Informal transfer networks are old, and they work. That is the awkward starting point. Anyone who tells you that every hawala operator is a criminal is wrong, and anyone who tells you the system is simply a cheaper, friendlier bank is leaving out the part that matters.
How money moves without moving
The basic trick is bookkeeping. Suppose a customer in one country hands a local operator cash, and the operator contacts a counterpart in the destination country, who pays an agreed amount to the named recipient, typically fast, though the speed varies by operator and route. No money crosses the border at that moment. Instead, the two operators now owe each other, and the debt is settled later, by offsetting flows in the opposite direction, by trade invoices, by occasional bank transfers or by other means.
A US Treasury note on the subject says the word hawala means “transfer” or “remittance” in Arabic, and describes a system that is fast and cheap, used mainly by expatriates sending money to relatives, including in places with little formal banking. The same page lists the very features that make it attractive: efficiency, anonymity and the lack of a paper trail.
FinCEN, the US financial crimes bureau, prefers a more general phrase: informal value transfer systems. It defines them as any network that receives money so that the funds, or an equivalent value, can be paid to a third party somewhere else, usually outside the conventional banking system.
Nothing in that description is, on its own, wrong. The trouble starts with what is missing.
Why people use them
Practical reasons dominate. There may be no bank branch near the recipient. The recipient may lack the identity papers that a regulated provider will ask for. The operator may speak the same language and sit in the same neighbourhood, so there is a face to go to if something goes wrong. Sometimes the quoted rate is better, because a hidden margin does not need to be shown on a screen. And in some corridors the operator is the only way to reach a particular village.
These are real advantages and a fair summary of why the practice has survived the arrival of apps. Our guide to sending money to someone without a bank account sets out the regulated alternatives, which have improved a good deal.
What the rules say
Here the position is plainer than many senders expect. The Financial Action Task Force, the international anti-money-laundering standard-setter, calls for operators in this business to be licensed or registered, to follow anti-money-laundering rules and to face sanctions if they do not. Its September 2026 report on underground banking and hawala says that in most countries, running such a service without registration is a criminal offence.
Details are national.
- United States: under 18 U.S.C. section 1960, knowingly running an unlicensed money transmitting business is punishable by up to five years in prison, a fine or both. A business can fall foul of it by lacking a state licence, by failing to register with FinCEN, or by moving funds known to come from crime. FinCEN’s advisory adds that an informal system can lawfully operate in the US if it registers and complies with the Bank Secrecy Act.
- United Kingdom: HMRC says businesses offering informal money-transfer services must register with it for anti-money-laundering supervision, and warns that those which do not face civil penalties, criminal prosecution and closure. In March 2025 it estimated that about £2 billion is laundered each year through informal transfer networks in the UK.
- Elsewhere: the Treasury note says hawala is illegal in some countries and a grey area in others. The rule where you live, and where the money is going, is a question for the local regulator, and guessing is a poor substitute.
Enforcement is aimed mainly at the operator, not the customer. But a sender is not untouched. Your own bank may ask about large cash withdrawals or deposits, and the cash you hand over has to come from somewhere explainable.
The risks for the sender
There are four, and they are mostly about what you cannot see.
No recourse. A regulated provider has complaints procedures, and in many countries an ombudsman or a regulator behind it. An unregistered operator has a reputation. If the money does not arrive, you have a conversation, and perhaps a loss. Our guide to delayed or returned transfers shows what a formal route offers when something goes wrong.
No visible price. A regulated provider has to show a fee and a rate. An informal one tells you a number. You can compare it with the live GBP to PKR rate, if you are sending to Pakistan, as one example, but you will have to do that arithmetic yourself, and only before you hand the cash over.
Counterparty risk. The network depends on the operator on the other side paying out, and on the two settling their accounts honestly. If either fails, the customer in the middle is the unsecured creditor.
Entanglement. Networks that look harmless can be the same networks through which others move proceeds of crime. FATF’s 2026 report says more than 80 per cent of the reporting jurisdictions listed underground banking and hawala among the main channels for professional money laundering. The sender is unlikely to know what else is moving through the same pipe.
A worked example: what is the discount worth?
An illustrative case. You want to send £1,000, and an informal operator offers you 1.5 per cent better value than a regulated app, which is £15 on this amount. It sounds sizeable.
Now invert it. If you accept a 1.5 per cent saving, you are implicitly accepting a risk of loss. The break-even is straightforward: £15 divided by £1,000 is 1.5 per cent. If there is more than a one-in-sixty-seven chance that the transfer fails and you cannot recover the money, the discount costs more than it saves. Nobody has a reliable figure for that probability for a specific operator, and that is the whole difficulty: with a regulated provider you at least have a complaints route, and with an informal one you are estimating a number you cannot observe.
Some people will still judge the risk worth taking, particularly when the operator is known to their community for decades. That is a legitimate choice for them to make with their eyes open. The point is only that the saving should be set against the chance of failure, not treated as free.
The new version: digital hawala
The FATF report mentions something newer. Nearly 70 per cent of respondents cited new technologies, including encrypted messaging apps, stablecoin settlement and purpose-built “hawala apps”, and the report describes networks that now run as commercial, scalable operations with lower commissions and fast cross-border transfers. A slick interface, in other words, is not evidence of a licence. It can be a new coat of paint on the old arrangement.
A quick test: ask whether the business is registered, and with whom. In the UK, GOV.UK has a page for checking whether a business is registered with HMRC for money laundering supervision. In the US, FinCEN publishes a searchable list of registered money services businesses. A registered operator will not mind the question.
What to do instead
If the reason for using an informal route is cost, compare the total cost at a regulated provider first; how to spot a bad transfer deal gives the checks. If the reason is access, ask about cash pickup or a mobile wallet, which may reach the same place with paperwork. If the reason is trust in a person, consider whether that person is registered, and whether there is a receipt.
And keep a record of every transfer: date, amount, name, a reference. If you ever need to show where money came from or went, that paper is your account.
Sources
- FATF: Underground banking and hawala are key channels for professional money launderers (September 2026)
- FinCEN: Advisory FIN-2010-A011 on informal value transfer systems
- US Code: 18 U.S.C. 1960, Prohibition of unlicensed money transmitting businesses
- HMRC: Informal money transfer businesses must take action against criminal exploitation (March 2025)
- GOV.UK: Check if a business is registered for money laundering supervision
- FinCEN: Money services businesses
- AML Intelligence: 2bn per year laundered through underground money transfer systems in UK
- US Treasury (archived): Hawala and alternative remittance systems
Checked: November 2026
