Hawala networks increasingly use virtual assets, fintech to conceal illicit wealth: FATF, OECD

The Financial Action Task Force (FATF) and the Organisation for Economic Co-operation and Development (OECD) have published a new report highlighting the increasing use of virtual assets and fintech by traditional underground financial networks, including hawala and similar service providers (HOSSPs), to conceal illicit wealth. The report, based on feedback from around 45 jurisdictions and organizations, reveals that these networks are professionalized and making greater use of virtual assets and fintech platforms.

In India and Pakistan, underground banking and financial networks are playing a growing role in facilitating illicit finance. Some cases involve laundering more than €500 million through underground banking and hawala-based schemes within a few months. The criminal misuse of such networks is a global phenomenon, with more than 80% of reporting jurisdictions identifying them as principal channels for professional money laundering.

The report cites an episode involving a hawala network using social media and mobile money transfers to facilitate transactions with Pakistan. The Central Bank of Oman (CBO) identified this activity through its whistleblower channel, detecting a sudden reduction in customer remittances. This led to further investigations, including social media monitoring, which uncovered a WhatsApp group used by foreign nationals to advertise remittance services.

The report also finds that illegal online gambling proceeds are being laundered through HOSSP-based networks in India. Indian authorities discovered a professional money laundering (PML) scheme linked to an illegal online gambling platform, which used a decentralised network of operators to manage deposits, withdrawals, and fund transfers through hawala and other underground banking channels.

The report emphasizes that while HOSSPs can serve legitimate purposes, their provision of underground banking services is generally illegal and contravenes FATF standards. It warns that these networks have become highly organized, sophisticated, and commercially operated, contributing to the "money laundering as a service" model and professional money laundering as a commercial business.

These networks are attracting organized crime groups due to their lower commission rates and rapid value transfers across borders. The FATF also notes the increasing involvement of professionals in facilitating these schemes, such as lawyers, accountants, auditors, notaries, and real estate agents.