The Financial Action Task Force has released a new report underscoring the growing role of underground banking, hawala and other similar service providers in facilitating illicit finance.

The report highlights the vulnerability of these systems to money laundering and terrorist financing. In some cases, more than ₹4,500 crores were laundered through underground banking and hawala-based schemes within just a few months.

Criminal misuse of underground banking and HOSSPs is described as a widespread global phenomenon. More than 80% of reporting jurisdictions identified these systems among the principal professional money laundering channels or techniques.

While hawala and similar systems can serve legitimate purposes, in most countries the provision of underground banking or unregistered HOSSP services is a criminal offence. This contravenes FATF Standards, which recommend that countries require these entities to be licensed or registered.

The report explains how underground banking and hawala networks have evolved. They are increasingly associated with highly professionalised “money laundering as a service,” where laundering functions are outsourced to specialists. This has led to the emergence of professional money laundering as a commercialised business model.

These systems are now organised as business-like structures. Sophisticated, scalable, and commercially operated cross-border professional money laundering networks have emerged. They offer lower commission rates and can move large volumes of value rapidly across borders for organised crime groups.

The FATF warns of increasing involvement of lawyers, accountants, auditors, notaries, corporate formation agents, financial consultants, real estate agents, and casinos and junket operators in facilitating such schemes.

Integration with the formal financial sector is also highlighted. Professional money launderers increasingly use bank accounts, fintech platforms, payment service providers, virtual IBANs, prepaid cards, and virtual asset wallets as entry and exit points in laundering cycles. These exploit regulatory blind spots.

Nearly 70% of respondents identified the integration of new technologies, with a growing shift towards “digital hawala.”

This includes operators using encrypted messaging applications such as WhatsApp, Telegram and Signal. Customers initiate transfers through bank transfers, mobile wallets, fintech applications or instant payment systems. Operators use virtual assets, including stablecoins, to settle balances between themselves. AI-based tools and purpose-built “Hawala apps” have also been identified.

These developments accelerate the efficiency of professional money laundering services. They make money easier to hide and strengthen the geographic reach and resilience of underground banking- and HOSSP-based schemes.

The criminal use of these systems is no longer limited to cash-based crime such as drug trafficking or smuggling. Criminals now launder proceeds from fraud, cyber-enabled crime, terrorist financing, illegal gaming and gambling, and transnational organised crime.

Operational case studies show how professional money laundering networks increasingly rely on underground banking systems. Examples include moving proceeds from large-scale cross-border drug trafficking or using digital hawala networks to finance members of a terrorist organisation.

FATF President Giles Thomson warned that the emergence of sophisticated, commercially operated cross-border money laundering networks is a serious risk multiplier. He urged public and private partners to put good practices identified in the report into action to detect and disrupt this infrastructure.

The report draws on evidence from more than 50 jurisdictions across the FATF Global Network and partners. It provides a global picture of how these systems operate and identifies good practices to help jurisdictions and the private sector strengthen their ability to detect, investigate, prosecute and disrupt professional money laundering infrastructure.

The findings highlight the importance of combining targeted prevention and enforcement measures with proportionate financial inclusion efforts.

These must be supported by legal clarity, enhanced detection capabilities, public-private feedback loops, domestic co-ordination and international co-operation.

ANI