FATF Report Warns Underground Banking Networks Enable Global Money Laundering

How Informal Networks Evade Detection

The Financial Action Task Force (FATF) has released a new report highlighting how informal financial systems, including hawala and underground banking, are being increasingly used by organized criminals to launder money across borders. The findings were published on September 4, 2026.

The report focuses on so-called HOSSPs — Hawala and Other Similar Service Providers — which operate outside traditional banking regulations. These networks rely on trust-based transactions and informal ledgers, making them difficult to trace. According to the FATF, professional money launderers are exploiting these systems to move large sums of illicit funds undetected.

Hawala systems function by transferring value without actual movement of cash. Instead, parties settle debts through offsetting transactions or future payments. This method bypasses conventional financial oversight, creating blind spots for regulators. The FATF notes that these services often blend legitimate remittances with illegal proceeds, complicating efforts to distinguish between lawful and unlawful activity.

The report also highlights how digital platforms are being co-opted to facilitate these transfers. While technology enables faster and broader reach, it also allows bad actors to obscure their tracks more effectively than before.

What Can Regulators Do to Counter This Threat?

FATF emphasizes the need for enhanced monitoring and cross-border cooperation. It recommends that countries strengthen their anti-money laundering frameworks to include oversight of informal financial channels. The organization is urging member states to train frontline staff to recognize signs of hawala-related transactions and to improve information sharing between agencies.

Additionally, the FATF calls for updated risk assessment models that account for the evolving tactics of transnational criminal networks.

The implications of unchecked hawala usage extend beyond financial crime. Experts warn that these underground systems can support terrorism financing, human trafficking, and corruption. Without decisive action, the FATF cautions, the integrity of the global financial system remains at risk.

What is hawala and why is it problematic?

Hawala is an informal value transfer system based on trust and reciprocal agreements. While historically used for legitimate remittances, it is now frequently exploited to launder criminal proceeds due to its lack of regulatory oversight.

Frequently Asked Questions

How does the FATF plan to address this issue?

The FATF is calling on member countries to implement stricter monitoring of informal financial networks, enhance staff training, and improve inter-agency collaboration to detect suspicious activities linked to these systems.

Are digital tools making the problem worse?

Yes, the report indicates that digital platforms are amplifying the reach and sophistication of hawala networks, enabling faster transactions and greater anonymity for those seeking to move illicit funds undetected.