Hawala and Informal Value Transfer: AML Guide for Accountants

Hawala is a way of moving value across borders without moving money through the banking system. Most people who use it are sending money to family, and it is not illegal in itself. But HMRC and the National Crime Agency have both warned that criminals exploit it, and accountants meet it more often than they expect: through money transfer clients, import-export traders, small businesses with unusual cash patterns, and clients whose records show payments that do not make sense. This guide explains how hawala works, what the UK authorities have said, and what an accountancy firm should do about it. It builds on our guide to money laundering red flags for accountants.

How hawala works

HMRC describes the basic process in a March 2025 press release. A sender pays cash to a local operator, called a hawaladar, who gives the sender a code. The sender passes the code to the recipient, who collects the funds from a hawaladar in the destination country. No money physically crosses the border. The two operators settle their balances later, often by offsetting future transactions or by trading goods and services. The whole arrangement depends on trust between the operators rather than on formal records.

A Mondaq commentary on HMRC's campaign adds two points that matter for professionals. Because money does not physically move and there is usually little paper trail, the payments are hard for the authorities to monitor, and the systems draw criminals because they face less scrutiny than banks and offer some anonymity. The same commentary stresses that most users are legitimate, such as people sending money to relatives.

What HMRC and the NCA have said

HMRC's March 2025 release estimates that criminals launder about £2 billion a year through informal money transfer networks in the UK. It says all businesses providing these services must register with HMRC for anti-money laundering supervision, and that those who fail to do so risk civil penalties, criminal prosecution and closure.

On 27 February 2025 the NCA said that HMRC and the NCA had visited 44 businesses across the UK on 25 and 26 February. The NCA said criminals exploit hawala systems to move criminal cash, including proceeds of small boat people smuggling, and that a hawaladar had been sentenced to eight years in 2024 for running an unregistered money service business that served people smuggling networks. The NCA also acknowledged the legitimate reasons people use these services, such as lower cost, speed, cultural preference and distrust of banks.

At international level, the FATF's work on hawala, as summarised by Freshfields in September 2026, found that nearly 90% of surveyed jurisdictions have hawala present, that more than 80% identify hawala-type networks as among the principal channels for professional money laundering, and that nearly 70% report a shift toward "digital hawala". The FATF attributes the appeal to anonymity, speed, low cost and trust inside the networks.

Why this matters to an accountancy firm

Under the Money Laundering Regulations 2017, accountants are in the regulated sector. If you know or suspect, or have reasonable grounds to suspect, that a client's funds are criminal property, you must report internally and your nominated officer must consider a report to the NCA. Failing to do so can be a criminal offence, as can tipping the client off. Hawala is relevant in three ways.

• The client is the operator. A money transfer or remittance business that needs your accounting services must be registered with HMRC. An unregistered operator is breaking the law and is a high-risk client.
• The client uses informal channels. A trader paying overseas suppliers through an informal network may be doing nothing wrong, but the lack of bank records makes the books harder to verify and the source of funds harder to evidence.
• The client's records show hawala-style activity. Cash paid in, offsetting settlements, and payments to third parties with no clear commercial link are the patterns you may spot while preparing accounts.

Practical indicators to look for

Neither HMRC's release nor the NCA's warning lists specific red flags, so the following indicators are practical ones that follow from how the systems work and from the typologies in the FATF and BaFin material that Freshfields reports. None proves wrongdoing on its own.

• A client offers money transfer or remittance services and cannot show HMRC registration.
• Large cash deposits or cash handling out of line with the stated business, especially where cash is exchanged for payments abroad.
• Balances between linked businesses that are settled by invoices for goods or services which do not match the actual trade.
• Many small transfers or payments, split to avoid attention, or payments routed through nested or alias accounts feeding a master account.
• Nominee or shell companies used to open accounts, a pattern Freshfields reports in the FATF and BaFin material.
• Reluctance to explain who the money is for, why it is being sent abroad, or how it was earned.

What to do

At client acceptance, find out whether the business offers money transfer services, and if so check that it is registered with HMRC. Record the check. Build the finding into your client risk rating and apply enhanced due diligence where the risk is higher, including understanding how the business is funded and who it deals with.

During the engagement, compare what the books say with what the client told you at onboarding. If cash flows, settlements or third-party payments cannot be explained, ask. If you remain suspicious, follow your firm's reporting procedure and do not tell the client. Our guide to suspicious activity reporting covers how to write a report that is useful to investigators.

Keep the discussion factual and proportionate. Treating every client with overseas family ties as a risk is neither fair nor effective. The aim is to spot the combination of unregistered activity, cash and unexplained settlements that points to abuse. For team training on these issues, see Learnsignal's CPD courses for finance professionals.

Frequently asked questions

Is hawala illegal in the UK?

Not in itself. Businesses that provide these services must register with HMRC and comply with the money laundering rules. Operating without registration risks civil penalties, prosecution and closure, according to HMRC.

Should I refuse a client who uses hawala?

Not automatically. Assess the risk, understand why and how they use it, and decide whether you can evidence their source of funds. If you cannot get comfortable, your risk rating and exit procedures apply.

Where can I check whether a business is registered?

HMRC maintains the register of supervised money service businesses. Check it directly rather than relying on the client's word.