An exclusive article by Fred Kahn

The proliferation of hawala as an informal value transfer system has established a primary vector for laundering illicit capital outside the reach of traditional financial regulators. Law enforcement agencies in Europe and Asia recently dismantled several underground operations responsible for moving over 200 million euros in criminal proceeds through these shadow channels. Financial investigators in Paris and Hamburg discovered that seemingly legitimate retail storefronts, including phone shops and grocery stores, functioned as nodes for massive international laundering schemes. The scale of these seizures highlights the systemic threat posed by brokers who facilitate the movement of narcotics profits and tax fraud gains without crossing official banking borders. Global authorities are now intensifying their focus on these unregulated networks to mitigate the risks they pose to international financial stability.

Tactical Shifts in Global Hawala Money Laundering Operations

The mechanics of value transfer through informal brokers rely on a decentralized network of trust that eliminates the need for physical currency to cross international boundaries. Criminal organizations are increasingly utilizing this system to bypass anti-money laundering controls that have become more stringent within the formal banking sector. In a prominent 2025 investigation known as Operation Goliath, the European Public Prosecutor Office exposed a network that laundered nearly 190 million euros using underground brokers. This operation demonstrated how traditional remittance methods are being co-opted by sophisticated syndicates to manage the financial proceeds of massive value-added tax carousel fraud. By using brokers to settle debts through trade-based invoices for electronics and luxury goods, the network effectively masked the illicit origin of the funds.

Authorities have noted that these networks are not merely serving migrant communities but are becoming specialized service providers for transnational organized crime. The investigation in the Petit Kaboul district of Paris revealed that small telephony businesses were processing tens of millions of euros for narcotics traffickers. These shops acted as collection points where cash was deposited locally and then made available to recipients in other jurisdictions through a ledger system. This decoupling of the financial transaction from the physical movement of money creates a significant blind spot for financial intelligence units. The absence of a digital footprint within the SWIFT network means that suspicious activity often goes undetected until physical surveillance or human intelligence intervenes.

The evolution of these systems has also integrated modern technology to enhance operational security and speed. Brokers now use encrypted communication platforms to coordinate transfers and verify the identity of couriers using unique digital tokens or serial numbers from banknotes. This layer of digital protection makes it difficult for law enforcement to intercept the underlying instructions that drive the movement of value. In recent Italian and French joint operations, investigators found that hawala networks were even being used to facilitate the trade of pure gold bars to further obscure the auditing process. The integration of high-value commodities into the laundering cycle allows criminals to stabilize their assets while avoiding the volatility and scrutiny associated with large cash holdings.

Essential Red Flags for Anti-Money Laundering Professionals

Identifying the presence of underground banking requires a sophisticated understanding of how informal networks intersect with the formal financial system. One of the most prominent red flags is the presence of third-party payments for commercial invoices where the remitter has no apparent connection to the underlying trade transaction. For instance, a textile importer in Europe might receive payment from an unrelated electronics exporter in Southeast Asia, a classic sign of a hawala broker balancing books through trade-based settlement. Compliance officers should be particularly wary of rounded dollar or euro amounts that do not correspond to specific shipping costs or standard market pricing. These transactions often represent the pooling of multiple illicit cash deposits into a single transfer.

Another critical indicator is the activity of retail businesses that maintain bank accounts with high volumes of cash deposits that are inconsistent with their stated business model. A small grocery store or mobile phone shop that regularly deposits tens of thousands of euros in small denominations while reporting minimal taxable income is a prime candidate for further investigation. Compliance teams should monitor for frequent transfers to jurisdictions that are known hubs for informal value transfer systems, especially when those transfers are directed to other small businesses rather than established suppliers. The use of multiple accounts across different banks to layer these deposits, a practice known as smurfing, remains a common tactic used by hawala collectors to avoid triggering large cash transaction reports.

Discrepancies in shipping documentation also serve as a vital warning sign for trade-based money laundering linked to underground banking. Professionals should look for instances of over-invoicing or under-invoicing, where the declared value of goods on a customs declaration significantly differs from the actual market value. In some cases, phantom shipping occurs, where invoices are generated for goods that are never actually moved, purely to provide a legal justification for a cross-border wire transfer. Monitoring for these anomalies requires a cross-functional approach, combining transaction monitoring with a deep dive into the physical reality of the client’s business operations and geographic footprint.

Future Perspectives on Informal Financial Oversight

The ongoing battle against underground banking must adapt to the emerging integration of digital assets into traditional hawala models. Some brokers are now using stablecoins and other cryptocurrencies to settle internal debts, combining the speed of the blockchain with the anonymity of informal networks. This hybrid approach allows for even faster movement of value across borders while bypassing the few remaining physical touchpoints that law enforcement can monitor. Regulators must expand their definitions of value transfer to include these digital variants and ensure that virtual asset service providers are held to the same standards as traditional financial institutions. The success of future anti-money laundering efforts will depend on the ability of authorities to bridge the gap between physical surveillance and digital forensics.

Ultimately, the most effective way to reduce the dominance of illicit hawala networks is to provide accessible and affordable alternatives for legitimate users. When the cost of formal remittances is high or the process is overly bureaucratic, people are naturally drawn to informal systems, providing the perfect cover for criminal activity. By fostering a more inclusive and efficient global banking system, governments can drain the liquidity that allows these shadow banks to thrive. The 50 million euro case in Paris and the 190 million euro Goliath investigation serve as stark reminders that, as long as there are hidden corridors in the financial world, criminal organizations will continue to exploit them. A commitment to transparency, international cooperation, and technological innovation remains the only path forward.

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Key Points

• Criminal syndicates are increasingly using hawala as a primary vector for laundering narcotics proceeds and tax fraud gains globally.
• AML professionals must monitor for third-party payments and commercial invoices that lack a clear connection to the business relationship.
• High volumes of cash deposits in small retail storefronts often serve as the primary collection point for underground banking networks.
• Trade-based money laundering remains the preferred method for settling debts between informal brokers across international borders.
• Global cooperation and intelligence-led policing are essential to identifying and disrupting decentralized trust-based financial systems.

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Related Links

• United Nations Office on Drugs and Crime Research on Informal Remittance Systems
• FATF Recommendations on Money or Value Transfer Services
• European Public Prosecutor Office Case Study on Operation Goliath
• Interpol Financial Crime and Anti Corruption Centre Global Reports

Other FinCrime Central Articles About Hawala

• Massive €188 Million Hawala and Money Laundering Ring Exposed by EPPO Across EU
• Hawala Banker Arrested for Terrorism Financing and Sanctions Violations
• How US Remittance Tax May Fuel Underground Money Networks

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.

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