the FATF observed that the payee intending to transfer funds through these illicit channels initiated transactions through legal channels, such as bank transfers or mobile wallets or fintech applications. However, the money is siphoned off and settled between hawala operators in cash during subsequent steps of the transaction.
“In more advanced models, operators use Value-Added Services (VAS)— including stablecoins such as USDT, USDC and DAI—to settle balances between themselves, either replacing or complementing traditional methods. These arrangements may involve rapid VA transfers, VA-to-cash conversions, or hybrid combinations with trade-based or cash settlement,” the FATF said in the report.
The FATF also said that some jurisdictions have reported the use of artificial intelligence tools to facilitate professional money launderers by generating transaction patterns that make illicit fund movements appear legitimate. This happens, according to the FATF, through the automated structuring of transactions, routing funds through mule accounts and payment platforms, and the swift conversion into virtual assets, along with the selection and management of mule accounts.
Despite the rapid transformation of these networks into digital modes, the FATF maintains that reliance on cash remains critical.
“The impact of digitalisation on cash use is mixed. While some jurisdictions report reduced reliance on cash for inter-operator settlement, with a shift towards digital and trade-based methods, cash remains critical at entry (collection) and exit (payout) points. Bulk cash movement, including cross-border transport, continues to play a significant role in certain networks,” it said.
(Edited by Nardeep Singh Dahiya)
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