Hawala Networks Are Going Digital and Regulators Are Struggling to Keep Up

Hawala, one of the oldest informal money transfer systems built on trust and word-of-mouth, has picked up some very modern tools. A joint report from the Financial Action Task Force (FATF) and the OECD finds that digital hawala networks are now running on stablecoins, encrypted messaging apps, and fintech payment rails, making old-style illicit finance harder to trace than ever.

The Paris-based bodies drew on input from roughly 45 jurisdictions and organizations, including India and Pakistan, along with case studies contributed by 32 countries and observers such as Europol, Interpol, and the UN Office on Drugs and Crime. What they found is less a fringe problem than an industry: more than 80 percent of reporting jurisdictions named underground banking as among the primary channels used for professional money laundering.

A Pakistan-Linked Case Study

One episode detailed in the report traces back to Oman. The Central Bank of Oman received a whistleblower tip about an unlicensed cross-border remittance operation moving money to Pakistan after a bank noticed a sudden drop in customer remittances through certain corridors.

Investigators traced the activity to a WhatsApp group called “XX Money Exchange,” run by foreign nationals advertising foreign exchange and remittance services to Oman’s expatriate community. The group offered rates below the formal market and little to no fees and asked members to spread the word to others who needed to send money.

Customers paid the hawaladars in cash or through mobile transfers. In return, the operators sent screenshots as proof, moving matching funds through e-wallets held with a payment provider on the Pakistani end. According to the report, the scheme specifically exploited lower-cost remittance channels in destination countries, including fee-free transfers to Pakistan through channels such as Raast, alongside exchange-rate gaps offered by certain digital wallets.

Omani authorities eventually identified six suspected individuals tied to the network, with transaction flows of roughly $72,293 recorded over a year, a modest sum by global laundering standards, but illustrative of how instant payment systems built for legitimate low-cost remittances can be repurposed by operators working just outside regulatory view.

Not Just a South Asian Problem

The report is careful to frame this as a worldwide pattern rather than a regional one. In India, authorities uncovered a professional money laundering scheme tied to an illegal online gambling platform generating proceeds from sports betting and card games. The operation used a decentralized network of “panel operators” handling deposits and withdrawals through UPI, digital wallets, mule accounts, and identities that had been stolen outright.

That structure let organizers keep the gambling platform itself separate from the money supporting it. Cash was moved abroad through hawala channels, then brought back into India disguised as foreign investment from the UAE, laundering the funds’ origin twice over.

Elsewhere, the report cites cases involving more than €500 million laundered through underground banking schemes within a matter of months, underlining that the sums involved can dwarf the Oman-Pakistan example by orders of magnitude.

From Informal Networks to “Laundering as a Service”

What the report describes isn’t the hawala of decades past. Investigators found these networks have become commercially operated and scalable, giving rise to what the report calls “money laundering as a ‘service,'” specialists who handle laundering functions on behalf of other criminal operations, much like an outsourced business function.

Nearly 70 percent of jurisdictions surveyed reported seeing this shift toward what the report terms digital hawala: operators coordinating through WhatsApp, Telegram, and Signal; customers initiating transfers via mobile wallets or instant payment systems; and settlements between operators increasingly happening through virtual assets such as stablecoins. Some networks have gone as far as building purpose-made “hawala apps,” while others are experimenting with AI tools to manage operations.

The professionalization runs deeper than technology. FATF flagged growing involvement from lawyers, accountants, auditors, notaries, real estate agents, and even casino and junket operators in facilitating these schemes, a signal that underground finance is increasingly intersecting with legitimate professional services rather than operating entirely outside them.

Why This Matters Beyond Money Laundering

The report’s authors stress that the criminal use of hawala and similar networks has expanded well past its traditional association with drug trafficking and smuggling. Cases now span fraud, cyber-enabled crime, terrorist financing, illegal gambling, and organized crime more broadly, with the same underground rails serving all of them interchangeably.

For countries like Pakistan, where instant payment infrastructure such as Raast was built to make formal remittances cheaper and faster, the findings carry an uncomfortable implication: the same features that make a payment system attractive to ordinary users—low fees, speed, minimal friction—are exactly what make it attractive to hawaladars looking to blend illicit transfers into legitimate-looking transaction flows.

That’s a harder problem to regulate than a shady exchange counter. It isn’t a matter of shutting down a physical hawala shop; it’s distinguishing a stolen-identity mule account from a real user’s wallet within a payment system engineered for speed rather than scrutiny.

What the Report Recommends

FATF and the OECD aren’t calling for a crackdown on informal remittance itself; the report acknowledges hawala and similar services can serve legitimate purposes, particularly in communities with limited access to formal banking. Instead, it pushes for licensing and registration requirements for such operators, paired with better detection capabilities, stronger public-private information sharing, and closer coordination between domestic regulators and international bodies.

The harder question the report leaves open is one of pace: financial regulators are still building frameworks for virtual assets and fintech platforms individually, while the networks it describes are already combining both with encrypted messaging and AI tools to move money faster than oversight mechanisms can be built to catch it.