New FATF Report Flags Underground Banking, ‘Digital Hawala’ and Other Similar Services Providers as Key Money Laundering Channels

The Financial Action Task Force (FATF) reported on 3 September 2026 that underground banking, hawala and other similar services providers have become significant channels for Professional Money Laundering, with more than 80% of the surveyed jurisdictions ranking them among the principal channels that are used to move criminal proceeds, while nearly 90% confirmed the presence of underground banking or HOSSP within their territories. Operation Klaver exposed the largest underground banking networks in the Netherlands and Europe that moved EUR 500 million in criminal proceeds over eight months through a cash-based informal value-transfer system used primarily by drug-trafficking organizations. 

The Rise of ‘Money Laundering as a Service’:

The findings, drawn from the two questionnaires answered by the 46 jurisdictions and a project which was co-led by Germany and Saudi Arabia with input from Europol, INTERPOL, and the UN Office on Drugs and Crime, identify how the market sells laundering as commercial services. The operators apply risk-based commissions that range from 0.5% to 5% per transaction, price funds suspected of criminal origin above ordinary remittances, and in many cases bill both the criminal client and the counterparty. FATF frames this change as ‘money laundering as the service’, involving the cell-based structures with specialized roles, digitalized ledgers, and controllers also known as money brokers or superfacilitators, who coordinate brokers, collectors, transmitters, and cross-border settlements.

‘Digital Hawala’ and updated five-part settlement typology:

Nearly 70% of the respondents reported the increasing use of  technology within these networks. FATF report indicates a spectrum of digital hawala activity including encrypted messaging applications (WhatsApp, Telegram, Signal) to coordinate transactions and maintain records, to networks that use stablecoins including USDT, USDC, and DAI, purpose built hawala apps, and AI tools as well to automate transaction structuring and managing fund transfers from the mule accounts. It also updates the FATF’s settlement typology to five categories, adding a digital settlement layer alongside bilateral offsetting, triangular network clearing, value-based settlement through cash couriers and trade, and bank-based settlement. About 80% of the schemes combine two or more of these methods into the hybrid pipelines. 

Integration with the Formal Financial System: 

Professional launderers use bank accounts, payment service providers, fintech platforms, prepaid cards, virtual IBANs and virtual asset wallets as entry and exit points, exploiting supervisory gaps between sectors. IItalian authorities identified Chinese underground banking networks using non-EU PSPs and European bank accounts to issue vIBANs, which allow the illicit proceeds to be transferred through alias accounts and regulated payment channels while obscuring their origin and destination. The report also documents ‘cuckoo smurfing’, a form of third party payment whereby illicit cash is deposited into the bank account of an unsuspecting legitimate remitter and settles cross-border obligations while concealing the true source of the money. 

Major Underground Banking and Hawala Cases highlighted in Report:

Drug trafficking remains the dominant predicate crime, but jurisdictions report proceeds from fraud, cyber-enabled crime, corruption, tax evasion, human trafficking, illegal gambling and terrorist financing moving through the same channels. An Indian trade-based scheme ran on shell companies incorporated with stolen or forged KYC documents; and Turkish authorities traced a digital hawala cell financing Islamic State in Iraq and the Levant (ISIL), seizing about USD 554,000 in cash alongside handwritten hawala ledgers. Regionally, FATF flags hawala fused with mobile money across Africa and Asia, gold-backed virtual asset settlement in the Middle East, and industrial-scale Chinese money laundering networks that Europol, UK and US authorities rank among the fastest-growing laundering infrastructures. 

This report is an awareness-raising tool for public and private-sector stakeholders, indicating the need to strengthen regulatory and operational responses against the misuse of underground banking and HOSSPs. It calls for effective implementation of FATF Recommendations, including Recommendations 3, 5 and 14, alongside improved effectiveness under Immediate Outcomes 3 and 7.