Watchdog report warns of rise in tech-driven hawala network, Pg12

Key Highlights:

• The Financial Action Task Force (FATF) has issued a report warning about the rise of tech-driven hawala networks.
• This traditional underground banking system is transforming into "digital hawala" through the integration of virtual assets.
• The shift is being exploited for purposes including money laundering and financing terrorist organizations.
• Approximately 70% of surveyed jurisdictions have reported the integration of new technologies into these networks.

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Detailed Insights:

• The FATF report, titled "Investigating Professional Money Laundering, Underground Banking, and the Use of Hawala and Other Similar Service Providers," identifies this fusion as a significant development.
• "Digital hawala" encompasses various technologies that facilitate the coordination, execution, settlement, or concealment of transactions.
• One form involves digital coordination using encrypted messaging and online platforms, while settlement remains traditional.
• Another configuration uses digital customer interfaces like mobile wallets or fintech apps, with cash or trade used for operator settlement.
• Virtual asset-based settlement directly utilizes stablecoins to balance accounts between hawala operators.
• Integration with formal digital infrastructure involves moving funds via payment service providers, fintech platforms, and virtual International Bank Account Numbers (IBANs).
• Artificial Intelligence (AI) tools are being employed for automated transaction structuring and high-speed fiat-to-cryptocurrency conversion.
• "Hawala apps" are emerging as bundled digital ecosystems combining messaging, cloud storage, social media, and Virtual Asset Service Providers (VASPs).

Key Concepts Involved:

• Hawala: An informal value transfer system based on trust, operating outside traditional banking channels, where money is transferred without physical movement.
• Financial Action Task Force (FATF): An intergovernmental organization established by the G7 in 1989 to set international standards for combating money laundering, terrorist financing, and proliferation financing.
• Virtual Assets: Digital representations of value that can be digitally traded, transferred, or used for payment or investment purposes, excluding digital fiat currencies.
• Stablecoins: A type of cryptocurrency designed to maintain a stable value, usually by being pegged to a fiat currency or other stable assets.