Hawalas and other similar service providers (HOSSPs) arrange for transfer and receipt of funds or equivalent value and settle through trade, cash, and net settlement over a long period of time. What makes them distinct from other money transmitters is their use of non-bank settlement methods. This typology seeks to provide a facts-based review of the extent of their vulnerability to money laundering and terrorist financing.
This typology reviews three major types of HOSSPs:
- pure traditional (legitimate) ones
- hybrid traditional (often unwitting) ones
- and criminal (complicit) ones
Distinct money laudering / terrorist financing risks apply to each and there are several reasons why HOSSPs continue to pose a money laundering and terrorist financing vulnerability. These include:
- a lack of supervisory will or resources
- settlement across multiple jurisdictions through value or cash outside of the banking system in some cases
- the use of businesses that are not regulated financial institutions
- the use of net settlement and the commingling of licit and illicit proceeds
While the settlement through value or trade that masks the individual fund transfers is a source of vulnerability, the most significant reason for concern is lack of supervisory resources and commitment to effective regulation.
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