FATF Report 2026: Hawala, Underground Banking and Professional Money Laundering
In its report published on 3 September 2026, the Financial Action Task Force (FATF) warns of the increasing sophistication of international money laundering networks. Particular attention is given to underground banking, hawala systems and the links between informal value transfers and regulated banks, payment service providers and virtual assets. For Money Laundering Reporting Officers (MLROs) and AML compliance professionals, the findings provide important insights into risk assessments, transaction monitoring and the identification of suspicious business relationships.
The FATF report, “Investigating Professional Money Laundering, Underground Banking, and the Use of Hawala and Other Similar Service Providers”, examines contemporary money laundering methods and the increasing exploitation of informal financial systems by internationally organised criminal networks.
Its central finding is clear: professional money laundering no longer takes place exclusively outside the regulated financial system. Criminal networks increasingly exploit banks, FinTech companies, payment service providers, virtual IBANs and virtual assets to transfer illicit funds and conceal their origins.
This raises a fundamental question for AML compliance professionals: How can professional money laundering networks be identified when the underlying transfer of value takes place outside the visible banking transaction?
FATF Report 2026: Underground Banking Represents a Global Money Laundering Risk
The FATF documents the widespread use of informal value transfer systems and their growing importance in professional money laundering.
The findings of its international survey illustrate the scale of the problem:
- Nearly 90% of responding jurisdictions reported the presence of underground banking or hawala systems within their territories.
- More than 80% identified such systems as one of the principal channels or techniques used for professional money laundering.
- Approximately 80% observed underground banking being combined with other money laundering methods.
- Nearly 70% reported the increasing integration of new technologies into informal value transfer systems.
These figures are based on FATF jurisdictional surveys. They reflect observations reported by participating jurisdictions and should not be interpreted as statistical estimates of the global volume of money laundering.
Of particular concern is the increasing interconnectedness of informal financial networks and the regulated financial sector. Criminal networks exploit legitimate payment infrastructure to receive, hold, convert and transfer funds to their intended beneficiaries.
For MLROs, this development highlights the limitations of traditional monitoring approaches that focus exclusively on individual transactions.
What Is Hawala Banking and How Does Underground Banking Work?
Hawala is an informal value transfer system used particularly for cross-border payments.
Unlike a conventional bank transfer, a hawala transaction does not necessarily require a corresponding amount of money to be transferred directly between the countries involved for each individual payment.
Instead, an intermediary, known as a hawaladar, receives funds in the originating country. A second intermediary pays the corresponding amount to the intended recipient in the destination country.
The resulting obligations between the intermediaries are settled at a later stage. Settlement may take place through bilateral offsetting, commercial transactions, cash movements, bank payments or transfers of other assets.
Hawala should not automatically be equated with money laundering. Such systems can fulfil legitimate remittance needs, particularly where access to conventional banking services is limited.
The FATF therefore distinguishes between the legitimate use of informal value transfer systems, the unauthorised provision of regulated financial services and the deliberate exploitation of these systems for money laundering or terrorist financing.
For AML compliance professionals, this distinction is essential. The mere existence of a particular payment mechanism does not establish money laundering risk in isolation. The underlying economic circumstances and actual transaction patterns must be assessed.
Professional Money Laundering: Money Laundering as a Service
A central focus of the FATF report is Professional Money Laundering (PML).
The FATF defines professional money laundering as the laundering of criminal proceeds by individuals or networks that are not directly involved in the underlying criminal offence but provide money laundering services to other criminal actors.
This development is also referred to as Money Laundering as a Service.
Professional money laundering networks perform specialised functions. These may include collecting and distributing funds, arranging international settlements, establishing corporate structures and providing access to financial services.
The FATF identifies increasingly sophisticated networks involving specialised intermediaries, coordinators and so-called controllers.
These controllers may oversee liquidity management, settlement arrangements and co-operation between intermediaries operating across multiple jurisdictions.
The result is a professional service infrastructure capable of transferring substantial amounts of value across borders on behalf of different criminal clients.
For AML compliance, this has an important implication: Monitoring should not be limited to individual customers or transactions. Relationships between accounts, companies, beneficial owners and payment networks may provide the information needed to identify suspicious activity.
Digital Hawala: Stablecoins, FinTech and Virtual IBANs Are Transforming Money Laundering Methods
One of the most significant developments highlighted in the FATF Report 2026 is the increasing digitalisation of informal value transfer systems.
The FATF uses the term Digital Hawala to describe this transformation.
Digital hawala does not refer to a single technological process. Rather, it encompasses various combinations of traditional hawala arrangements with digital communications and payment technologies.
Cryptocurrencies and Stablecoins as Settlement Instruments
International hawala networks increasingly use virtual assets, particularly stablecoins, to settle financial obligations.
The FATF report documents cases in which regulated and unregulated actors combine conventional payment channels with virtual asset transactions.
For MLROs, particular attention should be paid to business relationships involving unusual fund movements linked to cryptoasset service providers, unexplained third-party payments or transactions lacking a credible economic purpose.
Virtual IBANs and Payment Service Providers
Virtual International Bank Account Numbers (vIBANs), payment institutions and electronic money institutions are also becoming increasingly relevant.
These instruments support legitimate and efficient payment processing. However, complex payment service provider structures can be exploited to obscure the identities of ultimate beneficiaries or conceal the economic relationships underlying transactions.
Italian authorities, for example, have identified cases in which virtual IBANs and payment service providers were used to disguise international financial flows.
For banks and payment service providers, transparency regarding payment participants, beneficial ownership and the actual use of accounts is therefore particularly important.
Encrypted Communications and Digital Coordination
Professional money laundering networks also use digital communications platforms to coordinate payments, participants and settlement arrangements.
The FATF refers to platforms including WhatsApp, Telegram and Signal.
The concern is not the use of any particular communications application in itself. Rather, digital coordination enables informal financial networks to operate more rapidly, across more jurisdictions and with increasingly specialised responsibilities.
Trade-Based Money Laundering: Companies as Part of Informal Payment Networks
Another important finding concerns the relationship between underground banking and Trade-Based Money Laundering (TBML).
Trade-based money laundering involves exploiting genuine or purported commercial transactions to explain or conceal cross-border transfers of value.
The FATF describes the use of import-export businesses, shell companies and manipulated trade documentation.
Real estate, luxury goods, precious metals and gemstones may also form part of these arrangements.
Business relationships therefore warrant closer examination where documented commercial activity is inconsistent with payment flows, the customer’s financial circumstances or the company’s actual operations.
For MLROs, establishing the plausibility of the underlying economic purpose is just as important as examining the technical characteristics of individual transactions.
Case Studies: How Professional Money Laundering Networks Operate in Europe
The FATF supports its findings with international case studies, including several examples with direct relevance to Germany and the wider European financial market.
Germany: Crowdfunding and Donations Used in Informal Settlement Networks
German authorities identified cases in which crowdfunding platforms and donation campaigns were used to disguise financial movements within informal banking networks.
In some instances, funds were collected for apparently charitable purposes but subsequently diverted to settle obligations within underground banking networks.
Other arrangements involved third-party payments and cash deposits originating from cash-intensive businesses.
These cases demonstrate how seemingly legitimate payment purposes and established financial platforms can be exploited to conceal the true economic relationships behind transactions.
Netherlands: €500 Million Processed in Eight Months
One particularly significant example is the Dutch investigation known as Operation Klaver.
Authorities uncovered an underground banking network that had processed approximately €500 million in criminal proceeds over an eight-month period.
The funds originated largely from drug trafficking.
The network operated organised cash collection, record-keeping, storage, courier arrangements and international settlement mechanisms.
The case illustrates that professional money laundering does not necessarily require complex financial products. Highly organised cash-based networks can manage and transfer substantial sums through specialised, coordinated operations.
Which Money Laundering Red Flags Should MLROs Monitor?
The FATF typologies provide a basis for identifying potential warning signs that may warrant further risk-based investigation.
Relevant indicators include:
Unusual cash activity: Repeated or substantial cash deposits that are inconsistent with the customer’s business activities or economic profile.
Unexplained third-party payments: Incoming or outgoing payments involving individuals or businesses with no identifiable economic relationship.
Suspicious pass-through accounts: Accounts receiving substantial funds that are rapidly transferred elsewhere without a credible commercial explanation.
Opaque corporate structures: Unclear beneficial ownership, unusual corporate relationships or business activities that cannot be adequately substantiated.
Trade-related anomalies: Payment flows that differ materially from trade documentation, invoices or actual goods movements.
Complex payment service provider arrangements: Unusual relationships involving virtual IBANs, multiple payment institutions and ultimate beneficiaries whose economic roles are unclear.
Unexplained cryptoasset transactions: Transaction chains involving bank accounts, cryptoasset service providers and third parties without a readily identifiable legitimate purpose.
These indicators should be assessed on a risk-sensitive basis and in their full context. No single indicator automatically establishes a suspicion of money laundering.
Relevant considerations include the customer’s profile, source of funds, transaction history, economic purpose and the credibility of any explanations provided.
What Actions Should MLROs Take Following the FATF Report 2026?
The FATF report identifies numerous good practices for supervisory authorities, Financial Intelligence Units (FIUs) and law enforcement agencies.
For firms subject to anti-money laundering obligations, several practical priorities can be identified.
1. Review the Money Laundering Risk Assessment
Existing risk assessments should be reviewed to determine whether the risks associated with underground banking, professional money laundering networks and digital hawala arrangements are adequately addressed.
Particular attention should be given to cross-border payment relationships, cash-intensive business models and the use of payment service providers.
2. Strengthen Transaction Monitoring
The FATF highlights the importance of interconnected analytical approaches.
For relevant financial institutions, this may involve enhancing existing monitoring scenarios to identify third-party payments, pass-through accounts, unusual payment networks and links between multiple payment service providers.
3. Verify Beneficial Ownership and Assess Business Activities
Where suspicious or unusual activity is identified, firms should assess whether actual economic activity is consistent with observed transaction patterns.
This includes identifying relevant parties and conducting a documented assessment of unusual payment relationships.
4. Integrate Risk Indicators into Internal Controls
Relevant risk patterns should be incorporated into internal control procedures, transaction monitoring rules and escalation processes where appropriate.
Monitoring scenarios should be calibrated according to the institution’s risk exposure and their effectiveness reviewed periodically.
5. Investigate Suspicious Activity and Meet Reporting Obligations
Where circumstances give rise to suspicion of money laundering or terrorist financing, firms must assess and fulfil the suspicious activity reporting obligations applicable in the relevant jurisdiction.
For German obliged entities, this includes assessing reporting requirements under Section 43 of the German Money Laundering Act (Geldwäschegesetz, GwG).
FATF typologies can assist in identifying and evaluating complex circumstances. However, they do not replace the legal assessment required in individual cases.
6. Provide Targeted AML Training
MLROs, compliance teams and payment operations staff should be familiar with emerging money laundering typologies.
Training programmes should incorporate practical case studies involving Professional Money Laundering, Digital Hawala, Trade-Based Money Laundering and the misuse of payment service providers.
7. Regularly Assess the Effectiveness of AML Controls
The existence of formal AML policies and controls is not sufficient on its own.
Institutions should also assess whether their procedures are capable of identifying relevant risks, investigating unusual activity appropriately and documenting findings in a transparent and auditable manner.
What Does the FATF Report Mean for BaFin Supervision in Germany?
Germany has already recognised the risks associated with informal value transfer systems in its National Risk Assessment.
The FATF report notes that tackling unauthorised money or value transfer services has been a supervisory priority since 2019.
The FATF also highlights Germany’s Anti Financial Crime Alliance (AFCA), which facilitates information exchange between public authorities and obliged entities and contributes to the development of intelligence on hawala banking and related money laundering typologies.
From a supervisory and audit perspective, these findings suggest that current typologies can provide an important evidence base for the risk-sensitive design of internal AML controls.
However, the FATF report does not introduce new, directly binding legal obligations for German financial institutions. The applicable statutory and regulatory requirements, together with the firm’s specific risk profile, remain decisive.
Frequently Asked Questions About the FATF Report 2026
What is the difference between hawala and professional money laundering?
Hawala is a system for transferring money or equivalent value through intermediaries and subsequent settlement arrangements. Professional money laundering involves specialised third parties providing services to conceal the origins of criminal proceeds. Hawala systems may facilitate legitimate remittances, but they can also be exploited by professional money launderers.
What does the FATF mean by Digital Hawala?
Digital Hawala refers to the use of digital technologies within informal value transfer systems. These technologies may include digital communications, online payment services, FinTech applications and virtual assets such as stablecoins.
Is hawala banking illegal in Germany?
Not every hawala transaction is automatically a criminal offence. However, the commercial provision of money transfer services in Germany is generally subject to regulatory authorisation requirements. Operating without the necessary authorisation may be unlawful and constitute a criminal offence. The legal assessment depends on the specific nature of the activities.
What risks does underground banking present to financial institutions?
Key risks arise when regulated bank accounts are used to receive, transfer or settle funds within informal financial networks. Unexplained third-party payments, layered payment service provider structures and economically implausible account activity are particularly relevant.
Are MLROs required to implement the FATF Report 2026 directly?
The report does not itself create new legal obligations. However, its findings can inform money laundering risk assessments, transaction monitoring, internal controls and staff training in accordance with the applicable regulatory framework.
Professional Money Laundering Requires a Connected, Risk-Based Approach
The FATF report published in September 2026 demonstrates how significantly professional money laundering methods have evolved.
Traditional underground banking and hawala systems are increasingly being combined with regulated financial services, digital payment technologies and virtual assets.
For MLROs, the central challenge is to identify the underlying economic relationships behind transactions that may appear legitimate when examined individually.
The priority is therefore to move beyond isolated transaction controls towards a risk-based assessment of interconnected financial flows, business relationships and beneficial ownership structures.
Up-to-date money laundering risk assessments, effective transaction monitoring, documented internal controls and targeted training are essential components of this approach.
Financial institutions and other obliged entities should therefore consider whether their existing AML arrangements adequately address the risks associated with hawala, underground banking and professional money laundering identified in the FATF Report 2026.