https://www.dawn.com/news/2027327/fatf-warns-against-sophisticated-hawala

ISLAMABAD: Traditional underground financial networks, including hawala and other similar service providers (HOSSPs), have become increasingly professional and are making greater use of virtual assets and fintech platforms to conceal billions of dollars in illicit wealth, according to a new joint report by the Financial Action Task Force (FATF) and the Organisation for Econo­mic Co-operation and Development (OECD).

The report was jointly prepared by the two Paris-based organisations, which specialise in financial and economic matters.

Based on feedback from around 45 jurisdictions and organisations, including those in India and Pakistan, the report highlighted cases of illicit money transfers through such HOSSPs. In both India and Pakistan, it noted the growing role of underground banking and financial networks in facilitating illicit finance.

The report highlighted the vulnerability of these systems to money laundering and terrorist financing, with some cases involving more than €500 million being laundered through underground banking and hawala-based schemes within just a few months.

Billions laundered via underground banking channels using virtual assets, fintech platforms

It found that the criminal misuse of underground banking and HOSSPs was a widespread global phenomenon, with more than 80pc of reporting jurisdictions identifying these systems as among the principal channels or techniques used for professional money laundering.

Referring to an episode involving a hawala network that used social media and mobile money transfers to facilitate transactions with Pakistan, the report said the Central Bank of Oman (CBO) received intelligence through its whistleblower channel about individuals suspected of operating an unlicensed cross-border remittance business to Pakistan.

The reporting entity detected the activity after observing a sudden reduction in customer remittances through specific corridors, the report said.

The CBO conducted further enquiries, including engaging with customers, joining the relevant WhatsApp group and collecting supporting evidence before reporting the case. Its follow-up enquiries, including social media monitoring and off-site analysis, identified a WhatsApp group named “XX Money Exchange”, which was operated by foreign nationals to advertise foreign exchange and remittance services to expatriate communities in Oman.

The hawaladars offered rates below the formal market rate, with minimal or no fees, and encouraged customers to share the group with others seeking to remit funds. Customers transferred money to the suspected hawaladars either in cash or through mobile-linked transfers. The hawaladars then sent screenshots showing proof of payment through an e-wallet to a corresponding e-wallet maintained with a payment service provider in the destination jurisdiction.

“The scheme exploited lower-cost remit­tance channels in destination countries, including fee-free transfers to Pakistan through channels such as Raast, as well as exchange rate differentials offered by some digital wallet or payment providers,” the report said.