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

The Role of Hawala and Other Similar Service Providers in ML/TF

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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.