The Role of Hawala in Informal Cross-Border Money Transfers

Hawala is an informal way to send money that does not use banks or traditional financial systems. Instead, it works through a network of people called hawaladars who trust each other to move money.

How It Works:

1. A person in one country gives money to a hawaladar.
2. That hawaladar contacts another hawaladar in the country where the money should go.
3. The second hawaladar gives the money to the final recipient.
4. The hawaladars later settle the amount between themselves using different methods (e.g. trade, cash, or other ways), not through the formal banking system.

There is no actual money transferred across borders, only the value changes hands locally on each side.

Why It’s Used:

• To send remittances to families in countries with weak banking systems.
• To transfer money quickly and cheaply.
• To send money to areas without banks (like war zones or rural areas).

Why It’s a Risk in AML:

Because hawala is based on personal trust and usually does not use official documents or bank records, it can be used for:

• Money laundering (hiding illegal money).
• Terrorist financing.
• Evading financial sanctions.

This makes it hard for authorities to track illegal money.

Real-Life Example: The Altaf Khanani Money Laundering Network

Who was involved:

• Altaf Khanani ran a global hawala-based money laundering network.
• His clients included drug traffickers and criminal gangs.

How it worked:

• Khanani’s network moved billions of dollars through hawala.
• He had connections in Pakistan, the UAE, the U.S., U.K., Canada, and more.
• His group used hawala to move illegal money across borders without using banks.

What happened:

• In 2015, U.S. authorities arrested Khanani.
• He was charged with laundering billions in criminal money.
• This case showed how hawala can be misused for serious financial crime.