Rise of ‘digital hawala’ aiding money laundering, terror financing, global watchdog says
A global financial crime watchdog published a report on underground banking, hawala, and other similar service providers (collectively termed HOSSPs), identifying them as a principal channel used by professional money launderers worldwide
More than 80% of surveyed jurisdictions identified underground banking and hawala-type networks among their principal money-laundering techniques
The report found that nearly 70% of surveyed jurisdictions have observed the fusion of hawala networks with new financial technologies — termed "digital hawala" — including coordination via encrypted messaging apps, use of virtual assets such as stablecoins for inter-operator settlement, AI-based tools, and purpose-built "hawala apps"
Cases involving more than EUR 500 million laundered through underground banking and hawala-based schemes were identified within just a few months, spanning proceeds of cyber-enabled crime, fraud, terrorist financing, and illegal gaming
The report highlights the emergence of professionalised "money laundering as a service," where laundering functions are outsourced to specialist networks that exploit bank accounts, payment service providers, virtual IBANs, prepaid cards, and virtual asset wallets as entry and exit points into the formal financial system
Financial Action Task Force (FATF) — Structure and Mandate
The FATF is the global standard-setting body for combating money laundering, terrorist financing, and proliferation financing. It does not have binding legal enforcement power but issues Recommendations that member states are expected to implement domestically, backed by peer-review "mutual evaluations" and grey/black-listing.
This report is a FATF typology study — a periodic thematic assessment (distinct from a country-specific mutual evaluation) documenting evolving criminal techniques across all member jurisdictions, used to update global AML/CFT standards.
Hawala — Legal Status and Regulatory Framework in India
Hawala is an informal value transfer system that moves funds across borders through a network of trust-based brokers without any physical or electronic movement of money through the formal banking channel. In India, hawala transactions are illegal.
Key Details
- Hawala violates the Foreign Exchange Management Act (FEMA), 1999, because it involves unauthorised persons dealing in foreign exchange rather than RBI-licensed banks or authorised dealers
- Proceeds routed through hawala that originate from or facilitate crime attract the Prevention of Money Laundering Act (PMLA), 2002, which criminalises the concealment, possession, acquisition, or use of "proceeds of crime"
- The Enforcement Directorate (ED) investigates hawala-linked money laundering under PMLA, while FEMA violations are also within its civil enforcement mandate
- "Digital hawala," as flagged in this report, refers to hawala operators adopting virtual assets (cryptocurrencies/stablecoins) and encrypted communication to settle inter-operator balances, blurring the line between traditional informal value transfer and virtual-asset-based money laundering
The report's core finding — that hawala is increasingly hybridising with virtual assets — has direct relevance for India's PMLA/FEMA enforcement architecture, since virtual asset service providers (VASPs) in India are already brought under PMLA's reporting obligations as "reporting entities."
Terror Financing and India's Regulatory Response
Terror financing is the provision of funds for terrorist activities, regulated in India both through PMLA's terror-financing provisions and the Unlawful Activities (Prevention) Act (UAPA), 1967.
Key Details
- UAPA empowers the central government to designate organisations and individuals as terrorists and freeze their assets/proceeds
- The Financial Intelligence Unit-India (FIU-IND), under the Department of Revenue, is India's central national agency for receiving, analysing, and disseminating suspicious transaction reports relevant to money laundering and terror financing
- India's FATF-linked commitments require continual strengthening of its AML/CFT supervision of non-bank channels, including hawala-type networks and virtual asset service providers, since gaps in these channels are a recognised route for terror financing
- FATF has previously flagged terror-financing risks tied to jurisdictions in India's neighbourhood, underscoring the cross-border security dimension of hawala-based financing networks
The FATF's identification of terror financing among the crime types laundered via hawala networks reinforces why India treats hawala enforcement as both a financial crime and an internal/national security issue, not merely an economic offence.
- FATF established: 1989; headquartered in Paris; India became a member in 2010
- Over 80% of surveyed jurisdictions identify underground banking/hawala-type networks (HOSSPs) as a principal money-laundering channel
- Nearly 70% of surveyed jurisdictions report the fusion of hawala with new technologies ("digital hawala")
- Cases involving more than EUR 500 million laundered through underground banking/hawala schemes were identified within a few months
- India's governing laws against hawala: FEMA, 1999 (foreign exchange violation) and PMLA, 2002 (money laundering)
- India's central agency for terror-financing/money-laundering intelligence: Financial Intelligence Unit-India (FIU-IND)
- India's 2024 FATF mutual evaluation outcome: placed in the "regular follow-up" category