A new FATF study reveals how traditional underground banking networks are evolving into borderless, tech-driven financial conduits used for laundering over €500 million in months, spanning fraud, terrorism, and organised crime.
Underground banking networks once associated mainly with cash handovers and diaspora remittances are being recast as border-spanning digital service businesses, according to a new study from the Financial Action Task Force, which says some schemes laundered more than €500 million within a few months. The Paris-based watchdog said criminal misuse of hawala and similar informal transfer systems is now a global problem, with more than 80 per cent of reporting jurisdictions ranking them among the main channels used by professional money launderers. The study drew on questionnaire responses from 46 jurisdictions and a wider FATF network spanning more than 50 jurisdictions and partner bodies. (fatf-gafi.org)
What has changed most sharply is the method. FATF uses “digital hawala” to describe informal transfers in which technology is used to co-ordinate, execute, settle or conceal the movement of value. According to The Print and FATF’s own report, operators now combine encrypted messaging on WhatsApp, Telegram and Signal with cloud storage, social media, lending apps and gaming platforms. Customers may start a transfer through a bank payment, mobile wallet, fintech app or instant-payments rail, while balances between operators can be settled later through stablecoins and other virtual assets. Nearly 70 per cent of respondents told FATF they were seeing new and fast-evolving typologies. (fatf-gafi.org)
The shift matters because the networks are no longer tied mainly to drug trafficking and smuggling. Reuters reported that FATF now sees the same infrastructure being used for fraud, cyber-enabled crime, terrorist financing, illegal gaming and gambling, and other organised cross-border offending. The report also says the trade is becoming more structured, with specialist roles and deeper links into the regulated economy. Lawyers, accountants, auditors, consultants, real-estate agents and other professional intermediaries are increasingly appearing around these schemes, while formal accounts, payment service providers, virtual IBANs, prepaid cards and crypto wallets are being used as entry and exit points. (investing.com)
One of the clearest case studies came from Oman. FATF said the Central Bank of Oman received a whistle-blower tip about an unlicensed remittance network serving Pakistani expatriates, then tracked the operation through online monitoring and undercover observation. Investigators found hawaladars advertising below-market exchange rates, taking funds in cash or through mobile-linked transfers, and then sending screenshots of e-wallet credits to counterparts abroad. The report says the network exploited low-cost routes into Pakistan, including fee-free transfers through channels such as Raast and small exchange-rate gaps offered by some wallet providers. Omani authorities identified six suspected participants linked to roughly $72,000 in recorded flows over a year. (fatf-gafi.org)
That reference prompted a public pushback from Pakistan’s central bank on 4 September. The State Bank of Pakistan said reports linking Raast itself to money laundering had misread the FATF material, adding that “The FATF report neither identifies Raast as a money-laundering mechanism nor raises any specific concern regarding the integrity of the Raast payment infrastructure”. Arab News reported that the bank stressed Raast is a domestic instant-payments system and does not currently handle cross-border transfers. The rebuttal carried political weight in Pakistan, which was on FATF’s grey list from June 2018 until October 2022 before being removed after completing two action plans covering 34 items. (arabnews.pk)
Another case, from India, showed how online betting profits can be washed through the same architecture. FATF said investigators uncovered an illegal gambling platform built around a decentralised network of “panel operators” who handled deposits and withdrawals using UPI, online banking, digital wallets, mule accounts and accounts opened with stolen identities. That design kept the gambling operation at arm’s length from the money trail. Part of the proceeds was converted into cash, moved abroad through hawala and other underground channels, and then sent back into India as supposed foreign investment from the United Arab Emirates. (fatf-gafi.org)
The report suggests these operators behave less like informal brokers than like fee-charging financial contractors. FATF said commissions commonly run from about 0.5 per cent to 5 per cent, with higher-risk criminal transfers attracting steeper prices. It also documented increasingly inventive settlement techniques. In Germany, authorities found crowdfunding and donation campaigns being used to create a respectable payment story for underground settlements, with funds channelled through platforms and bank accounts as if they were genuine charitable receipts. Cash-intensive front businesses including kiosks, hookah bars, mobile-phone shops and souvenir shops were used to explain deposits that in reality helped square balances inside criminal networks. (fatf-gafi.org)
FATF and regulators including Malta’s Financial Intelligence Analysis Unit say the answer cannot be enforcement alone. The report sets out a package of counter-measures: clearer licensing rules, more consistent supervision of unregistered money-transfer activity, stronger public-private intelligence sharing, better use of data and digital forensics, and closer international co-operation between investigators and prosecutors. At the same time, it warns that blunt crackdowns can drive legitimate remittance users further into unregulated channels. In other words, the watchdog’s message is that digital hawala has become both a law-enforcement problem and a financial-inclusion problem, and governments will have to deal with both at once. (fatf-gafi.org)
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