The fight against money laundering is no longer confined to the traditional banking system. The latest report of the Financial Action Task Force (FATF), Investigating Professional Money Laundering, Underground Banking, and the Use of Hawala and Other Similar Service Providers, makes clear that underground banking and hawala networks have evolved into a sophisticated component of the global financial and criminal landscape. The policy challenge before governments is therefore not simply to prohibit illicit financial activity, but to understand how informal financial systems interact with legitimate economic activity and the regulated financial sector.
This distinction is essential. Hawala and other similar service providers (HOSSPs) are not inherently criminal. They can provide legitimate remittance and value-transfer services, particularly for communities and individuals who may face barriers to conventional financial services. Yet the same characteristics that make these networks accessible, rapid and relatively inexpensive can also make them attractive to professional money launderers. The FATF report notes that nearly 90% of responding jurisdictions reported the presence of underground banking systems or HOSSPs, while more than 80% identified them as among the principal channels through which professional money laundering takes place.
The scale and sophistication of the threat have changed. Professional money laundering is increasingly organised as a service industry, with specialised actors, intermediaries and increasingly structured networks. Criminal organisations are no longer relying solely on cash-intensive activities such as drug trafficking and smuggling. Fraud, cybercrime, corruption, tax evasion, terrorist financing and other forms of organised crime are increasingly connected to these financial infrastructures. At the same time, digital technologies, virtual assets, fintech platforms and encrypted communications are enabling informal networks to operate across borders with greater speed and resilience.
For policymakers, this development demands a fundamental shift in approach. We cannot treat underground banking as an isolated or purely informal phenomenon. The FATF identifies a growing convergence between underground networks and the formal financial system, with bank accounts, payment service providers, fintech platforms, virtual IBANs and digital wallets increasingly being used as entry and exit points for laundering operations. The boundary between the formal and informal financial sectors is consequently becoming more difficult to define.
The first priority must therefore be regulatory clarity. Governments should establish a clear legal framework defining which activities require licensing or registration, what AML/CFT obligations apply, and what constitutes unauthorised financial activity. Regulatory ambiguity creates opportunities for criminals to exploit differences between jurisdictions. The FATF specifically identifies regulatory asymmetries as an important source of arbitrage, allowing professional money launderers to move activity towards jurisdictions with weaker or less consistent oversight.
Secondly, enforcement must become more strategic. Investigating individual transactions is insufficient when the underlying threat consists of resilient, fragmented and transnational networks. Governments should instead seek to identify and disrupt the wider infrastructure supporting professional money laundering: controllers, facilitators, shell companies, professional intermediaries, trade-based mechanisms and the financial institutions through which illicit value enters and exits the formal economy. The FATF recommends precisely this shift towards system-wide disruption rather than a purely case-by-case approach.
Thirdly, we must invest in intelligence and institutional co-ordination. Financial intelligence units, law enforcement, customs, tax authorities, prosecutors, supervisors and relevant private-sector organisations cannot operate in isolation. Centralised statistics and case registries can help governments identify patterns, allocate resources and convert national risk assessments into practical supervisory and enforcement measures. The FATF highlights the value of linking intelligence, investigations, suspicious transaction reports and enforcement outcomes to national risk assessments so that identified risks lead to concrete policy action.
Finally, effective enforcement must be accompanied by financial inclusion. This is perhaps the most important lesson for responsible policymakers. If legitimate migrants, families, small businesses or communities cannot access affordable and reliable formal financial services, informal channels will continue to have an economic rationale. The FATF warns that excessive de-risking and barriers to banking relationships can inadvertently push legitimate remittance users towards informal channels, increasing opacity rather than reducing it.
The policy objective, therefore, should not be to criminalise informality indiscriminately. It should be to distinguish legitimate financial activity from criminal exploitation, bring appropriate services within a proportionate regulatory framework, and ensure that enforcement is directed towards those who knowingly facilitate or profit from crime.
This requires stronger international co-operation as well. Money laundering networks do not respect national borders, yet investigations can still be slowed by divergent legislation, confidentiality restrictions, incompatible data systems and lengthy mutual legal assistance procedures. The FATF identifies stronger interoperability between financial intelligence units, law enforcement and prosecutors as essential to effective cross-border enforcement.
As policymakers, our responsibility is ultimately to protect both the integrity of the financial system and the legitimate economic activity that depends upon it. Underground banking presents a serious threat because it can operate between jurisdictions, between technologies and between the formal and informal economies. The appropriate response is therefore neither complacency nor indiscriminate prohibition, but intelligent regulation, evidence-based enforcement, institutional co-ordination, technological preparedness and financial inclusion.
The FATF's latest assessment provides a clear policy direction, highlighting the need for prevention and enforcement to work in parallel. If governments act on that principle, we can make our financial systems more resilient, protect communities from criminal exploitation and ensure that legitimate access to financial services is not sacrificed in the name of combating financial crime.
Jerome Caruana Cilia, PN MP and Shadow Minister for Education and Citizenship