Is Hawala a front for Money Laundering? – Yasin Patel and Hamza Qazi
Imagine being on a jury and you are told that someone was stopped with £100,000 in cash. That when stopped by the police, they said delivering £100,000 in cash and when stopped by the police they said it is hawala money and that they are delivering it: what would you think? That who carries such money? What is hawala? That it must be illegal. They must be money launderers or couriers. In any case, you are almost certain to see hawala as suspicious due to the fact that it is not something that you and your friends have heard of or used. And yet it is older than the banks! Despite crypto currencies and NFTs being unregulated and investors losing millions and billions of pounds in them, people continue with them even though they do not understand anything about them. So why is one system of investment and financial transfer seen as viable and acceptable, but the other as alien and criminal?
In this article, Yasin Patel and Hamza Qazi consider the decline in the use of cash and the how society views people having cash. What is Hawala and the advantages and disadvantages of its use. Where the law stands in regards to hawala and the various statutes and regulations that apply to its use.
The Decline of cash and the mindset it has created.
What began as a fear of handling notes and coins during the Covid-19 pandemic, a precaution born of necessity, has permanently altered how people in the United Kingdom (“UK”) choose to pay. The lack of people of people genuinely using cash has been almost like a science fiction story: and over the past five years, decisive. Fewer people carry cash, pay by cash, have savings boxes at home, or even give cash as gifts. It is almost as if to have cash is illegal. According to the UK Finance’s Payment Markets 2025 report[1], cash accounted for 58% of all UK payments in 2009 and still made up nearly a quarter of transactions as recently as 2019. By 2024 that figure had fallen to 9%. Cash dropped out of the top three payment methods altogether for the first time that year, overtaken by Direct Debit, Faster Payments and credit cards. UK Finance forecasts it will fall further still, to just 4% of all payments, by 2034.[2]
As people have started to switch to online banking, to the extent that even physical bank cards are becoming obsolete as people now prefer virtual cards on their phones, criminal enterprises have used cash’s declining visibility as an opportunity to launder money obtained through criminal activity. The National Crime Agency (“NCA”) estimates that over £100 billion of laundered money passes through the UK economy every year, much of it through methods such as “smurfing” and “layering.”[3]. This has led to a common misconception, by default, that large sums of cash are the proceeds of crime, and that possessing cash means you are doing something illegal: even paying a large shopping bill in a supermarket with cash will now draw a second look.
Other than just cash, physical bank cards and virtual cards, there is another legitimate payment method in the UK that has existed for centuries that few people know about and use: it is called Hawala.
What actually is Hawala?
Hawala can be traced back to South Asia in the 8th century and it operates outside traditional banking systems. The word comes from the Arabic root hawal, meaning “to change” or “to transfer,” though it also carries the deeper sense of trust, and is traditionally associated with a money transfer mechanism that operated extensively in South Asia, the Middle East and parts of East Africa, arranged through a network of “hawaladars,” or hawala dealers. As the Financial Action Task Force (“FATF”) has described it, hawala historically “operated as a closed system within corridors linked by family, tribe or ethnicity.”[4]
Hawaladars keep their own informal records of what they owe one another, reconciling them periodically rather than after every single transfer; in some cases, ledgers are kept for years. In return for arranging the transfer, the hawaladar takes a small commission. Trust is the only real security a hawaladar has: a dealer who fails to honour their side of the arrangement risks losing their standing in the network entirely, and with it, the ability to do business at all. To many of us in the west, this may not seem plausible, but in those countries where integrity, reputation and respect is something that is earned and cannot be bought, trust is everything.
Financial Strength of Hawala
Hawala has been growing as a means of transferring money and particularly due to migrant remittances. This has grown significantly as global migration flows have increased. In 1970 around $2 billion in recorded remittances were made. By 1999 that number had increased to more than $100 billion. The World Bank estimates that remittances to low- and middle- income countries reached a record high in 2018: $529 billion. The top remittance destinations among countries were India ($79 billion), China ($67 billion), Mexico ($36 billion), the Philippines ($34 billion) and Egypt ($29 billion). In 2019, remittances reached a record of $554 billion, overtaking foreign direct investment as a source of external funds.[5]
Advantages of using Hawala
Hawala remains common in the regions mentioned above, largely due to limited banking infrastructure, ongoing conflict, and migrant workers around the world sending remittances back home to their families. Somalia is a clear example of how limited banking infrastructure drives reliance on hawala. When the country’s formal banking system collapsed during the civil war in the early 1990s, hawala networks became one of the only ways for Somalis at home and abroad to move money at all. Dahabshiil, a money transfer operator built on hawala principles, grew out of that period and remains one of the largest players in Somalia’s remittance market today.[6]
Afghanistan is a country of unforgiving terrain and decades of conflict. Large parts of it have long lacked formal banking altogether, and hawaladars have filled that gap not only for everyday commerce, but for international aid agencies, Non-governmental Organisations (“NGO”) and donor organisations trying to get emergency and development funds into areas the formal banking system simply cannot reach.[7]
In the Gulf, large South Asian migrant workforces in Saudi Arabia and the UAE have long relied on hawala as one route for sending earnings home to India, Pakistan, Bangladesh, Sri Lanka, the Phillipines and many other Asian countries as well.[8]
There is then the question of charges. The cost of making transfers between major international centres is said to average between 2 to 5 percent, depending on hawaladars. In comparison, financial institutions sauch as banks charge between £25 – £50 fee for overseas money transfers with delivery charges on the receiving end by the foreign bank. However, the largest costs concerns the rate of exchange charged for the local currency. Exchange rates provided by hawaladars are always more competitive then the banks and thus the savings for the individuals sending money are significant. There are also savings in time due to the fact that money is delivered by hawala in a matter of hours or a couple of days: through financial institutions, it is always longer.
Disadvantages and the loopholes of Hawala
While hawala can be genuinely valuable in areas with poor banking infrastructure, the same feature that makes it useful, the absence of a paper trail, also makes it attractive to organised crime groups. It has been used as a form of payment for terrorism, smuggling, and the drug trade, and it has also been exploited for white-collar crime such as money laundering and tax evasion. In April 2026, two men were sentenced to 19 years in prison each for running an illegal cross-border migrant smuggling business, while having a legitimate car wash as a front. They used hawala as a form of payment to facilitate the illegal crossing of migrants into Europe, with payments made via hawala agents based in Iraq and Istanbul.[9] Before his arrest, one of the men was recorded telling his co-conspirator: “Just tell them that we are buying and selling cars, just say we do transfer money from our home country.”[10]
A FATF report confirms that the pandemic created new opportunities for money laundering, as criminals exploited the disruption to financial services.[11] Many cash-reliant businesses had surplus cash with no physical customers coming through the door due to lockdown restrictions, making it harder to justify the inflated numbers on the books. In June 2026, two men were sentenced to prison after laundering £14 million through a licensed money exchange business in East London, as part of a wider network estimated to have moved over £190 million. As Detective Inspector Weller of the City of London Police put it, this kind of money laundering works by “criminals paying a commission to have the proceeds of crime cleaned.”[12]
Where the law stands in regards to Hawala
Hawala itself is not illegal in the United Kingdom. However, strict compliance requirements apply to hawaladars operating a hawala business here. Hawala involves money transmission and falls within the regulatory framework applicable to Money Service Businesses (“MSB”). A hawaladar conducting money transmission must be authorised by the Financial Conduct Authority (“FCA”) under the Payment Services Regulations 2017. For anti-money laundering (“AML”) purposes, the business will then be supervised either by the FCA itself or by HMRC, depending on its specific authorisation, but every MSB must be registered with one or the other.[13] Money remittance, the category hawala falls under, is formally classified as a payment service under paragraph 1(f) of Schedule 1 to the Payment Services Regulations 2017.[14] Providing this service unregulated and without the required FCA authorisation is a criminal offence under regulation 138 of the same Regulations.[15] Deliberate non-declaration of funds sourced through hawala can amount to tax evasion, which HMRC treats as a serious criminal offence with legal consequences such as heavy fines and custodial sentences.
A registered, compliant hawaladar has the same AML reporting responsibility as a bank to file a Suspicious Activity Report (“SAR”) for any transaction they suspect is sourced from criminal activity, under Section 330 of the Proceeds of Crime Act 2002. This allegedly protects legitimate hawala users from being painted with the same brush, as though hawala were nothing more than a mechanism for laundering the proceeds of crime. However, in reality, it is a much more different story due to the fact that Hawala works on the pillar and belief of honesty.
Unlike a bank transfer, hawala runs on trust with no automatic paper trail, making it harder to produce clean records quickly. But simply using hawala should not, on its own, be treated as evidence of criminality. Cash is one of the oldest methods of payment, dating back to around 600 BC. Having a £50 note in Tesco sourced through hawala should not raise an eyebrow, so long as every compliance, legal and AML requirement has been met.[16]
Conclusion
Hawala, as a money transfer system has shown over centuries to be quick, internationally based and giving the clients the best possible rates. There are no bank fees or other hidden costs or currency rates and hawaladars take a small commission. There is no need to complete great amounts of paperwork and it is not a system based on office hours or the working week. In reality, it truly is customer friendly. But what is the benefit to the banks or the government if there is no commission fees, taxes or charges? And it is for this reason that hawala is really disliked. Cash may now be looked down upon and a stigma attached to those dealing in cash as having earned the money from illegitimate means, but the reality as has been highlighted in this article is very different. The truth is, if people utilised the hawala system then they would be much better off in transactions then through banks and money exchanges. If people became more educated and learned in the value and benefits of hawala, then many more people would utilise a method of money transfer that has been going strong since the 8th century.
[1] https://www.ukfinance.org.uk/policy-and-guidance/reports/uk-payment-markets-2025
[2] https://www.ukfinance.org.uk/system/files/2025-10/Payment%20Markets%20Report%20Summary.pdf
[3] https://www.nationalcrimeagency.gov.uk/news/nca-and-fca-publish-priorities-to-combat-biggest-economic-crime-threats
[4] https://www.fatf-gafi.org/content/dam/fatf-gafi/reports/Role-of-hawala-and-similar-in-ml-tf.pdf
[5] World Bank Group and Knomad, ‘Covid-19 Crisis Through a Migration Lens (World Bank Group, Migration and Development Brief 32, April 2020) viii. Worryingly, remittance flows to low- and middle-income countries are expected to drop by around 20 percent to $445 billion in 2020. This comes just as the importance of external sources of funds increases in importance as FDI is expected to decrease by as much as 35% due to the economic effects of the Covid-19 pandemic.
[6] World Bank, “Somali Remittances,” available at: https://documents1.worldbank.org/curated/en/597711594118138283/pdf/Summary-of-Chapter-6-Remittances.pdf
[7] Samuel Munzele Maimbo, The Money Exchange Dealers of Kabul: A Study of the Hawala System in Afghanistan, World Bank Working Paper No. 13 (2003), available at: https://documents1.worldbank.org/curated/en/335241467990983523/pdf/269720PAPER0Money0exchange0dealers.pdf
[8]Mohammed El-Qorchi, Samuel Munzele Maimbo, John F. Wilson, Informal Funds Transfer Systems: An Analysis of the Informal Hawala System, IMF Occasional Paper (2003), available at: https://doi.org/10.5089/9781589062269.084
[9] https://www.nationalcrimeagency.gov.uk/news/men-jailed-for-people-smuggling-operation-masterminded-from-caerphilly-car-wash
[10] https://www.itv.com/news/wales/2026-04-10/men-who-ran-illegal-people-smuggling-operation-from-car-wash-jailed
[11]https://www.fatf-gafi.org/content/dam/fatf-gafi/reports/Update-COVID-19-Related-Money-Laundering-and-Terrorist-Financing-Risks.pdf.coredownload.pdf
[12] https://www.cityoflondon.police.uk/news/city-of-london/news/2026/june/two-men-sentenced-for-funnelling-14m-through-east-london-high-street-in-190m-global-crime-network/
[13] https://www.gov.uk/guidance/money-laundering-regulations-money-service-business-registration
[14] https://www.legislation.gov.uk/uksi/2017/752/schedule/1/made
[15] https://www.legislation.gov.uk/uksi/2017/752/regulation/138/made
[16] https://www.legislation.gov.uk/ukpga/2002/29/section/330
