Underground banking and hawala networks are evolving into sophisticated, commercially operated structures capable of moving large volumes of illicit value rapidly across borders, according to a new report by the Financial Action Task Force (FATF).
Published on 3 September 2026, the report examines the use of underground banking and hawala and other similar service providers, known as HOSSPs, in professional money laundering.
Nearly 90% of jurisdictions responding to the FATF survey reported the presence of underground banking systems and HOSSPs in their territories, while more than 80% identified them as among the principal channels or techniques used for professional money laundering.
The FATF cautions that detection limitations prevent a robust quantitative assessment of the prevalence of these activities or reliable comparisons between regions. Individual operations can nevertheless be substantial. One network described in the report processed about €500 million in criminal proceeds over eight months, largely on behalf of drug-trafficking organisations.
Legitimate systems open to criminal exploitation
Underground banking and HOSSPs are not inherently criminal. They can meet legitimate remittance and value-transfer needs, particularly in areas where access to formal financial services is limited.
They generally operate through informal, decentralised networks. Instead of funds moving directly across a border, an operator pays the recipient from a local pool of money and records the amount owed by a counterpart in another jurisdiction. The operators settle their accumulated obligations later through mechanisms that may include trade transactions, cash pooling or movements, formal financial channels, virtual assets, or other transfers of value.
However, the provision of underground banking or unregistered HOSSP services is generally a criminal offence in most countries. The FATF Standards recommend that countries require money or value-transfer service providers to be licensed or registered.
Authorities face the difficult task of distinguishing legitimate remittance activity from criminal exploitation. Investigators may also struggle to reconstruct transfers because the movement of value does not necessarily correspond with a visible movement of money. Conventional “follow the money” methods can be less effective where obligations are settled through offsetting, trade, commodities, or virtual assets.
‘Money laundering as a service’
A central finding of the report is the growing convergence between traditional informal transfer networks and professional money-laundering structures.
Professional money laundering involves individuals, organisations, or networks laundering criminal proceeds for criminals in exchange for a fee or commission. These service providers are generally separate from the offences that generated the proceeds.
The model is sometimes described as “money laundering as a service”, reflecting the systematic outsourcing of laundering functions to specialists and its emergence as a commercial business.
The FATF says underground banking and HOSSP networks are increasingly organised as business-like structures, with specialised roles, standardised processes, corporate-style record-keeping, and dedicated logistical and technical support. Some offer end-to-end laundering services to organised crime groups. Their cost efficiency, access to liquidity, and use of technology enable them to charge lower commissions and move large volumes of value rapidly across borders.
Professional intermediaries are also becoming more involved. The FATF identifies lawyers, accountants, auditors, notaries, corporate formation agents, financial consultants, real estate agents, and casino and junket operators among those who may facilitate these arrangements.
These actors range from established professionals who knowingly, or through wilful blindness, provide occasional services to criminal clients, to individuals operating fully within criminal networks.
Underground networks meet formal finance
Despite their name, underground banking systems do not necessarily operate entirely outside the regulated financial sector.
Professional money launderers increasingly combine informal value-transfer mechanisms with legitimate financial infrastructure. Bank accounts, fintech platforms, payment service providers, virtual international bank account numbers, prepaid cards, digital wallets, and virtual-asset wallets may serve as entry or exit points in laundering cycles.
Front companies, nominee-held accounts, shell entities, and money-mule networks can help to create an apparently legitimate financial or commercial trail. The underground network provides the hidden settlement layer, while the regulated system is used to place, move, convert, layer, or integrate funds.
This intersection gives authorities and financial institutions opportunities to detect suspicious activity. It also allows criminals to exploit differences in regulation and supervision between institutions, sectors, and jurisdictions.
The rise of ‘digital hawala’
Nearly 70% of responding jurisdictions reported observing emerging typologies and trends in the misuse of underground banking and HOSSPs. Separately, nearly 70% identified the integration of new technologies and a growing shift towards what is often called “digital hawala”.
The FATF uses this term broadly rather than to describe a single, standardised model. Operators may use encrypted messaging applications, including WhatsApp, Telegram, and Signal, to communicate instructions, recruit customers or couriers, maintain records, and co-ordinate transactions.
Customers may initiate transfers through bank accounts, mobile wallets, fintech applications, or instant-payment systems, while operators continue to settle their obligations through cash, trade, or other conventional methods. In more advanced arrangements, virtual assets, including stablecoins, may be used for settlement.
Some jurisdictions also reported the use of AI-based tools and automated functions. These can structure transactions, route funds through mule accounts and payment platforms, accelerate conversions between fiat currency and virtual assets, manage mule accounts, or generate transaction patterns designed to resemble legitimate activity.
The report also identifies digital ecosystems combining encrypted communications, cloud storage, social media, virtual-asset services, lending applications, and gaming platforms. In some instances, authorities have discovered purpose-built applications.
These developments can accelerate transfers, shorten detection windows, create additional layering opportunities, and extend networks’ geographic reach. Cash nevertheless remains important at the collection and payout stages of many schemes.
A wider range of criminal proceeds
The misuse of underground banking and HOSSPs is no longer confined to traditional cash-intensive offences such as drug trafficking and smuggling.
These systems are being used to launder proceeds from fraud, cyber-enabled crime, corruption, tax evasion, undeclared work, illegal gaming and gambling, and other forms of organised crime. They are also used for terrorist financing.
About 80% of jurisdictions reported that underground banking and HOSSP-based schemes were combined with other laundering methods, including trade-based money laundering, shell and front companies, virtual assets, real estate, luxury goods, and precious metals and stones.
FATF president Giles Thomson described the emergence of sophisticated, commercially operated cross-border laundering networks as a “serious risk multiplier”, saying they make it easier for criminals to conceal activities that harm people and communities around the world.
Targeting the full laundering chain
The FATF calls for prevention and enforcement to operate in parallel. Its recommended good practices include legal and regulatory clarity, stronger detection capabilities, domestic co-ordination, public-private information sharing, and closer international co-operation.
Authorities are also encouraged to move beyond investigating individual suspicious transactions and adopt a system-wide approach to disrupting professional money-laundering infrastructure.
This may involve mapping the full laundering chain, from client recruitment and cash collection to settlement, trade mis-invoicing, cash-out, and the reintegration of illicit value. Authorities can then identify intervention points and allocate preventive and enforcement responsibilities across regulators, financial intelligence units, law-enforcement agencies, tax and customs authorities, and prosecutors.
At the same time, the FATF cautions against treating all users of informal value-transfer systems as criminals. Targeted enforcement should be combined with proportionate financial-inclusion measures that expand access to safe, affordable, and efficient formal financial services.
Indiscriminate enforcement could deepen financial exclusion and push legitimate users further towards unregulated channels, making their transactions less transparent and more difficult to trace.
The full report, Investigating Professional Money Laundering, Underground Banking, and the Use of Hawala and Other Similar Service Providers, is available on the FATF website.
