The role of Hawala and other similar service providers in money laundering and terrorist financing

Hawalas and other similar service providers (HOSSPs) arrange for transfer and receipt of funds or equivalent value and settle through trade, cash, and net settlement over a long period of time. What makes them distinct from other money transmitters is their use of non-bank settlement methods. This typology seeks to provide a facts-based review of the extent of their vulnerability to money laundering and terrorist financing.  

This typology reviews three major types of HOSSPs:

• pure traditional (legitimate) ones
• hybrid traditional (often unwitting) ones
• and criminal (complicit) ones

Distinct money laudering / terrorist financing risks apply to each and there are several reasons why HOSSPs continue to pose a money laundering and terrorist financing vulnerability. These include:

• a lack of supervisory will or resources
• settlement across multiple jurisdictions through value or cash outside of the banking system in some cases
• the use of businesses that are not regulated financial institutions
• the use of net settlement and the commingling of licit and illicit proceeds

While the settlement through value or trade that masks the individual fund transfers is a source of vulnerability, the most significant reason for concern is lack of supervisory resources and commitment to effective regulation.