A joint FATF-OECD report highlights the growing use of digital payments, encrypted messaging and virtual assets in underground banking, including a Pakistan-linked case.
Hawala, one of the world’s oldest informal money-transfer systems, is increasingly adopting digital tools that are making illicit financial flows more difficult for authorities to detect.
A joint report by the Financial Action Task Force (FATF) and the Organisation for Economic Co-operation and Development (OECD) found that underground banking networks are increasingly using stablecoins, encrypted messaging platforms and fintech payment systems to move and settle funds.
The report drew information from about 45 jurisdictions and organizations, including Pakistan and India, and incorporated case studies from 32 countries, as well as contributions from Europol, Interpol and the U.N. Office on Drugs and Crime. More than 80% of reporting jurisdictions identified underground banking as one of the primary channels used for professional money laundering.
Pakistan-Linked Hawala Case
One case highlighted in the report originated in Oman and involved transfers to Pakistan.
The Central Bank of Oman received a whistleblower tip about an unlicensed cross-border remittance operation after a bank detected a sharp decline in customer remittances through certain corridors.
Investigators traced the activity to a WhatsApp group called “XX Money Exchange,” which was operated by foreign nationals and advertised foreign exchange and remittance services to Oman’s expatriate community.
The operators offered rates below the formal market and little or no fees while encouraging customers to refer others. Customers paid through cash or mobile transfers, while the operators provided screenshots as proof of transactions.
On the Pakistani side, matching funds were moved through e-wallets held with a payment provider. The report said the scheme exploited lower-cost remittance channels, including fee-free transfers to Pakistan through systems such as Raast, alongside exchange-rate differences offered by some digital wallets.
Omani authorities eventually identified six suspected individuals connected to the network. The investigation recorded transaction flows of about $72,293 over one year.
Although the amount was relatively small compared with major international laundering cases, the episode illustrates how legitimate instant-payment infrastructure can potentially be repurposed for illicit financial activity.
Digital Hawala Expands Globally
The report said the trend extends well beyond South Asia. In India, authorities uncovered a professional money-laundering operation linked to an illegal online gambling platform.
The network used panel operators, UPI, digital wallets, mule accounts and stolen identities to process deposits and withdrawals. Funds were subsequently moved abroad through hawala channels before returning to India disguised as foreign investment from the United Arab Emirates.
The report also documented cases involving more than €500 million in illicit funds moved through underground banking schemes within months.
Nearly 70% of surveyed jurisdictions reported the emergence of what the report describes as digital hawala. Operators increasingly coordinate through WhatsApp, Telegram and Signal, while virtual assets, including stablecoins, are being used for settlements.
Some networks have developed dedicated hawala applications, while others are experimenting with artificial intelligence to manage their operations.
FATF also identified the involvement of professional intermediaries, including lawyers, accountants, auditors, notaries, real estate agents and casino or junket operators, in facilitating underground financial activity.
Regulators Face a New Challenge
The report said hawala and similar informal transfer systems are not inherently illicit and can provide legitimate services, particularly for communities with limited access to formal banking.
However, their growing integration with fintech, virtual assets and encrypted communications creates new regulatory challenges.
For Pakistan, the findings highlight a particular challenge. Systems such as Raast were designed to make digital payments and remittances faster and cheaper. But the same speed, low cost and ease of use can potentially make such infrastructure attractive to operators seeking to move illicit funds.
FATF and the OECD recommend licensing and registration of informal money-transfer operators, stronger detection systems, greater public-private information sharing and closer cooperation among domestic and international authorities.
The report ultimately highlights a widening gap between the speed at which underground financial networks adopt new technology and the pace at which regulators can respond.
About The Author
