Key Takeaways
- FATF and OECD report highlights growing use of virtual assets and fintech by hawala networks.
- CBO in Oman identified a hawala network using WhatsApp and mobile money transfers.
- Illegal online gambling proceeds also being laundered through HOSSP-based networks in India.
A new joint report by the Financial Action Task Force (FATF) and the Organisation for Economic Co-operation and Development (OECD) has revealed that traditional underground financial networks, including hawala and other similar service providers (HOSSPs), are increasingly professionalising and leveraging virtual assets and fintech platforms to conceal illicit wealth.
The report, based on feedback from 45 jurisdictions and organisations, including India and Pakistan, highlights the growing role of underground banking and financial networks in facilitating illicit finance. It notes that these systems are highly vulnerable to money laundering and terrorist financing, with some cases involving over €500 million being laundered through underground banking and hawala-based schemes within months.
In Pakistan, the Central Bank of Oman (CBO) received intelligence through its whistleblower channel about individuals suspected of operating an unlicensed cross-border remittance business. The CBO detected the activity after observing a sudden reduction in customer remittances through specific corridors. Further enquiries, including engaging with customers and joining relevant WhatsApp groups, led to the identification of a hawala network operating through a WhatsApp group named ‘XX Money Exchange’.
The hawaladars in this network offered rates below the formal market rate, with minimal or no fees, encouraging customers to share the group with others seeking to remit funds. Customers transferred money to the suspected hawaladars either in cash or through mobile-linked transfers. The hawaladars then sent screenshots showing proof of payment through an e-wallet to a corresponding e-wallet maintained with a payment service provider in the destination jurisdiction.
This scheme allowed the hawaladars to generate margins while offering cheaper remittance services. Omani authorities identified six suspected individuals believed to form a connected network of hawaladars, with transaction flows of approximately $72,293 recorded over a one-year period.
The report also highlighted that illegal online gambling proceeds were being laundered through HOSSP-based networks in India. Indian authorities had identified a professional money laundering (PML) scheme linked to an illegal online gambling platform that generated proceeds from sports betting, card games, and other activities.
The FATF and OECD report underscores the need for enhanced regulatory measures and international cooperation to combat the misuse of underground banking and HOSSPs for illicit financial activities. The report recommends that financial institutions and regulators remain vigilant and adopt robust monitoring and reporting mechanisms to detect and prevent such activities.
The findings of the report are significant as they highlight the evolving nature of illicit financial flows and the importance of staying ahead of criminal tactics. The use of virtual assets and fintech platforms by hawala networks poses a significant challenge to traditional regulatory frameworks and necessitates a proactive approach to financial surveillance and enforcement.
