{"id":123396,"date":"2026-09-08T11:14:16","date_gmt":"2026-09-08T05:44:16","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=123396"},"modified":"2026-09-08T11:14:16","modified_gmt":"2026-09-08T05:44:16","slug":"digital-hawala-technologys-new-frontier-in-money-laundering-and-terror-financing","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/digital-hawala-technologys-new-frontier-in-money-laundering-and-terror-financing\/","title":{"rendered":"Digital Hawala &#8211; Technology\u2019s New Frontier in Money Laundering and Terror Financing"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>Digital Hawala Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The centuries-old hawala and other underground banking systems are undergoing <\/span><b>rapid <\/b><span style=\"font-weight: 400;\">technological <\/span><b>transformation<\/b><span style=\"font-weight: 400;\">, dubbed as digital hawala.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This is highlighted in the latest report of the <strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/financial-action-task-force\/\" target=\"_blank\">Financial Action Task Force (<\/a><\/strong><\/span><strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/financial-action-task-force\/\" target=\"_blank\">FATF<\/a><\/strong><span style=\"font-weight: 400;\"><strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/financial-action-task-force\/\" target=\"_blank\">)<\/a><\/strong>, titled \u201cInvestigating Professional Money Laundering, Underground Banking, and the Use of Hawala and Other Similar Service Providers\u201d.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It identifies the <\/span><b>fusion <\/b><span style=\"font-weight: 400;\">of traditional hawala with virtual assets, fintech platforms, encrypted communication and artificial intelligence (AI) as a major emerging threat.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Nearly 90% of surveyed jurisdictions reported hawala networks operating within their territories, while nearly 70% observed the incorporation of new technologies into such networks.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>From Traditional Hawala to \u2018Digital Hawala\u2019<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Hawala <\/b><span style=\"font-weight: 400;\">is an informal value-transfer mechanism in which money or value can be transferred across borders without conventional banking channels, often relying on trust, brokers and settlement through cash, trade or other transactions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Digital hawala<\/b><span style=\"font-weight: 400;\"> refers to the technology-enabled evolution of informal value-transfer networks using encrypted communication, fintech platforms, virtual assets, AI and digital infrastructure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The FATF identifies <\/span><b>six broad forms<\/b><span style=\"font-weight: 400;\"> of digital hawala &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Digital coordination<\/b><span style=\"font-weight: 400;\">, traditional settlement \u2013 Encrypted messaging apps, online platforms and shared digital ledgers are used to communicate instructions, recruit couriers and maintain records, while settlement continues through traditional means.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Digital customer interface<\/b><span style=\"font-weight: 400;\"> \u2013 Mobile wallets and fintech applications provide the customer-facing interface, but operators may still settle balances through cash or trade.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Virtual-asset settlement<\/b><span style=\"font-weight: 400;\"> \u2013 Stablecoins and other virtual assets can be used to settle balances directly.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Integration <\/b><span style=\"font-weight: 400;\">with formal digital infrastructure \u2013 Payment service providers, fintech platforms and virtual IBANs can facilitate movement of funds.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>AI-enabled operations<\/b><span style=\"font-weight: 400;\"> \u2013 AI can support automated transaction structuring, dynamic routing through mule accounts, and rapid fiat-to-cryptocurrency conversion.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Hawala applications\/ecosystems<\/b><span style=\"font-weight: 400;\"> \u2013 Integrated platforms may combine messaging, cloud storage, social media, Virtual Asset Service Providers (VASPs), lending applications and gaming platforms.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Why Digitisation Matters<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Digitisation is not necessarily replacing traditional hawala; rather, it is acting as a <\/span><b>catalyst <\/b><span style=\"font-weight: 400;\">for existing settlement mechanisms. Cash remains important at collection and exit points.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Technology makes <\/span><b>underground <\/b><span style=\"font-weight: 400;\">financial networks &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Faster and more geographically extensive;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">More opaque and difficult to trace;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">More <\/span><b>resilient <\/b><span style=\"font-weight: 400;\">against disruption;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Less dependent on identifiable interpersonal relationships; and<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Capable of combining informal finance with formal digital infrastructure.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This illustrates the broader Anti-Money Laundering and Counter-Terrorist Financing (<\/span><b>AML\/CFT<\/b><span style=\"font-weight: 400;\">) <\/span><b>challenge <\/b><span style=\"font-weight: 400;\">created by the convergence of fintech, crypto-assets and informal finance.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">In this way, legitimate financial innovations can simultaneously create new avenues for illicit finance.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Turkiye Case &#8211; Digital Hawala and Terror Financing<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Turkiye provides a significant example of the security implications of digital hawala.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In 2023, raids targeting an ISIL administrative officer uncovered approximately $57,250 in cash, followed by a further $554,000, along with hawala notebooks and digital transfer receipts.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A <\/span><b>jeweller <\/b><span style=\"font-weight: 400;\">and <\/span><b>two mobile-phone shops<\/b><span style=\"font-weight: 400;\"> allegedly functioned as fronts, while transactions were disguised as charitable donations.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The network reportedly used <\/span><b>VASPs<\/b><span style=\"font-weight: 400;\">; Over-the-Counter (<\/span><b>OTC<\/b><span style=\"font-weight: 400;\">) brokers; mule accounts; jewellers and precious-metals dealers; and digital transfer mechanisms.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The case demonstrates how virtual assets, conventional businesses and informal settlement systems can operate together, complicating the detection of terrorist financing.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Professionalisation of Underground Banking<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The FATF observes that underground banking is becoming increasingly professionalised and business-like.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Networks are developing <\/span><b>hierarchical structures<\/b><span style=\"font-weight: 400;\">; formal management practices; digitised record-keeping; international broker networks; and specialised logistical arrangements.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Professional <\/span><b>intermediaries <\/b><span style=\"font-weight: 400;\">such as lawyers, accountants, auditors, notaries and real-estate agents are increasingly being drawn into laundering chains.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Netherlands\u2019 <\/span><b>Operation Klaver<\/b><span style=\"font-weight: 400;\"> exposed an underground banking operation that processed around \u20ac500 million in criminal proceeds in only eight months, using couriers, counting warehouses, coded ledgers and international brokers.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Challenges<\/b><\/h2>\n<ul>\n<li><b>Structural weaknesses:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Lack of reliable data on the scale of underground banking;<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Inconsistent terminology, particularly the varied use of the term \u201chawala\u201d;<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Difficulty in cross-border information sharing;<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Increasing use of virtual assets and digital platforms; and<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Fragmented enforcement across jurisdictions.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>For law enforcement:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Digitalisation has weakened traditional investigative methods based on tracing personal relationships and physical cash movements.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Access-controlled digital platforms can conceal participants and compartmentalise networks.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>The policy paradox:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The FATF also highlights an important unintended consequence: aggressive AML\/CFT enforcement and bank de-risking can push legitimate customers away from formal channels and towards <\/span><b>informal systems<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Therefore, excessively punitive approaches may inadvertently strengthen the very underground networks that authorities seek to dismantle.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Way Forward &#8211; FATF Recommendations<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Greater use of technology<\/b><span style=\"font-weight: 400;\">-enabled financial investigation.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">For example,<\/span><b> Indonesia\u2019s <\/b><span style=\"font-weight: 400;\">Financial Intelligence Unit uses blockchain analytics to trace virtual-asset flows where unlicensed transfer services intersect with crypto-assets.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Balancing law-enforcement<\/b><span style=\"font-weight: 400;\">:\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The policymakers must avoid excessive de-risking that drives legitimate financial activity into informal channels.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The objective should be to expand legitimate access to regulated financial channels while maintaining strong risk-based AML\/CFT controls.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>A comprehensive response<\/b><span style=\"font-weight: 400;\">: Risk-based regulation, stronger FIU capabilities, blockchain and digital-forensics expertise, cross-border intelligence sharing, regulation of VASPs, improved data collection, etc.\u00a0<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><b>Source: <\/b><a href=\"https:\/\/www.firstpost.com\/world\/fatf-flags-rise-of-digital-hawala-professional-money-laundering-networks-in-global-illicit-finance-14043035.html\" target=\"_blank\" rel=\"nofollow noopener\"><b>FP<\/b><\/a><b>\u00a0| <\/b><a href=\"https:\/\/www.thehindu.com\/news\/international\/rise-of-digital-hawala-aiding-money-laundering-terror-financing-global-watchdog-says\/article71439339.ece\" target=\"_blank\" rel=\"nofollow noopener\"><b>TH<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The centuries-old hawala and other underground banking systems are undergoing rapid technological transformation, dubbed as digital hawala.<\/p>\n","protected":false},"author":19,"featured_media":123407,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[10102,60,22,59],"class_list":["post-123396","post","type-post","status-publish","format-standard","has-post-thumbnail","category-upsc-mains-current-affairs","tag-digital-hawala","tag-mains-articles","tag-upsc-current-affairs","tag-upsc-mains-current-affairs","no-featured-image-padding"],"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/123396","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=123396"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/123396\/revisions"}],"predecessor-version":[{"id":123405,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/123396\/revisions\/123405"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/123407"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=123396"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=123396"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=123396"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}