Hawala – Key Points
Hawala is a traditional way of transferring money without any physical movement. It is trust-based informal value transfer systems (IVTS) that operate outside the formal financial system.
Hawala transactions involve the sender, receiver, and trusted intermediaries known as “hawaladars” who facilitate the transfer. It goes through the following processes:
Hawala operates on speed, trust, relative anonymity, and lower costs, which makes it preferable to formal banking channels.
Key ML/FT risks and red flags linked to hawala or unregulated money transfer systems include the following:
Global regulatory authorities prohibit hawala/IVTS/underground banking or ensure transparency and traceability within such transactions to comply with AML/CFT laws. In some jurisdictions, regulators mandate money service providers to have a proper license or registration for carrying out such transactions.
Licensed or registered entities must comply with AML/CFT obligations while practising hawala, which includes performing customer due diligence, identity verification, and screening against global watchlists. Further, FATF mandate internal controls with ongoing monitoring for suspicious identification and STR reporting.
Entities must have proper AML/CFT policies and procedures, staff training and recordkeeping procedures for tracking and documenting unusual hawala-related transactions. Moreover, enforcement approaches also include cooperation across borders to trace cross-border flows.
RapidAML, with its effective transaction monitoring solution, analyses transaction behaviour to identify hidden relationships between customer accounts and reveal complex ML/TF schemes.
The software performs name screening to identify sanctions and PEP individuals who may be involved in the hawala transactions. Further, RapidAML identify risk linked to specific transaction routes to develop risk scores.
Moreover, the software continuously monitors transactions and automates SAR/STR preparation for reporting hawala money laundering.
Hawala or hundi is not illegal globally. Some countries forbid hawala transactions, while some ensure proper licensing and registration to conduct hawala.
Hawala is an informal and unregulated transfer of funds, while formal remittances are regulated by the government and financial authorities.
Hawala is trust-based, informal and lacks regulatory oversight, which makes it attractive for money laundering. It allows speedy and easy transfer of funds across countries.
Frequent cash-intensive transactions, multiple smaller transactions, cross-border transfers, confidentiality, and unclear documentation may indicate hawala use.
Using systems with effective transaction monitoring solutions, institutions can detect hawala. Systems like RapidAML analyse data to provide alerts for unusual transaction patterns and customer behaviours.
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