The Hidden Banking System Moving Billions Alongside the Global Financial System
For decades, the global financial system has been built around the assumption that all funds leave a trail. Through the use of traditional bank accounts, wire transfers, and credit cards, payment processors and other regulated financial institutions have been able to create records that their own compliance departments and investigators have used successfully to follow suspicious funds from their origin points to their ultimate destinations, making those behind illicit financial activity easier to apprehend. In the modern world however, enormous amounts of money can now move without ever taking the conventional path through the banking system, creating major problems for regulators, law enforcement and government agencies attempting to thwart financial crime. A new report from the Financial Action Task Force (FATF); an intergovernmental organization founded on the initiative of the G7 to develop policies to combat money laundering has warned that underground banking networks, hawala and other informal value-transfer systems are being exploited at alarming rates by professional money launderers, with these networks fast becoming increasingly sophisticated and spreading internationally.
Hawala is part of a broader category that the FATF calls “hawala and other similar service providers” (HOSSPs). This system, which is not inherently criminal, essentially allows one person to provide money or equivalent value to an intermediary in one location while another intermediary provides an equivalent amount to a recipient somewhere else. The intermediaries later settle their obligations through trade, cash, and other transfers of value. The main feature of this practice is that the original money does not necessarily have to physically cross geographic borders. For legitimate users this has historically been one of the more efficient ways to send money internationally, especially in areas where conventional banking options are either limited (usually due to de-risking) or expensive. The danger in this arises when criminals exploit the same characteristics that make these networks attractive to legitimate customers: Speed, accessibility, low costs, and reduced transparency. However, the main issue is not the sheer existence of informal money-transfer networks like hawala; It is the increasingly sophisticated criminal infrastructure being built around them.
The FATF report, published on September 3rd, 2026, draws on information collected from more than 50 jurisdictions across the agency’s global network, with a total of 46 jurisdictions responding directly to questionnaires used to develop the report. Its central finding is striking: more than 80% of responding jurisdictions identified underground banking and hawala-type systems as among the principal channels/techniques used by “professional” money launderers within their territories.1 In their analysis, the agency discovered that rather than criminals laundering their own proceeds, specialized individuals and organizations increasingly provide laundering services (including the receipt, movement, and disguising of illicit funds in legitimate forms) to other criminal groups in exchange for fees or commissions, coining the practice as professional money laundering. These professional laundering organizations often function like legitimate financial businesses, only their customers are of the criminal variety. Their infrastructure often includes shell and front companies, money mules, cash couriers, bank accounts, payment processors, and professional intermediaries. In some cases, the laundering organization can even provide financing, assistance with beneficial-ownership concealment and additional assistance in converting between cash and virtual assets representing a fundamental change in the nature of the money laundering threat poised over traditional laundering activities. Through this practice, the money launderer is no longer simply someone trying to hide his own criminal proceeds. They can now develop into an entrepreneur within the criminal economy selling financial infrastructure to other criminals to allow their activities to proliferate.
Another of the report’s more interesting findings is that these networks are increasingly operating right alongside the traditional financial system. Approximately 80% of jurisdictions responding to the FATF reported that underground banking and HOSSP-based professional money laundering schemes are combined with other money-laundering techniques.1 The most common combinations highlighted include trade-based money laundering, misuse of virtual assets, real estate, luxury goods and precious metals and stones.1 As such, a hybrid system has been created where illicit funds can now enter an underground network, pass through a shell company, move through a bank or fintech platform unabated, be converted into a virtual asset, move to/through another jurisdiction and eventually emerge as seemingly legitimate funds. The criminal network therefore isn’t necessarily trying to avoid the financial system altogether. It is instead trying to exploit points of carryover between its varying parts. In their report, the FATF specifically identified bank accounts, fintech platforms, payment service providers, virtual IBANs, prepaid cards and virtual-asset wallets as increasingly important entry and exit points in money-laundering cycles, with the anonymity provided by these platforms contributing to the difficulty in detection when performed by an individual entity.1
Perhaps the biggest evolution identified the in the agency’s analysis however is that nearly 70% of responding jurisdictions reported observing new or emerging typologies involving underground banking and HOSSPs, with almost 70% also identifying the integration of new technologies and a growing shift toward “digital hawala”1, which the FATF is using to describe a wide spectrum of technological changes contributing to illicit financial activity through these means. Today’s operators may use encrypted messaging applications to communicate with customers, couriers and other brokers, and digital platforms to coordinate transactions while customers may initiate transfers through mobile wallets, fintech apps or instant-payment systems. All told, technology has made underground banking faster, more scalable and far more difficult for the proper authorities to track, creating a major global dilemma for anti-crime forces.
The main problem that faces regulators and government bodies today in this regard is that they cannot simply eliminate every informal money-transfer system without potentially harming people who depend on those services for legitimate remittances. In fact, excessive de-risking and other barriers to legitimate financial services have been found to actually push people further towards informal channels, allowing criminals to exploit these same networks with even less friction. As such, the recommended response has shifted to focusing on identifying and disrupting the entire infrastructure supporting professional money laundering, identifying the kingpins operating behind the individual transactions that come across the desks of banking and compliance professionals on a daily basis. This however is no small task. The FATF has called for improved cooperation between financial intelligence units, law enforcement, regulators, prosecutors and private financial institutions to better identify the main participants connected to these growing networks. This includes establishing stronger legal frameworks, enhanced public-private information sharing, and greater investment in more sophisticated investigative technology. Old school transaction monitoring protocols are simply not up to this task. The goal of the next wave of money laundering defenses will be enabling systems that are built to understand relationships, networks and patterns rather than examine transactions in isolation.
Altogether, while Hawala and other informal value-transfer systems have existed for centuries, what has changed more recently is the infrastructure surrounding them. The FATF’s report makes clear that professional money laundering has evolved into a sophisticated global service industry; one that does not discriminate between which criminal entities it can ultimately service. The growth of encrypted communications, instant payments, use of virtual assets and global financial connectivity have given professional money launderers more tools to move value across borders quickly and discreetly. The result is a new generation of underground banking; one that can operate informally and be highly organized at the same time, while growing increasingly interconnected to the very financial institutions designed to stop it. How the world powers choose to respond to these developments will set the stage for the AML/CFT movement of the next decade.
Citations
1. Financial Action Task Force. Investigating Professional Money Laundering, Underground Banking, and the Use of Hawala and Other Similar Service Providers. Financial Action Task Force; 2026.