Hawala in the 21st century

Hawala networks are once again becoming a source of concerning headlines, as operators of the notorious informal money transfer system are reportedly using digital assets and the latest fintech to move money under the noses of regulators and law enforcement.

A new joint report by the FATF and the OECD says hawala networks are now moving billions of dollars around the world every year. More than 80 per cent of reporting jurisdictions now identify hawala and similar service providers as principal channels for professional money laundering, and the networks continue to innovate to offer a product that is comparable, and arguably even better, than anything the formal banking system has to offer. Among the ways is that hawala operators often offer competitive exchange rates with 'zero fee' instant transfers, unlike banks and other legal money transfer services, which charge fees and taxes, and could take several minutes, hours, or days, depending on the value of a transaction and the countries involved.

Hawala operators can do this because they generally minimise the actual movement of money, allowing operators to avoid converting currencies and letting them pocket the entire exchange rate margin, and since the payments are processed in local currencies, free instant transfer services such as Raast in Pakistan or Zelle in the US allow the operators to offer international payments that are cheaper and faster than any legal provider. Also, contrary to regulators' claims, hawala providers usually don't con their clients - they just don't do much in the way of 'know your customer' checks, which makes them a popular tool for terrorists and large-scale financial criminals, along with working-class folks. This has created what some critics are calling "money laundering as a service".

Local and international regulators need to catch up soon, lest the criminal networks become too big to fail. Meanwhile, licensed and legal providers need to look into ways to offer products that can compete on cost and speed.