A Report to the Congress 

in Accordance with Section 359 

of the 

Uniting and Strengthening America by Providing 

Appropriate Tools Required to Intercept and Obstruct 

Terrorism Act of 2001 

(USA PATRIOT ACT)

Submitted by the Secretary of the U.S. Department of the Treasury 

November 2002 
TABLE OF CONTENTS

I. Executive Summary....................................................... 3 

II. Research Methodology....................................................4 

III. Background on Informal Value Transfer Systems..................5 

IV. Existing Regulations for Informal Value Transfer Systems.......6 

V. Law Enforcement Challenges..........................................10 

VI. Counter Measure Strategies............................................13 

VII. Recommendations........................................................15 

VIII. Appendices.................................................................18 

2
I. Executive Summary

On October 26, 2001, the President of the United States signed into law the 

Uniting and Strengthening America by Providing Appropriate Tools Required to 

Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001, Public Law 

107-56. Section 359 of the USA PATRIOT Act requires: 

Section 359 – Reporting of Suspicious Activities by Underground Banking Systems 

(d) REPORT – Not later than 1 year after the date of enactment of this 

Act, the Secretary of the Treasury shall report to Congress on the need for 

any additional legislation relating to persons who engage as a business in 

an informal money transfer system or any network of people who engage 

as a business in facilitating the transfer of money domestically or 

internationally outside of the conventional financial institutions system, 

counter money laundering and regulatory controls relating to underground 

money movement and banking systems, including whether the threshold 

for the filing of suspicious activity reports under section 5318(g) of title 

31, United States Code, should be lowered in the case of such systems. 

The Secretary of the Treasury submits this report in accordance with the above 

requirement. Based on fieldwork and analysis of data gathered to date, the following 

preliminary findings are presented: 

• Existing Bank Secrecy Act (BSA) regulations are applicable to the U.S.-based 

operators of informal value transfer systems. 

• Current research does not suggest an immediate need for additional legislation, 

nor does it suggest a need to change the threshold for the filing of Suspicious 

Activity Reports. 

• The adequacy of the existing BSA rules should be reexamined over the course of 

Treasury’s multi-year effort to enhance regulatory compliance among the 

operators of informal value transfer systems.

• The law enforcement and regulatory communities should undertake a 

comprehensive program to enhance their knowledge concerning the range of 

mechanisms used in informal value transfer systems in order to better understand 

them and to determine whether they think that any additional legislation is 

needed. 

 

The BSA, the primary anti-money laundering statute in the United States, 

includes provisions that apply to informal value transfer systems. Under the BSA, any 

person or group of persons who transfers money as a business is defined as a Money 

Services Business (MSB). These entities are defined as MSBs whether or not they 

transfer money on a regular basis, and whether or not they are an organized business 

concern. 

3
The MSB class of financial institutions includes conventional entities with global 

reach such as Western Union and Thomas Cook. It also includes the types of informal or 

unconventional entities operating outside of the mainstream financial system, such as 

hawala, hundi, fei ch’ien, hoe kuan, hui k’aun, and many others. Historically, these 

informal entities have been labeled by various terms including “alternative remittance

systems,” “underground banks,” and “informal value transfer systems.” 

Pursuant to the current MSB regulations, these businesses must register with the 

Financial Crimes Enforcement Network, conduct customer identification procedures for 

certain transactions, and maintain financial records. They are also required to file 

Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs). 

There are many uncertainties and complex issues associated with this segment of 

the financial industry. Treasury will therefore work closely with law enforcement, 

regulators, and the financial community to gain a fuller understanding of these informal 

networks and how they interact with the more formal financial industry. As Treasury 

continues to study and to address these issues, it will remain open to considering new 

legislation to reduce the vulnerability of MSBs in general, and informal value transfer 

systems in particular, to money laundering and terrorist financing. The attached 

appendices provide a more in-depth analysis of the data that has been gathered relating to 

informal value transfer systems. 

II. Research Methodology

The Financial Crimes Enforcement Network (FinCEN) was directed to carry out 

this study and staff1

 framed their research in the context of the following interrelated 

issues: 

 

• The unique law enforcement and regulatory challenges associated with informal, 

unconventional, or underground money transfer mechanisms. 

• The scope and application of the existing regulatory scheme with regard to 

businesses that facilitate the transfer of money domestically or internationally (to 

include persons who engage as a business in an informal money transfer system

or any network of people who engage as a business in facilitating the transfer of

money). 

• The effectiveness of the existing money transmitter regulatory scheme with 

respect to these informal systems (to gauge the technical adequacy of the 

regulations, as well industry compliance). 

 

1

 FinCEN staff conducted interviews with federal, state, local, and foreign law enforcement personnel, and

with representatives from the Federal Reserve Board, the Federal Reserve Bank of New York, the 

International Monetary Fund (IMF), and the World Bank. FinCEN staff also interviewed several providers 

of informal money transfer services, consulted with an academic expert in the field, and mined data

collected pursuant to the BSA. 

4
III. Background on Informal Value Transfer Systems

Informal Value Transfer Systems (IVTS) is a term used to describe those money or 

value transfer systems that operate informally to transfer money as a business. In the past, 

some of these informal networks have been labeled by various terms including “alternative 

remittance systems” and “underground banks.” Within the broad realm of informal 

institutions there exist more detailed descriptors for specific value transfer mechanisms, 

such as hawala, hundi, fei ch’ien, hoe kuan, hui k’aun, and many others. For the purpose of 

consistency and inclusiveness, IVTS is the primary term of art used in this report. (See 

Appendix A for examples of IVTS mechanisms.) 

U.S. citizens and persons residing in this country from nations in which the use of 

IVTS is commonplace use the system for various reasons. In countries lacking a stable 

financial sector or containing substantial areas not served by formal financial institutions, 

IVTS may be the only method for conducting financial transactions. For example, 

foreign aid money going to Afghanistan is being disbursed through IVTS due to a lack of 

a banking infrastructure. Individuals and organizations often use IVTS due to the 

existence of inadequate payments systems, to avoid foreign exchange or capital controls, 

and when the formal financial sector is not readily accessible, significantly more 

expensive, or more difficult to navigate. 

The international flows of IVTS are most likely staggering, but quantification 

with any certainty is currently impossible. An IMF/World Bank estimate that is likely on 

the conservative side and only covers select countries puts annual worldwide IVTS 

transfers at tens of billions of dollars. 

In order to better understand this issue, FinCEN looked closely at the workings of 

the hawala system, a widely used form of IVTS. Hawala means “transfer” in Arabic and 

the system works by transferring money without actually moving it. The basic hawala 

transaction involves a sender, two trusted intermediaries, and a recipient. For example, a 

U.S. resident who wants to send money to a friend in another jurisdiction (Country B) 

would give it to a U.S. hawaladar,2

 who typically gives the sender a code or identification 

mechanism. The U.S. hawaladar then contacts a local hawaladar in Country B by 

telephone, fax, or e-mail, and the sender contacts the intended recipient to convey the code. 

The local hawaladar in Country B then delivers the specified funds to the recipient upon 

presentation of the code. The hawaladar charges a flat fee, a commission, or may 

alternatively or in addition, profit from the exchange rate differential between the official 

and black market price of U.S. dollars in Country B. The accounts between the two 

operators may be settled various ways including through compensatory payments (i.e., 

when someone from Country B sends money to the U.S.), conventional wire transfers or 

checks, physical movement of money (by courier), invoice manipulation or other tradebased mechanisms, and the trade/smuggling of gold and precious gems. (See Appendix B 

for illustrations of these techniques.)

 

2

 The term hawaladar refers to a hawala dealer or provider of hawala money transfer services. 

5
Even this brief description highlights some of the key similarities and differences 

between IVTS and formal value transfer mechanisms. While the primary transfer 

between the sender and the recipient contains some unconventional elements (by U.S.

standards), the far greater differences occur on the back end, or settlement side of IVTS. 

While it appears that the majority of IVTS activity is legitimate in purpose,3

 these 

systems have been used to facilitate the financing of terrorism and in furtherance of 

criminal activities. For this reason, many governments have begun to look at this issue in 

terms of the need for regulatory and legal controls and in terms of their ability to conduct 

successful financial investigations in cases where IVTS has been used. 

In order to make a judgment about whether the U.S. may need additional 

legislation at this time to address informal value transfer systems, it is first necessary to 

understand the present legal and regulatory regime. FinCEN’s analysis focused on the 

relevance of existing regulations in the context of IVTS and whether these are adequate 

to deal with the unique challenges presented by IVTS. 

IV. Existing Regulations for Informal Value Transfer Systems, 

 Including Suspicious Activity Reporting

The BSA4 authorizes the Secretary of the Treasury to impose on financial 

institutions a variety of recordkeeping and reporting requirements that are deemed useful 

to criminal, tax, and regulatory enforcement, and in the conduct of intelligence and 

counter-intelligence activities relating to international terrorism. 

FinCEN administers the BSA on behalf of Treasury and has adopted a broad 

interpretation of the regulations with regard to their application to money transmitters. In 

1999, FinCEN amended the regulatory definition of a money transmitter to include “any 

person, whether or not licensed or required to be licensed, who engages as a business in 

accepting currency, or funds denominated in currency, and transmits the currency or 

funds, or the value of the currency or funds, by any means through a financial agency or 

institution, a Federal Reserve Bank or other facility of one or more Federal Reserve 

Banks, the Board of Governors of the Federal Reserve System, or both, or an electronic 

funds network” or “any other person engaged as a business in the transfer of funds.”5

Section 359(a) of the Patriot Act amended the definition of money transmitter to 

encompass “any person who engages as a business in an informal money transfer system

or any network of people who engage as a business in facilitating the transfer of money 

domestically or internationally outside of the conventional financial institution system.” 

These amendments make clear that under U.S. law all money transfer remitters, including 

 

3

 IVTS traditionally serves the purpose of remitting funds of expatriate communities to their home

countries. 4

 See 31 U.S.C. 5311 et seq. 5 See 31 CFR 103.11(uu)(5).

6
those that operate on an informal basis, or outside the scope of the conventional financial 

sector, are subject to the BSA. 

Money transmitters, as currently understood, are one of a number of non-bank 

financial institutions that, for purposes of the BSA, are grouped within the category 

called MSBs. This category of institutions also includes check cashers, currency 

exchangers, and issuers, sellers, and redeemers of traveler’s checks, money orders, and 

stored value.6

As of December 31, 2001, all MSB principals (except the U.S. Postal Service, 

federal, state, or local governmental units, and issuers and sellers of stored value) were 

required to register with FinCEN. The registration form requires that the MSB provide 

not only contact information, but also identify its owner or controlling person, provide a 

governmentally-issued identification number for that person, and identify the company’s 

primary transaction account. These registration records are provided online to FinCEN’s 

Gateway7

 partners for use in their investigations. 

Although agents of MSBs are not independently required to register, FinCEN’s 

regulations require all MSB principals to maintain a list of their agents and to make the 

list available on request to FinCEN or any other appropriate law enforcement agency.8

 

The agent list must include, in addition to identifying information (name, address, 

telephone number), a listing of the months in which the agent’s gross transactions for the 

previous year exceeded $100,000, the name and address of any depository institution at 

which the agent maintains a transaction account, and the number of branches or 

subagents the agent has. 

Any MSB that fails to register with FinCEN, or files false or incomplete 

information in the registration statement, is subject to civil penalties of $5,000 per day 

while the violation continues. In addition, under 18 U.S.C. 1960, any person who 

knowingly engages in a money transmitting business, and has failed to register and/or

comply with FinCEN’s registration regulations, may be subject to up to five years’ 

imprisonment. 

All MSBs, including those that could be characterized as IVTS, must obtain and 

verify customer identity and record beneficiary information for funds transfers of more 

than $3,000.9

 There are also separate recordkeeping requirements applicable to the sale 

of MSB products, such as traveler’s checks and money orders, as well as to currency 

exchange transactions.10 These records must be maintained for five years.11 In addition, 

 

6

 The definition of every category of MSB other than a money transmitter has a threshold requirement 

that the business engage in a transaction within the category (currency exchange, check cashing, etc.) in the 

amount of $1,000 for any one customer in one day. There is no threshold requirement for money

transmitters. 7

 FinCEN’s Gateway system enables federal, state, and local law enforcement agencies to have direct, 

online access to records filed under the BSA. See 2002 National Money Laundering Strategy, at 53. 8

 See 31 CFR 103.41. 9

 See 31 CFR 103.33(f). 10 See 31 CFR 103.29, 103.37. 

7
transactions in currency of more than $10,000 are subject to detailed recordkeeping 

requirements to support the filing of CTRs.12

MSBs are also subject to the SAR rule. As is the case with all MSBs, IVTS 

operators are required to file with FinCEN a SAR with respect to any transaction over 

$2,000 that it knows, suspects, or has reason to suspect involves funds from illegal 

activity or is designed to conceal their origin, is designed to evade BSA obligations, or

has no apparent business or law purpose.13

In addition to routine recordkeeping and reporting, FinCEN’s regulations also 

authorize the imposition of further reporting requirements where needed to carry out the 

purposes of the BSA regulations or to prevent the evasion of the BSA’s recordkeeping 

and reporting requirements.14 Such additional requirements are imposed by means of

what is known as a geographic targeting order (GTO)15 and may be applied to any 

domestic financial institution or group of domestic financial institutions in a geographic 

area, as well as persons participating in transactions subject to the order. 

A GTO can be as detailed as requiring reporting of all transactions in currency 

and/or monetary instruments, or of classes of transactions, equal to or exceeding an 

amount specified in the GTO. Among other things, this regulation permits Treasury to 

require reporting at a much lower threshold than otherwise required by its rules. For 

example, GTOs have been successfully applied against money transmitters in two 

metropolitan areas that were heavily used by drug traffickers. The GTOs required 

records to be maintained and reports filed of all transactions over $750. The GTOs 

resulted in the gathering of useful information for law enforcement and several successful 

money laundering and structuring prosecutions. 

Persons willfully violating any BSA reporting or recordkeeping requirement are 

subject to civil and criminal penalties and imprisonment under 31 U.S.C. 5321-22. 

Willful violations of any requirement imposed under a GTO are similarly subject to civil 

and criminal sanctions. 

As noted above, Section 1960 of Title 18 makes it a crime to operate an MSB in 

the absence of compliance with FinCEN’s registration requirements. It also makes it a 

crime to operate an MSB in the absence of compliance with applicable state licensing 

 11 See 31 CFR 103.38. 12 See 31 CFR 103.28. In addition, any person who physically transports or causes the transport of over

$10,000 in currency or monetary instruments into or out of the United States must file a Report of 

International Transportation of Currency or Monetary Instruments (CMIR) with FinCEN. See 31 CFR 

103.23. 13 See 31 CFR 103.20. FinCEN has published a notice of proposed rulemaking to add a fourth category to

the MSB SAR rule for transactions that involve use of the MSB to facilitate criminal activity. See 67 FR

64075 (October 17, 2002). Issuers of traveler’s checks and money orders (as opposed to sellers or

redeemers), are subject to SAR requirement at a $5,000 threshold. 14 See 31 CFR 103.26. 15 Issued under the BSA, a GTO is used to impose stricter reporting and recordkeeping requirements on 

specified financial service providers in a certain geographical area for a limited time period. 

8
requirements.16 As amended by the Patriot Act, Section 1960(b)(1)(A) specifically 

provides that a conviction for failure to comply with a state licensing requirement does 

not require proof that the defendant knew of the state licensing requirement. However, 

there is no comparable language in Section 1960(b)(1)(B) for a defendant who fails to 

comply with the MSB registration requirement and regulations, which could lead a court 

to infer that such proof is required under that subsection. 

Other criminal laws potentially applicable to IVTS providers include Sections 

2339A and 2339B of Title 18, which prohibit the providing of material support to a 

terrorist or to a designated terrorist organization.17 In addition, these crimes, like the vast 

majority of federal white-collar crimes and offenses traditionally associated with 

organized crime, serve as predicate acts for the crime of money laundering under the 

money laundering statutes, 18 U.S.C. 1956 and 1957. Section 1956 prohibits the conduct 

of a “financial transaction” involving proceeds known to derive from some “specified 

unlawful activity.” A transaction is a “financial transaction” under the statute if it 

involves monetary instruments, the movement of funds, the transfer of title to property, or 

the use of a financial institution. To be guilty of money laundering under section 1956, 

the defendant must act with the intent to: (1) promote the carrying on of a specified 

unlawful activity; (2) engage in tax fraud; (3) conceal or disguise the nature, location, 

source, ownership, or control of the property; or (4) avoid a transaction-reporting 

requirement. For example, section 1956 bars “smurfing” – the practice of intentionally 

structuring transactions to avoid reporting requirements by splitting the total amount of 

funds available for deposit into amounts below the $10,000 reporting threshold. 

Section 1957 prohibits the engagement in a “monetary transaction” involving 

property that is known to be derived from a criminal offense, and that is actually derived 

from a “specified unlawful activity,” of a value greater than $10,000. The term

“monetary transaction” is defined broadly to cover almost any transaction by, through, or 

to a financial institution, including the deposit, withdrawal, transfer, or exchange of funds 

or a monetary instrument. Unlike section 1956, section 1957 does not require the 

defendant to know that the property was derived from a particular “specified unlawful 

activity” or a “specified unlawful activity” in general. Rather, section 1957 requires the 

defendant to know only that the property was derived from some criminal offense. 

Therefore, a defendant cannot rely on willful blindness to avoid liability under section 

1957.

 

16 Most, but not all states, have such licensing requirements. In the Money Laundering Suppression Act of

1994, Pub. L. 103-325, 108 Stat. 2160, Congress recommended that the States enact uniform laws to

regulate MSBs. In response, the National Conference of Commissioners on Uniform State Laws

(NCCUSL) has promulgated a model law regulating MSBs, which it recommended that all States enact. 

See Uniform Money Services Act (2000) (available on http://www.law.upenn.edu/bll/ulc/ulc_frame.htm). 

The NCCUSL recently created a study committee to determine whether the Uniform Money Services Act 

needs to be revised or updated in light of the events of September 11 and subsequent developments in the 

field. 

17 These statutes were enacted in 1994 and 1996. The first conviction under Sec. 2339B occurred in June

2002. United States v. Hammoud, No. 3:00CR147-MU (W.D. N.C.). 

9
Finally, 18 U.S.C. 2 prohibits anyone from aiding and abetting an offense against 

the United States. This statute would apply, for example, to an IVTS operator that 

knowingly offered material assistance to anyone committing a federal crime.18

V. Law Enforcement Challenges

To determine whether additional legislation or regulation is needed to deal with the 

risks posed by IVTS, FinCEN’s study reviewed the challenges IVTS poses to law 

enforcement in conducting financial investigations. Although law enforcement has not yet 

had a great deal of exposure to IVTS, the experience to date demonstrates that the problems 

do not arise from the lack of pertinent statutory or regulatory tools. Rather, the challenges 

to effective law enforcement in this area stem from the need for stepped up compliance, 

education, and cooperation. These challenges are discussed below. 

As authorities have been intensifying their efforts to block terrorists from obtaining 

funds in the United States and elsewhere, more focused attention has been devoted to 

hawala and other IVTS. In several countries, hawala has operated in parallel with formal 

financial institutions or as a substitute or alternative for them. IVTS-type networks are 

used by persons in the U.S. to send money or gifts to their friends and relatives residing in 

Asian, African, and Middle Eastern countries. 

While it appears that most clients of IVTS legitimately earn their money and try to 

assist their extended families, criminals have also used these networks to launder dirty 

money, make illicit payments, and commit other offenses, such as tax evasion and customs 

violations. Dealing with illegal hawala providers and their networks represents a serious 

challenge to U.S. law enforcement agencies for many reasons. Of particular concern is the 

need for increased expertise in understanding the complexities of IVTS. 

Certain common characteristics may often create extensive obstacles for law 

enforcement. These include: (1) non-standardized or non-existent recordkeeping and 

know-your-customer type of practices; (2) frequent commingling of hawala with other 

business activities, including commodity trading or smuggling, when transactions pass 

through jurisdictions with porous borders or cash-based economies; (3) language and 

cultural barriers; and (4) inconsistent laws and regulations at the international and domestic 

levels. 

Recordkeeping Practices

Hawala ledgers are often insubstantial and in idiosyncratic shorthand. Initials or 

numbers that are meaningful to the hawaladar are useless if they reveal nothing about 

transactions, amounts, time, and names of people or organizations. Personal ledgers are 

often destroyed within a short period of time, especially in countries where hawala is 

criminalized. 

 

18 See U.S. v. Levy, 969 F.2d 136 (5th Cir. 1992) (upholding conviction for aiding and abetting failure to

report currency transactions). 

10
In some cases, particularly when hawaladars know that their clients are breaking the 

law, no notes or records are kept at all. In other cases, hawaladars may serve customers 

without asking many questions about their true identity, the origin of their money, or the 

reason for the transfer. In such cases, even if providers decided to cooperate with 

authorities, they would have no knowledge or useful information to share. Without records 

or some documentary basis, there is virtually no paper trail and very little that investigators 

can pursue, thus leaving them at a dead end in their efforts to build a case. 

On the other hand, investigators sometimes end up finding masses of records, 

ledgers, or notes kept by IVTS providers. However, they may be maintained in ways that 

are hard to decipher without the cooperation of those who created the records. Sometimes 

the notes are kept in foreign languages or in initials and codes. 

In other instances, the transaction may involve third party accounts of individuals or 

companies within the same country or a number of other countries. Nominee accounts, 

sometimes referred to as “Benami,”19 effectively stop the money trail, as evident from

investigations of banking, financial, and trade-related misconduct. 

In the end, much of the paper trail might surface, but it becomes a difficult task to 

interpret and reconstruct it accurately. The task of putting everything together for a case 

becomes time consuming and complicated, and may require the cooperation of hawala 

providers or controllers in other jurisdictions, thus requiring significant resources. 

As noted in the previous section, IVTS operators are money transmitters under the 

BSA, and FinCEN’s recordkeeping rules are applicable to them. Achieving better 

compliance does not call for additional legislation or regulation, but for increased outreach, 

education, and enforcement. 

Mixing of Businesses 

Another challenge for law enforcement is proving criminal offenses and intent 

when commingling of funds takes place. For example, businesses operating with 

substantial amounts of cash or involving high turnover make it very easy to hide illegal 

hawala deals by creating, for instance, “black holes” domestically and overseas. These 

black holes are formed by withdrawing cash pooled by IVTS providers, depositing it in

different accounts at various intervals, and at various financial institutions (banks, 

brokerages, and others), and/or using the funds to purchase commodities that then can be 

traded in the U.S. or internationally. It is virtually impossible to match cash withdrawals 

with other deposits and trade transactions when the amounts are comparatively small. 

In other cases, hawala businesses interface with financial institutions (e.g., they may 

have bank or brokerage accounts, currency exchangers, offer telephone and fax services, 

send wires, engage in real estate deals). A currency exchanger in a given country could 

 

19 “Benami” or nominee accounts are culturally accepted in ethnic groups that also engage in hawala. 

Because the true beneficiary of a transaction is not the person under whose name the transaction takes 

place, it is very hard to identify the owners of criminal proceeds and people who engage in illegal activities.

11
send and receive wire transfers for a hawala customer via one or two foreign banks. When 

the funds are booked into certain types of correspondent accounts at U.S.-based banks (i.e., 

those that are not payable-through accounts), the trail becomes blurred as the funds move 

from an institutional account not identified with any individual before finally being 

transmitted to the ultimate intended recipient. However, this issue is not unique to IVTS, 

but is a function of the realities of correspondent banking.20

Again, these are not issues that require additional legislation or regulation. Rather, 

addressing these issues requires education and cooperation among regulators, law 

enforcement, and the financial community. Therefore, it is important for the law 

enforcement and regulatory communities to educate financial institutions about the 

typologies associated with IVTS. It is necessary that bank officials, credit card companies, 

brokerages, money exchanges, transmitters, and others be made familiar with illicit IVTS 

patterns, recognize them, and report them as suspicious. 

Language and Cultural Barriers 

U.S. law enforcement often is faced with language and cultural barriers when trying 

to communicate with suspects, identify suspicious transactions, interpret evidence, and 

conduct undercover operations. For instance, when hawala ledgers are found, it may be 

impossible for law enforcement to understand their contents and underlying transactions. 

Therefore, the cooperation of IVTS providers is often essential in deciphering these records 

(as in cases of accounting fraud or records of drug traffickers). However, such cooperation 

may not always be forthcoming, if ethnic, cultural, or other sensitivities are misunderstood 

or ignored by law enforcement. 

On the other hand, too much focus on particular ethnic groups or cultural practices 

may divert attention from any potential intersection or collaboration across ethnic lines. 

For example, there have been cases in which persons of one ethnic background have used 

systems prevalent in another culture or cultures. Outreach efforts by law enforcement into 

the affected communities can enhance the efforts to obtain their cooperation and improve 

our understanding of how IVTS is used and abused. 

Inconsistency in Laws and Regulations 

Differences in laws and regulations internationally also pose a major challenge to 

law enforcement. (See Appendix D for a description of international regulatory 

approaches). When hawala operates through jurisdictions with strict secrecy regulations, 

the investigative task is further complicated and cooperation is lessened. Bank secrecy, 

corporate secrecy, and attorney-client privilege make the investigator’s task difficult. 

Sometimes, a vicious circle prevents law enforcement agents from completing their task. 

In order to obtain information from such jurisdictions, evidence of wrongdoing is 

 

20 Pursuant to Section 312 of the USA Patriot Act, regulations have been proposed that would require 

U.S. financial institutions offering correspondent accounts to perform due diligence and, in appropriate 

circumstances, enhanced due diligence on their correspondents. See 67 FR 37,736 (May 30, 2002) and 67

FR 48,348 (July 23, 2002).

12
required; however, access to information in those jurisdictions is critical in obtaining that 

evidence in the first place. Addressing these challenges requires multilateral, rather than 

unilateral, action, as discussed below. 

VI. Examples of Counter-Measures Being Developed

As noted above, the challenges faced by law enforcement in confronting IVTS do 

not currently appear to require a legislative solution, but appear amenable to countermeasures by the regulatory and law enforcement communities that involve compliance 

efforts, education, and outreach, and increased cooperation between and among 

government and the financial sector. In this section, we discuss some examples of the more 

promising strategies that are being developed to enable law enforcement to deal with 

financial investigations involving IVTS. The lesson from these examples is that the 

existing legislative framework offers appropriate tools and opportunities to effectuate law 

enforcement counter-measures aimed at the abuse of IVTS. 

During its research for this report, FinCEN had an opportunity to observe several 

developing counter-measure strategies being applied in different regions through the United 

States. These strategies are directed toward: 

 enhancing the transparency of IVTS operations; 

 bringing the IVTS providers into the BSA regulatory structure; 

 obtaining cooperation in interpreting relevant records and further understanding 

of IVTS mechanisms and customer activity; 

 revealing trends and patterns of typical versus atypical suspect transactions; 

 revealing ancillary or mixed business associations; 

 disrupting and prosecuting immediate threats, while sending a message to other 

IVTS entities to comply with regulatory requirements; 

 disrupting and turning over couriers associated with IVTS; and 

 working with the financial sector to better monitor and detect suspicious IVTS 

activities. Examples of some of these strategies are discussed below.

Visits to California, New York, and Puerto Rico by representatives from FinCEN 

revealed successful outreach strategies being pursued in several regions by both law 

enforcement and regulatory authorities, which are aimed at the IVTS sector. These 

strategies are designed to enhance cooperation with IVTS providers in interpreting their 

records, and to learning about their operations, mechanisms, and customer transaction 

profiles. There has been substantial support for such outreach strategies among multiple 

agency representatives from many different regions of the country. 

13
 

Law enforcement also is engaged in the extensive review of SARs filed on IVTSrelated activity. Currently, the New York High Intensity Money Laundering and Related 

Financial Crime Area (HIFCA) has developed a SAR review strategy that encompasses an 

extensive review of SARs followed by categorizing the suspicious activity. Each level of 

that review involves correlated searches with other types of suspicious activity with other 

law enforcement sources of information. Following this analytical process, records are 

created in various law enforcement indices and then further examined for possible 

investigative development at regular multi-agency and multi-district SAR meetings. These 

meetings also included the participation of regulatory agencies and prosecutors. 

Federal officials interviewed in another region of the country have applied 

existing regulatory provisions to derive an innovative triad approach for potential 

prosecutions of CMIR and bulk smuggling violations (31 U.S.C. Sections 5316 and 5332, 

respectively). This approach emphasizes the importance of law enforcement authorities 

being able to apply currency smuggling related statutes to investigations that might 

involve couriers linked to IVTS operations. If a courier associated with an IVTS-type 

business is detected at the border with more than $10,000 and an apparent intent to 

conceal the money, both CMIR violation charges and bulk cash smuggling charges may 

be applied. If the suspect declares that the funds are not his/her own but rather he/she is 

moving them on behalf of someone else, the suspect can be subject to Section 1960 

charges for operating as an unlicensed money transmitter. In addition, if the courier is

working for a particular business (i.e., a suspected IVTS operation), then CMIR, bulkcash smuggling, and, potentially, Section 1960 charges may be filed against the source 

business and its owners. 

 

Law enforcement is also making a concerted effort to work more closely with the 

larger financial community to assist banks and other depository institutions in becoming 

more familiar with transactions that may indicate suspicious IVTS activity. FinCEN 

believes this type of outreach to the financial community is critical in view of the extensive 

interface between IVTS and formal banking services. The cases included in this report (see 

Appendix C) illustrate that SARs play a significant role. 

 

An example of a state-initiated strategy is the current program being developed by 

the New York State Attorney General’s Office, in conjunction with a multi-agency task

force, to identify regionally based IVTS operations, particularly in the terrorist financing 

context. 

 

The goals of this program include: 

 identifying, within the region, unlicensed money transmitters operating hawalatype businesses and feeding the information into a central database for further 

tracking and review for both law enforcement and intelligence purposes; 

 determining methods of operation and identifying any associated (“second tier”) 

businesses; 

14
 prosecuting individuals violating state law and, wherever possible (based upon 

corroborating information, such as intelligence checks and leads, informants, bank 

record reviews) identifying investigative leads to terrorist activities; 

 removing and/or disrupting immediate threats and thus sending a message to other 

IVTS entities to comply with regulatory requirements; and 

 further identifying IVTS activity trends, patterns, operations, records, and 

customer transaction profiles. 

 These strategies all rely on the existing legislative and regulatory structure 

governing MSBs. They are examples of how the law enforcement and regulatory 

communities can carefully tailor existing regulatory tools to cope with the challenges 

posed by IVTS. 

VII. Recommendations

 

The U.S. approach of regulating informal value transfer activity is preferable to 

outlawing the activity altogether, a course chosen by some nations. Attempting to outlaw 

IVTS ultimately deprives law enforcement of potentially valuable information and drives 

the informal remittance providers further “underground.” Outlawing the activity also

deprives the mostly law-abiding IVTS customers of the primary channel through which 

they transfer funds. 

In addition, the U.S. approach to regulation is consistent with emerging 

international standards such as the Special Recommendations on Terrorist Financing, 

issued in November 2001, by the Financial Action Task Force (FATF) on Money 

Laundering. The FATF’s Special Recommendation VI on Alternative Remittance calls 

on nations to “take measures to ensure that persons or legal entities, including agents, that 

provide a service for the transmission of money or value, including transmission through 

an informal value transfer system or network, should be licensed or registered and subject 

to all the FATF Recommendations that apply to banks and non-bank financial 

institutions.” 

The U.S. approach is also consistent with the Abu Dhabi Declaration on hawala 

issued in May of this year in the United Arab Emirates, following a congress of 

government officials from more than 50 nations. The declaration calls on countries to 

“adopt the FATF recommendations in relation to remitters, including hawaladars and 

other alternative remittance providers,” and to “designate competent supervisory 

authorities to monitor and enforce the application of these recommendations to 

hawaladars and other alternative remittance providers.” The declaration goes on to say 

that, “the international community should remain seized with the issue and should 

continue to work individually and collectively to regulate the hawala system for 

legitimate commerce and to prevent its exploitation or misuse by criminals or others.” 

15
As described in this report, the BSA clearly provides the framework for 

comprehensive oversight of all U.S.-based money transmitters, including those 

characterized as IVTS. However, many of the requirements under the BSA framework 

are too new to adequately determine their effectiveness with respect to IVTS. 

Treasury, therefore, believes it would be premature at this time to call for new 

legislation. Based on what we know so far, we appear to have the legislative and 

regulatory tools that we need. The primary problems are those of compliance, 

enforcement, education, and cooperation. Treasury accordingly recommends that U.S.

efforts be focused on these areas, beginning with the effort to bring all money 

transmitters, IVTS or otherwise, into compliance with the existing regulatory regime. 

 

Similarly, we believe it is premature to change the SAR threshold. The MSB 

SAR requirement is less than one year old—insufficient time to enable FinCEN to 

determine whether relevant activity is being captured by the current threshold. 

Like the SAR requirement, the MSB registration requirement is less than one year 

old. Anecdotal evidence suggests that the compliance rate among IVTS providers is far 

lower than among more conventional types of MSBs. Further research should be 

undertaken by FinCEN to determine the accuracy of this evidence and how compliance 

can be maximized. 

 

The compliance question will be critically important as Treasury continues to 

assess the adequacy of existing regulations. This is particularly relevant in relation to the 

recordkeeping and customer identification rules, both of which directly impact on the law 

enforcement and regulatory challenges presented by IVTS. 

One of the key compliance issues identified through FinCEN’s analysis is the fact 

that IVTS operators often maintain non-standardized records and do not exercise sound 

customer identification practices. Investigators, for example, sometimes find records, 

ledgers, or notes maintained in code, or in idiosyncratic shorthand, making it hard to 

decipher without the cooperation of the IVTS operator who created the records. In some

cases, particularly when ITVS operators know or suspect that their clients are breaking the 

law, no notes or records are kept. In other cases, IVTS operators serve customers without 

asking questions about their true identity, the origin of their money, or the reason for the 

transfer. In most instances, the practices described above are violations of the existing 

regulatory requirements. 

Other compliance issues arise from the practice of IVTS operators of pooling funds 

from numerous transactions. As previously noted, businesses operating with substantial 

amounts of cash (such as convenience stores) or involving high turnover make it very easy 

to hide illegal IVTS transactions through the commingling of funds (see page 11, supra). It 

is virtually impossible to match cash withdrawals with other deposits and trade transactions 

when the amounts are comparatively small. 

16
Compliance by IVTS providers with the BSA’s existing recordkeeping, customer 

identification, and reporting requirements may go a long way to address these problems

and to enable investigators to “follow the money trail.” For example, the problem of 

incomplete, coded, or illegible records may be addressed because inherent in the BSA’s 

recordkeeping requirements is the requirement that the records be truthful, complete, and 

accurate.21 Coded and illegible records do not meet this standard. The problem raised by 

the practice of aggregating customers’ transactions before transmitting them through 

depository institutions is addressed by the requirement that individualized records must 

be maintained for each transmittal order, which includes, for customers other than 

established customers, the requirement that customer identity be verified and recorded.22

Reporting of suspicious activities by IVTS providers will give law enforcement 

an important window into, and an early warning system for, questionable activity in 

communities that may otherwise be difficult to penetrate. Finally, IVTS compliance with 

the BSA’s CTR and CMIR requirements has the potential to aid substantially in detecting 

IVTS-related bulk cash smuggling and other currency-related crimes. 

Education and outreach are the crucial ingredients to building capacity among 

legitimate IVTS providers who want to comply with the law and regulations. FinCEN is 

currently expanding its existing outreach program that already has resulted in the 

registration of over 11,000 MSB principals. The planning process for the expanded 

program, which will include the translation of educational materials into various 

languages, meetings with associations of business in affected communities, and, possibly, 

the use of focus groups, is underway. 

Education is also critically needed within the law enforcement and regulatory 

communities, as there needs to be a greater understanding of how these systems operate. 

The dearth of technical knowledge is compounded by the fact that IVTS is used in the 

U.S. primarily among immigrant communities, which poses an additional challenge to 

investigators and regulators who may lack the language skills and cultural awareness 

necessary to operate in this environment. These types of barriers can limit the ability of 

authorities to communicate with IVTS operators and/or criminal suspects to interpret 

evidence or to conduct effective undercover operations. It is equally important to 

enhance the awareness of the formal financial industry regarding existing and continually 

emerging IVTS mechanisms that may interface with the formal banking sector, especially 

in the context of their performance of their due diligence and SAR obligations. 

Finally, although we already know much about some types of IVTS and how they 

operate, there is still much that remains a mystery. Treasury, therefore, believes that 

there is a need for continued research, particularly with regard to understanding the range 

of mechanisms associated with the IVTS payment clearance mechanisms. 

 

21 See, e.g., Lowell Niebur & Co., Inc., 18 SEC 471, 475 (1945). 22 FinCEN anticipates that, once the Section 326 rules for verification of identity are finalized for those 

financial institutions that maintain accounts for customers, the rules for verification of identity for the 

various transactions entered into by MSBs (including rules governing funds transmittal by both bank and 

nonbank financial institutions) will be amended as needed to be consistent with the Section 326 rules.

17
APPENDICES

APPENDIX TITLE 

A Range of Existing and Continually Emerging IVTS 

Mechanisms and Mixes With Formal Banking Sector 

B Basic Hawala and Sample Account Settling 

C Developing Case Patterns 

D International Oversight Practices 

E Acknowledgments

18
Appendix A

Range of Existing and Continually Emerging IVTS 

Mechanisms and Mixes With Formal Banking Sector 

OFFICIAL USE ONLY

Range of IVTS Mechanisms Range of IVTS Mechanisms

IVTS Operator

one or more mechanisms

to facilitate IVTS operations

Traditional Modernized or Contemporary

Physical Transport

of Value

In-Kind Payments

Hawala settlements through

compensatory payment y payments;

commodity shipments,

false invoicing e invoicing

Stored value

transfers*

IVTS operators interfacing with formal banking sect ng sector

Gift services &

barter deals er deals

Debit/Credit cards

used by mul ed by multiple individuals

Internet-based

payment payment systems

Trade div ade diversion

Correspondent spondent

accounts

* Include chit clude chit, hundi, telephone card, ephone card,

or any bearer or any bearer-type mechanisms

Broad Scope of IVTS Mechanisms 

A primary finding resulting from the study is the need for law enforcement and 

regulatory authorities to be cognizant of the extensive and potentially complex 

(sometimes interfacing) nature of existing and continually emerging IVTS mechanisms, 

as the above graphic illustrates. 

The following are examples of IVTS methods that, in and of themselves, may 

serve as mechanisms for transferring funds or value and sometimes interface with each 

other for settlement purposes: 

19
1. False Invoicing of Exports or Imports – This practice can help hawaladars balance 

their books. For instance, under-invoicing by $20,000, the hawaladar “sends” this amount 

to the importer of computer equipment, who will make profits higher by this amount upon 

resale of the goods. If the amounts are not excessive, they can easily “disappear” in 

otherwise legal trade. A $20,000 “mistake” in a $1-2 million trade is unlikely to raise 

suspicion, even if detected. Therefore, false invoicing can serve to be a stand-alone IVTS, 

part of a trade diversion scheme, or a means of tax evasion. 

The detection of under-valuation or over-valuation of goods often requires inside 

information and is difficult even using sample checks by U.S. Customs Service (i.e., if 

medical, computer, and other equipment contains chips, drivers, or updated software 

versions, these can only be discovered if the equipment is opened up and subjected to the 

most thorough inspection). However, existing technologies may be used to overcome such 

difficulties. The U.S. Customs Service operates a relational database, developed in the 

early 1990s, that enables the analysis of data by country, port, manufacturers, importer, and 

commodity. That database is known as the Numerically Integrated Profiling System or 

NIPS. Investigators, using NIPS, have the ability to run samples against the database to 

help detect anomalies and thus provide leads regarding false-invoicing schemes.

In other cases, “payments” are made for goods that are not delivered, incorrectly 

described in the invoice, or returned after delivery is recorded. The payment does not 

appear to be connected to any unusual or suspicious activity. 

2. Courier Services and Physical Transport – Courier services and physical 

transport methods also can be used to transfer funds or other value and settle accounts 

amongst IVTS Providers. Cash has been found in everything from containers to 

suitcases. Money changers in the Middle East, who trade in currencies and therefore 

need the cash in place, also use couriers. Value can also be moved when IVTS Providers 

use cash to purchase easily movable commodities that can later be sold for cash at the 

final destination. 

3. Correspondent Bank Accounts – Certain types of correspondent accounts (such 

as “nostro” and “vostro”)23 may be used as the modern equivalent of a sophisticated 

‘hawala’ moving more substantial amounts of value without the bank officials in the 

U.S., or even in other countries knowing the true identity of the customer. Access to the 

U.S. financial system is an added advantage to users of these mechanisms. This type of 

activity is particularly problematic in nesting or multiple levels of accounts, in which 

 

23 Nostro and vostro accounts are held by banks at other banks in foreign currencies and jurisdictions, 

where they have no presence themselves. For example, when bank A from country X needs to engage in

U.S. dollar transactions but has no offices in the U.S., it may open a nostro (literally “our”) account with a 

New York bank B. When bank B, on the other hand, wishes to engage in transactions denominated in the 

currency of country X but has no offices there, it will open a locally denominated account with bank A in 

that country. This would be a vostro account (“your account”). These are essentially clearing accounts that 

balance transactions between the two banks. Whereas a correspondent account is more of a one-way 

service, nostro/vostro accounts serve reciprocal interests and are like “mirror” accounts. 

20
large numbers of institutional and individual accounts are consolidated through a network 

of banks. 

4. Gift and Money Transfer Services – Smaller amounts can also be transferred 

through easily available gift and money transfer services via special vouchers that can be 

bought through internet websites. Clients provide a credit card number to be charged for 

goods (such as flowers, food, or super market vouchers) to be received and/or used by a 

friend or relative elsewhere around the world. 

5. In-Kind Payments – Another practice that can be used independently, or as a 

settlement method, involves the provision of services or in-kind payments. For example, 

a travel agent sending groups to India may have someone pay all the expenses of the 

group, and make a payment to any account in the United States, or other account of the 

Indian provider.

6. Debit and Credit Cards – These types of cards may be used by multiple 

individuals. Holders of bank or credit card accounts may have multiple cards on the 

same account and hand them over to other people, who may use the cards for withdrawals 

in other countries. Only the account holder may know who is taking the cash and for 

what purpose, and even the account holder may not know where the value goes next. 

7. Internet Payment Schemes – Similar, but often more complicated, alternatives

involve internet companies that offer payments and money transfer services from within 

the U.S. or from overseas, including some based in secrecy or laxly regulated 

jurisdictions. Others facilitate payments and value transfers on the basis of gold deposits 

held in London, Zurich, or Dubai. 

8. Pre-paid Telephone Cards – These cards and any other instruments that 

effectively store value may be used for funds transfer. 

 

9. Trade Diversion Schemes – These schemes allow for hard-to-detect value 

transfers, the laundering of dirty money, as well as fast illegal profits. For example, 

Customer X (e.g., a front company based abroad) purchases legal goods at a discount 

(often up to 50 percent) from a U.S. manufacturer, and receives the goods via an 

intermediary in a third country. The goods are then diverted back (i.e., returned) to the 

United States. These goods are eventually sold to wholesalers in the U.S. by Customer X 

(or an intermediary) at a higher price. This price still represents though for the 

wholesalers a discount (e.g., 20 percent), and for Customer X the receipt of legal money 

anywhere on earth as proceeds of a legal sale. Buying a million dollars worth of goods 

for $500,000 and re-selling them for $800,000 in a couple of weeks generates a profit of 

$300,000 and clean funds for anyone to use. 

Therefore, it is clear that IVTS can include a very wide range of methods – from

very basic to extremely sophisticated methods. It is also important to note that in certain 

instances the interface of several types of IVTS include the finding of cross-ethnic 

21
(middlemen) collaborations; the more interface used and the greater use of

intermediaries, the harder it becomes to investigate a case or network. 

IX. Mixing of IVTS Mechanisms with the Formal Banking Sector 

Our study has found few examples of “basic” hawala in the United States; that is, 

where value transfers occur without any interface with the formal banking sector. IVTS 

providers interface with the formal banking sector when they make deposits, engage in

wire or other transfers, and manage ancillary businesses (e.g., travel agency, grocery 

store, jewelry store). In many of the cases reviewed, it became apparent that during the 

settlement process, the IVTS operator transferred funds through financial institutions on 

an aggregated basis when its cash pool reached a certain level. FinCEN has also 

observed IVTS providers who maintain bank accounts in order to obtain negotiable 

instruments, to wire funds domestically and overseas, and to draw on for the purchase of 

commodities/goods (the proceeds from sale of these commodities/goods were then used 

to remit money overseas on behalf of local IVTS customers). (See Case Synopses 

illustrated in Appendix C.) 

22
Appendix B

Basic Hawala and Sample Account Settling 

OFFICIAL USE ONLY

Basic Hawala

Marwan

USA

Amjad

Pakistan

Hawaladar

in USA

Hawaladar

in Pakistan

OFFICIAL USE ONLY

Account Settling

• Accounts are settled between Hawaladars through:

• reciprocal payments to customers

• physical movement of money [by courier]

• wire transfer or check

• payment for goods to be traded

• trade/smuggling of gold and precious gems

• invoice manipulation

23
OFFICIAL USE ONLY

Under I Under Invoicing

Value ($100,000)

goes from London to South Asia

Hawaladar B

London

Hawaladar A

South Asia

24

OFFICIAL USE ONLY

Under I Under Invoicing

A sends B $150,000 and receives invoice

US$150,000

INVOICE

Hawaladar B Hawaladar A
OFFICIAL USE ONLY

Under I Under Invoicing

for $250,000 worth of computer hardware,

which balances B’s $100,000 debt to A

Hawaladar B Hawaladar A

25
Appendix C 

Developing Case Patterns 

Examples of IVTS Cases in the United States 

During its research on IVTS in the United States, FinCEN met with federal, state, 

and local law enforcement officials throughout the country to discuss cases being 

investigated or prosecuted that involve IVTS.24 Field agents and prosecutors provided 

FinCEN with extensive cooperation and assistance. Most of the cases highlighted in this 

report are based on observations of these law enforcement officials. Although many of 

these investigations are in their preliminary stages, additional criminal activities may 

become apparent over time. 

The IVTS investigations involve a variety of illegal activity, including: 

 use of IVTS providers (unlicensed/unregistered money transmitters) to remit funds 

to or from abroad (including in several instances an OFAC-blocked country;25

several illegal hawaladars also connected to drug trafficking); 

 exploitation of cash intensive businesses (e.g., grocery stores; travel agencies; 

delicatessens; kiosks;26 convenience stores; phone card businesses; and money 

exchange businesses) often located in close-knit ethnic communities to launder 

illicit proceeds derived, for example, from cocaine, heroin, methamphetamine 

trafficking, alien smuggling, food stamp fraud, and transfer of funds or value to 

problematic countries (see graphic below); 

 

24 Interviews were primarily conducted with representatives of High-Risk Money Laundering and Related 

Financial Crime Areas (HIFCAs) in Chicago, Los Angeles, San Francisco, New York, and San Juan. 

Extensive outreach was also conducted with additional contacts beyond the HIFCAs in particular cities 

where additional leads were discovered (e.g., Washington, D.C. headquarters offices; Atlanta, Georgia;

San Diego, California; Charlotte, North Carolina; and Austin, Texas). Also, see Appendix H for a list of all

organizations consulted in our study. 25 The Department of the Treasury’s Office of Foreign Assets Control (OFAC) administers and enforces

economic and trade sanctions based on United States foreign policy and national security goals against

targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities 

related to the proliferation of weapons of mass destruction. 26 One law enforcement investigation, for example, identified the use of kiosks located in shopping malls 

and other businesses such as convenience stores to place and layer criminally-derived proceeds. The kiosks 

were also used by criminal elements as money exchanges. Investigators are focusing on alien smuggling as 

the underlying unlawful activity. 

26
IVTS and Cash-Intensive Businesses

Cash-Intensive

Businesses

IVTS Operators/

Organization(s)

Collection points

for money and

transfer orders

.............

.............

.............

Conversion to 

Monetary Instruments

(money orders

and checks)

Financial

Institution

Monetary Instruments

Bulk shipped/-smuggled

Criminal elements

influential

Pattern Observations

 

 conversion (placement) of bulk cash to money orders and other types of monetary 

instruments to circumvent federal reporting and recording requirements; 

 use of commercial mail carriers to send monetary instruments out of the U.S. to 

circumvent Currency and Monetary Instrument Report (CMIR) filing 

requirements;27

 use of couriers to smuggle bulk monetary instruments across international borders; 

 use of stored value (pre-paid telephone cards) to both transfer value and circumvent 

reporting requirements; 

 exploitation of non-government organizations (NGOs) and charities to move funds 

potentially linked with terrorist activity; 

 

27 A CMIR is required when a person physically transports currency or other monetary instruments in an

aggregate exceeding $10,000 at one time, into or out of the United States. See 31 CFR 103.23(a) and 31

U.S.C. 5316(a) and 5317. 

27
 smuggling of cigarettes; and 

 use of Black Market Peso Exchange-type schemes.28

In many of the cases, the underlying activity was frequently described as hawala, 

but FinCEN only has been able to characterize one case as “basic” hawala (i.e., transactions 

in which a broker or intermediary accepts cash on behalf of a sender in one location, and 

arranges for disbursement of the cash, minus a small fee, from another broker or 

intermediary at another location without the actual movement of any funds through any 

formal financial institution). In most cases, IVTS providers had bank accounts or accounts 

at other financial institutions, which they used in the settlement of the transactions. This is 

based on what law enforcement has shared with FinCEN. There may be other “basic” 

hawalas in the United States that law enforcement has not disclosed or not discovered. 

The reality of the IVTS situation in the United States appears to be that many of the 

investigative cases, along with anecdotal information provided by law enforcement about 

suspected IVTS involvement in illegal activity (and some information provided by IVTS 

service providers themselves) indicate a prevalence in the United States of the “mixed” 

category of IVTS in which illegal money transfer activity is conducted in conjunction with 

legal business enterprises, such as money transmitters, check cashers, travel agencies, 

jewelry businesses, grocery stores, and others, and in which settlement is accomplished 

using the formal financial system. The illegal money transfer activity may encompass both 

BSA violations and other illegal activities (e.g., narcotics trafficking, alien smuggling fees, 

and suspected terrorist funding). 

Detailed case-related synopses and accompanying graphics of the types of IVTS 

activity and common patterns observed in the United States are provided below. These 

cases were reported to FinCEN during consultations with federal and state law 

enforcement officials. FinCEN will continue to consult with these law enforcement 

officials to learn additional information and report upon possible subsequent phases and 

developments. Because most of these cases are still under investigation or raise other 

sensitive disclosure issues, they have been described generically. 

Cases like this require a regulatory and law enforcement infrastructure that will 

assist law enforcement in identifying the illegal transactions so that a successful 

prosecution will occur. The challenge for law enforcement is to determine how to target 

the illegal transactions without affecting the numerous legal transactions by individuals 

sending money home to their families and without unduly disrupting trade, government, 

or NGO activities that help those legitimately in need.

 

28 The Black Market Peso Exchange (BMPE) is a large-scale money laundering system used to launder 

proceeds of narcotics sales in the United States by Latin American drug cartels by facilitating swaps of

dollars in the U.S. for pesos in Colombia through the sale of dollars to Latin American businessmen

seeking to buy U.S. goods to export.

28
Case Synopses 

Case 1 

Suspected Basic IVTS Operation 

 A recent law enforcement investigation identified a non-licensed/registered IVTS 

operator who provided transfer services to countries in Europe and abroad.

 The U.S. IVTS operator is a suspected narcotic trafficker. 

 The operator also provided transfer services for customers wishing to send money 

from an OFAC blocked country located in the Arabian Gulf.

 The IVTS operator provided his services from his residence.

 In order to execute payments the operator utilized other IVTS operators in countries 

abroad in which instructions were provided via fax and phone.

 Payments were made using a basic hawala system.29

 The operator maintained over $1,000,000 of cash at his residence (believed to be 

maintained for cash pay-outs).

 IVTS balances were reconciled through the U.S. IVTS operator meeting with other 

IVTS operators in Europe. 

X. 

29

 

29 Information is subject to change as the case fully develops. 

OFFICIAL USE ONLY

Suspect Suspected Basic d Basic IVTS Operat TS Operation

IVTS Operator

U.S.

Cash on Han Cash on Hand

for Payouts

Residence

Customer

U.S.

Heroin

Trafficking

Funds Provided

Reconciliation

Meetings in Europe

IVTS Operator

Europe

Beneficiary

Europe

Instructions via phone / fax
Case 2 

Use of Commodities to Reconcile Transfer Payments Between IVTS Operators 

 Law enforcement has identified an IVTS operator who provided remittance services 

to nationals of an East African nation residing in the U.S. 

 People wishing to send money would contact the U.S. IVTS operator and arrange to 

send money to the operator through one of two methods: 1) the person wishing to 

send money physically provides the funds to the IVTS operator; or 2) the customer 

deposits the funds to be transferred directly into the operator’s account. 

 The sender provides the name and phone number of the beneficiary to the operator. 

The sender also faxes a copy of the deposit receipt to the operator indicating a 

deposit was made into the operator’s account (if that method was used). 

 The operator then faxes the payment instructions to his counterpart (family 

member) located in the East African country. The beneficiary picks up the money 

from the sender at an exchange business operated by the East African IVTS 

operator. Funds (proceeds of commodity sales) paid to beneficiaries are withdrawn 

from a reserve account maintained by the exchange. 

 Funds collected by the U.S. IVTS operator were not automatically sent out of the 

U.S. Usually the U.S. operator would allow the balance of his operating account to 

accumulate to $10,000.00 before making a wire transfer. 

 The money is eventually wire transferred to an account located in a European 

country that is controlled by the East African IVTS operator. 

 The European account is used by the East African operator to purchase goods in 

bulk that are imported back to the East African national, and further sold at the 

same location as the exchange. 

 Proceeds from the sale of those products are maintained in a reserve account that 

functions as the primary source for paying money out to beneficiaries from the 

company’s IVTS activities.

30
XI. OFFICIAL USE ONLY

Account Number .............

Account Number .............

Commodities Used to Reconcile Payment

Transfers Between IVTS Opera TS Operators

Accounts

Customers

IVTS Operator U.S. Account Number .............

European

Account

East African IVTS Operator

Owner

Instructions via fax / phone

Wire Transfer(s) Payment

“Purchase of Goods”

Misc. Commodities Companies

Exchange / hange / Merchant Company East African Count can Country

Owner

Exportation of Goods

East African

Beneficiaries

Payment (proceeds of goods sold goods sold)

Owner

Account Number .............

Case 3 

Use of Cash Intensive Businesses In Ethnic Communities to Facilitate IVTS Activities, 

Case A 

 Law enforcement efforts identified a case in which an organization provided 

unlicensed remittance services for nationals of an Arabian Peninsula country 

residing in the U.S. Numerous businesses within the ethnic community collected 

money from individuals wishing to send funds back home. A small fee was 

charged for the transfer services. The funds were then converted to monetary 

instruments to be smuggled out of the country.

 An agent of the organization would then collect the funds from area delis, travel 

agencies, and other miscellaneous stores that served as the primary points of contact 

for people wishing to remit funds.

 The U.S. IVTS operator would then phone and fax all of the transaction orders to 

another IVTS operator located in the Arabian Peninsula. The beneficiaries would 

be paid prior to the actual transfer of funds.

 Once cash was collected from the collecting agent of the U.S. organization, several 

individuals were then enlisted to convert bulk cash to money orders and other types 

of negotiable instruments. Cash was also structured into nominee bank accounts 

maintained by area banks. Numerous financial institutions captured some of the 

structuring activity and subsequently filed SARs. 

 Once the cash was converted or deposited into accounts, checks and money orders 

from the conversion of the funds were provided to couriers who physically 

smuggled the instruments to the Arabian Peninsula nation. 

 Once the Arabian Peninsula IVTS operator received the instruments, he negotiated 

them through a local bank’s correspondent accounted maintained by a U.S. bank. 

31
OFFICIAL USE ONLY

Use of Ca Use of Cash-Intensive Businesses usinesses in Ethnic

Communitie ommunities to Facilitate IVTS Acti TS Activities

Customers

Phone Card Store

Deli

IVTS Organization

IVTS Operator

IVTS Collections

Hired Smurfs

Couriers Other Businesses

Beneficiaries

Arabian Peninsula

Nation

Money Order Vendors

IVTS Services

Nominee

Accounts

Account Number .............

Account Number .............

Account Number .............

Bulk Monetary

Instruments

Smuggling

Instructions via fax / phone

Instructions via fax / phone

IVTS Operator

Arabian Peninsula

Case 4 

Use of Cash Intensive Businesses In Ethnic Communities to Facilitate IVTS Activities, 

Case B 

 Law enforcement investigations identified an organization involved in a multitude 

of criminal activity to include ephedrine trafficking; cocaine, heroin, 

methamphetamine trafficking; food stamp fraud; resale of stolen property; etc. The 

organization utilizes numerous businesses and individuals within the ethnic 

community to facilitate its illegal activities.30

 The organization also runs a money remitter business that caters to nationals of an 

Arabian Peninsula country residing in the U.S. The business is unlicensed in the 

state where it is located and not registered with the federal government. 

 People wishing to send money through the business contact an agent of the 

company in which the customer pays the remitter for the service in addition to 

providing beneficiary information. The U.S. IVTS operator coordinates the 

payment with his counterpart located in the Arabian Peninsula nation via phone and 

fax. 

 

30 Based in part on cultural and socio-economic grounds, members of certain ethnic groups mutually

support one another in numerous aspects to include financial support in the establishment of businesses. 

Criminal elements within these ethnic groups also play an active role in supporting the establishment of

new businesses through financial support. Thus, the business that is opened with the assistance of funds 

from criminal organizations becomes vulnerable to facilitating future criminal activity. This can take place 

as people trusting each other will not always ask about the origin or destination of funds. A blind eye or 

genuine ignorance can effectively provide cover for activities such as the reselling of stolen goods or the 

active participation in other illegal activities such as food stamp fraud, coupon fraud, and money 

laundering. 

32
 Beneficiaries pick up money from the broker located in the Arabian Peninsula 

nation. 

 The actual movement of funds is conducted later when bulk cash is deposited by 

agents of the organization into personal and business accounts. SARs filed by 

financial institutions indicate many of those transactions were structured. Money 

orders and third party checks31 are also used to deposit funds into accounts or to 

purchase cashiers checks from financial institutions. 

 Funds deposited into accounts owned by the criminal organization in the U.S. were 

reconciled with the Arabian Peninsula IVTS operator through the use of checks.32

 Checks were mailed (via commercial mail) to the IVTS operator located in the 

Arabian Peninsula nation where they were negotiated through local financial 

institutions that had correspondent bank accounts with U.S. financial institutions. 

 

31 Law enforcement agents have determined the organization often uses third party checks drawn on other 

business accounts. The technique includes the purchase of the third party checks by the criminal 

organization, which are used to purchase cashiers checks from area banks. The use of this technique

further complicates the audit trail in identifying the original source of the funds. 32 The use of checks drawn on respective accounts was the most prominent method used to send money to

an African Peninsula Country. It is believed wire transfers were also used as an adaptation resulting from

check seizures made by law enforcement during the course of the investigation. Cashiers checks were also 

used as part of the scheme to reconcile accounts between the criminal organization located in the U.S. and 

the IVTS operator located in the African Peninsula Country.

33
OFFICIAL USE ONLY

Use of Ca Use of Cash-Intensive Businesses usinesses in Ethnic

Communitie ommunities to Facilitate IVTS Acti TS Activities

Customers

Illicit Fundsfrom

Numerous SUAs

U.S.-based

Criminal Organization

Providing IVTS Services

Suspects

Misc. Businesses

Grocery Business

$

Numerous Bank Accounts,

Personal and Business

Arabian Peninsula

Beneficiaries

IVTS Operator

Arabian peninsula

Instructions via fax / phone

Wire Tran re Transfer

Checks drawn 

on accounts

Checks cashed

Payment

Case 5 

Providing Remittance Services to an OFAC Blocked Country 

 A U.S. based IVTS organization advertised its services through several different 

cultural newspapers and the World Wide Web. Those advertisements indicated the 

company could send money to an OFAC blocked country located in the vicinity of 

the Arabian Gulf. 

 In order to send money through the company the customer would make contact with 

the IVTS operator and would provide their name and the name and account number 

of the beneficiary located in the OFAC blocked country. 

 There was no commission for the transaction but profit was realized through the 

exchange rate. The IVTS operator also provided services to known drug traffickers 

in which a 5% flat fee was charged for moving money derived from criminal 

activity. The operator was fully aware the money being transferred originated from

drug trafficking. 

 The operator would then fax instructions to an IVTS operator in the OFAC blocked 

country in addition to another IVTS operator located in another Arabian Gulf 

country. 

 The IVTS operator located in the OFAC blocked country would provide funds to 

the beneficiary upon confirmation of the instructions sent by the U.S. IVTS 

operator. 

 Once the U.S. IVTS operator received funds from customers in the U.S. in the form

of cash, money orders, and third party checks, the operator would deposit the funds 

into his account and periodically wire transfer funds to a U.S. based account owned 

by the IVTS operator operating in the Arabian Gulf country. 

34
 The Arabian Gulf IVTS operator would then wire transfer the funds from his U.S. 

account to another account located in an Arabian Gulf country. 

 The money in that account was reconciled with another account located in the 

OFAC blocked country. 

 The U.S. IVTS operator also converted cash into money orders by structuring the 

purchases of the instruments to circumvent federal identification and recording 

requirements. 

 The U.S. IVTS operator conducted several cash deposits in a manner to possibly 

circumvent federal recording requirements.33 The IVTS operator also structured 

cash to purchase money orders in violation of federal identification and recording 

requirements. 

XII. OFFICIAL USE ONLY

Providing Remittance Services to 

OFAC Blocked Coun ocked Country

Customers Customers IVTS Operator Operator

U.S.

Money Remitter

U.S.

Owner

Account Number .............

U.S. Account

Account Number .............

U.S. Account

Account Number .............

OFAC-Blocked

Country Account

Account Number .............

Arabian Gulf abian Gulf

Account

IVTS Operator

Arabian Gulf Country

Owner Owner

IVTS Operator

OFAC blocked Country ed Country

Instruc Instructions via f tions via fax / phone

Drug Proceeds

Owner

Beneficiaries

OFAC Blocked

Country Country

Wire Transfer

Transfer

Instructions via fax / phone

Instructions via fax / phone

 

33 Information primarily derived from SAR analysis. 

35
Case 6 

Remittance of Bulk Cash Proceeds Derived From Heroin Trafficking 

 Law enforcement agencies of a European country identified a number of storefront 

companies being used by heroin suspects to launder illicit funds. The storefront 

companies allegedly provided transfer services to IVTS operators but actually 

served as placement centers to transfer drug proceeds. 

 The companies used the services of an exchange company located in an Arabian 

Gulf country as the means to send proceeds from Europe to other criminal elements 

located in a Southwest Asian country. 

 Bulk cash was collected from drug sales at three storefront operations. 

 Cash was then deposited into business accounts and remitted to the exchange’s 

account maintained by a U.S. owned bank. 

 Funds were then remitted through the exchange to numerous beneficiaries located 

in other Southwest Asian countries and elsewhere around the world. 

 U.S. financial institutions filed numerous SARs on the exchange company and on 

subjects and businesses in the U.S. who received or remitted funds from or to the 

exchange company.34

Case 7 

East African Money Remitters Located in the United States35

 Law enforcement identified a business located in the U.S. that remits funds on 

behalf of East African nationals. 

 The business is an unlicensed money transmitter and is not registered with the 

federal government. 

 SARs indicate continuous structuring of deposits (mostly cash, but sometimes 

checks and money orders), through the use of multiple individuals into multiple 

businesses or personal accounts at multiple banks and branches located in multiple 

states. 

 Suspects made attempts to circumvent CTR requirements. 

 Accounts of suspects with low-income occupations exhibited unusual flows, 

volumes of funds. 

 Same addresses sometimes being used by multiple suspects. 

 Wire transfers were initiated shortly after deposits were completed funds were then 

transferred to accounts maintained at banks located in an Arabian Gulf state. 

 Limited knowledge/traceability on the final disbursement of funds once credited to 

Arabian Gulf banks (black hole syndrome). 

 

34 Several cases have been initiated by U.S. law enforcement on a number of U.S. based subjects believed 

to have done business with the exchange company. 35 Information primarily derived from SAR analysis. 

36
OFFICIAL USE ONLY

U.S.-based

Money Remitter

U.S.-based

Money Remitter

U.S. Bank Account

U.S. Bank Account

U.S. Bank

Account

U.S.-based

Possible Money Remitter

Corporate

Association

Bank Account

Arabian Gulf state

Account Owner

Account Owner

Wire transfer(s)

Wire transfer(s)

Wire

transfer(s)

Account Owner

Trading Company Arabian Gulf state

Account Owner

Structured

Cash Deposits

?

Structured

Cash Deposits

Remittance Vul nce Vulnerability Trends

Illustrated by SARs

Case 8 

Providing Remittance Services to an OFAC Blocked Country 

 A law enforcement investigation identified six unlicensed money remitters. 

 Investigative efforts identified several of the remitters as possibly remitting funds 

on behalf of known criminal elements. 

 Investigations are pending to determine if any of the companies violated federal law 

by remitting funds to OFAC blocked countries.36

 Extensive ledgers were maintained by the entities detailing wire transfer activity. 

 The companies guaranteed money transmission to the OFAC blocked country 

within 1-4 days.

 The only beneficiary information required to complete a transaction from the 

companies was the name and bank account number of the recipient oversees. Select 

businesses also provided hand delivery of funds to beneficiaries for an additional 

charge.

 

36 A full financial analysis of the bank records associated with the case is still pending. However, many of

the advertisements posted by the suspect companies indicated they provided transfer services from the U.S. 

to an OFAC blocked country located in the Arabian Gulf. 

37
Case 9 

United States v. Mohamed M. Hussein, et al. 

 A law enforcement investigation identified an illegal remitter in Boston, MA, that 

provided foreign transmittal services. The business operated without a license in 

violation of MA State law. 

 On August 7, 2000, the president of the company filed an application with the 

commonwealth of MA, Division of Bank and Loan Agencies, in order to obtain a 

license to engage in the business of receiving deposits of money for transmission to 

foreign countries. 

 The application identified another business located in an Arabian Gulf country as an 

affiliate of the company. The application also included a number of receipts 

indicating the business had already remitted funds internationally. In response, the 

Division of Banks sent a letter to the business advising the company of their 

obligation to obtain a state license, not to continue to engage in illegal wire 

transmission activities, and the penalties if the activity continued. Two subsequent 

letters were also sent to agents of the company with little or no response. 

 Agents of the company engaged in the deposit of cash and checks originating from

several subjects located in MA and other states. 

 Once deposits were credited to the businesses account, the funds were then wired to 

an Arabian Gulf country in which the wired funds were made available to the 

designated recipient. 

 Agents would typically initiate wire transfers telephonically through an automated 

wire transfer procedure that did not require the agent to speak to a bank employee. 

Nearly $3,000,000 was wired oversees through the illegal wire transmitter. 

 Checks were also written from the remitter account for recipients receiving money 

from oversees senders residing in the United States. 

 On July 22, 2002, Mohamed HUSSEIN, an agent of the business, was sentenced to 

one and half years in prison and two years of supervised release for operating an 

illegal money transmitting operation without a state license. Another subject, Liban 

HUSSEIN, president of the company, has also been charged in the case. 

Case 10 

Charitable Organization With Possible Links to a Designated Terrorist 

Organization Remitting Funds Abroad37

 Law enforcement investigations identified possible links between the owners of a 

U.S. based charitable foundation and a designated terrorist organization. 

 A central account was used by agents of the company to deposit cash. Several 

SARs were filed by financial institutions on the suspect nature of the transactions. 

 International wire transactions were then initiated from the account in which funds 

were sent to Russia and two former Soviet Republic States. 

 Wire transfers were also credited to the U.S. company account from unknown 

transactors through a European Bank. 

 

37 Information primarily derived from SAR analysis. 

38
 The U.S. company also wire-transferred funds to another U.S. based business 

engaged in similar business activities (charity). All of these transactions are suspect 

based on the volume and patterns of activity affecting the company’s account vis-avis the types of services the company was providing. 

 Wire transfers from the company were credited to a similar type of U.S. based 

company. That company also is suspected of having an association with a 

designated terrorist organization. 

Case 11 

IVTS Activities Conducted on Behalf of Known Criminal Elements 

 Law enforcement identified an extensive IVTS network that provided remittance 

services and laundered drug proceeds on behalf of a Middle Eastern drug trafficking 

organization. 

 U.S. financial institutions identified both deposit and transfer activity conducted by 

agents of the IVTS organization and subsequently filed SARs on the large cash 

deposits conducted by numerous transactors. 

 The network sent money throughout the world through the use of wire transfer 

payments. 

Case 12 

Use of Money Orders to Facilitate IVTS Activities38

 Law enforcement officials initiated an investigation based on SAR referrals that 

identified the negotiation of bulk money orders through a bank located in a Middle 

Eastern country. 

 The money orders appeared to have been purchased at various money order vendors 

located in the U.S. 

 Money orders were then negotiated through a bank located in a Middle Eastern 

country and ultimately cleared through a U.S. correspondent account. 

 It is unknown how the money orders were transported to the Middle East but it is 

assumed that they were smuggled based on the large volume negotiated. 

 There are indications of ethnic crossovers in facilitating money transfers. 

Case 13 

Use of Money Orders to Facilitate Black Market Peso Exchange (BMPE)

 Law enforcement identified a BMPE case in which money orders were heavily used 

to convert drug proceeds to negotiable instruments.

 The organization in the U.S. worked under the direction of a money broker located 

in a Central American country. It is believed the money broker would provide 

instructions to his agents in the U.S. regarding the pick-up of bulk cash derived 

from narcotics trafficking. 

 

38 Information primarily derived from SAR analysis. 

39
 Once the cash was picked up, subjects within the organization would immediately 

convert the cash to money orders. The money orders were purchased from area 

vendors in a manner to circumvent federal reporting and recording requirements.

 Agents of the company also structured cash into bank accounts.

 Once drug proceeds were converted, the Central American broker provided his U.S. 

agents with coded instructions on the distribution of the funds. Much of the funds 

were distributed via commercial mail carriers to various U.S. companies on behalf 

of customers doing business with the Central American broker.39

 Some of the funds were also mailed via commercial carrier or smuggled via courier 

to the Central American broker where they were further negotiated by third parties.

Case 14 

Use of Black Market Brokers, Bank Accounts, and Shell Companies 

United States of America v. Maria Carolina NOLASCO, et al. 

 A recent law enforcement investigation identified a bank official working in the 

private banking department of an institution in the Northeast U.S. facilitated the 

transfer of hundreds of millions of dollars in less than a year by using the facilities 

of the U.S. bank. The money transfer operations required a license under State law 

and federal registration, neither of which had taken place. The transfers were 

between the U.S. and a South American country. 

 Money brokers sent the bank official instructions by fax for transfers to be 

conducted through dozens of accounts [the official controlled more than 250 

accounts]. 

 The bank official also controlled accounts of more than 40 shell companies. 

 Wire transfers out of these accounts were payments for goods bought by other 

companies, which had purchased the dollars through the black market. 

 The bank official used the bank's wire facilities to make the transfers [instructions 

given to the wire facility also by fax from the bank employee]. 

 The money transferred appears to be the proceeds of illegal drug trafficking. 

Case 15 

Cigarette Smuggling in Support of Terrorist Organizations 

United States of America v. Mohamad Youssef Hammoud, et al. 

 Law enforcement efforts identified a U.S. cell of a known Middle Eastern terrorist 

group that engaged in cigarette smuggling. 

 Subjects from the U.S. based cell acquired numerous credit cards to purchase 

cigarettes in bulk from various cigarette wholesalers. 

 Once purchased the cigarettes were transported to another state within the U.S. with 

a significantly higher excise tax than the state where the cigarettes were purchased. 

 The cigarettes were sold for profit to a central contact. 

 A senior member of the U.S. based cell often communicated with members of a 

similar cell operating in another North American country. That cell was identified 

 

39 The purchase of U.S. dollars by Central American businessmen who wished to get a better exchange rate

of pesos to dollars. 

40
by law enforcement as acquiring equipment (with possible military applications) on 

behalf of a known Middle Eastern terrorist organization. 

 A senior member of the U.S. based cell at least on one occasion transferred funds to 

a member of the other terrorist cell located in another North American country. 

Case 16

Use of Phone Cards to Transfer Value 

 Law enforcement efforts identified a criminal organization that used pre-paid phone 

cards to front money for a drug transaction.40 The phone cards were also used to 

circumvent CMIR requirements.41

 

40 The purpose of the initial drug transaction was to prove to drug traffickers the criminal organization had

the funds (value of the phone cards) to purchase drugs from the drug trafficking organization. 41 As per current federal law, phone cards are not required to be reported on CMIRs despite having a total

value in excess of $10,000.00. 

41
Appendix D

International Oversight Practices 

International Oversight Practices Relating to Hawala

Oversight of hawala operations vary from country to country, ranging from 

prohibition, to various degrees of regulation, to doing nothing. Many countries in which 

immigrant communities remit money to their homelands generally treat hawala as a matter 

of regulation and scrutiny, even more so after the attacks of September 11, 2001. In the 

past, hawala was regarded as a means of transferring money that caused concern only when 

it facilitated the commission of a crime. The United States, Canada, the United Kingdom,

and other European countries fall into this category. Recently, many jurisdictions have 

introduced regulations requiring the registration and/or licensing of all money transfer 

businesses that include hawala and other IVTS. 

It is essential to note that, because the term hawala means ‘transfer,’ it is used in 

some Middle Eastern countries as synonymous to formal money transfers through banks or 

wire transfers. For example, in Saudi Arabia, where there is formal hawala, people mostly 

use the term ‘hundi’ to denote informal money transfers. Because of the strict enforcement 

of Saudi laws prohibiting hundi practices, most expatriates there apparently send 

remittances through bank channels, the services of which have improved substantially in 

recent times. 

Similarly, Japan authorizes only banks to engage in funds transfers and criminalizes 

other methods. Because illicit transfers there often take place through banks, Japanese 

authorities have provided guidelines to financial institutions for better reporting of

suspicious activities to the Financial Intelligence Office. 

Australia, Germany, and Hong Kong stand out as jurisdictions with large immigrant 

populations that have long-standing regulations that apply to hawala and other money 

transfer businesses. They each require the licensing of businesses that remit money. 

Australia’s Financial Transaction Reports Act of 1988 also requires that remittance agents 

report suspicious transactions and cash transactions over A$10,000 to the authorities. 

AUSTRAC, the Australian equivalent of FinCEN, has also engaged in an outreach program

to inform remittance agents of the rules and their obligations.

Hong Kong enacted legislation in June 2000 requiring money transfer agents to 

register with the authorities, establish the identity of their customers, keep the records of 

transactions over HK$20,000, keep those records for six years, and report suspicious 

transactions. An outreach program was also part of the strategy, including the publication 

and distribution of guidelines and notifications to those concerned (including travelers who 

might act as money couriers). 

42
In Germany, under legislation enacted in 2000, providers of financial services 

“commercially or on a scale which requires a commercially organized business 

undertaking,” must obtain a license from the Federal Banking Supervisory Office. Both 

money transfer businesses (including “non-account related” money transfers) and foreign 

exchange bureaus are considered as financial services requiring a license. 

In the United Kingdom, during November 2001, anti-money laundering 

regulations came into effect, which require money services businesses, such as bureaux 

de change and money remitters, to register with HM Customs and Excise. In addition,

HM Customs was given new powers to enter and inspect such businesses, including 

hawala and other IVTS, to ensure compliance with the rules. Before this legislation, the 

main legal instrument regulating money transfer businesses was the 1993 Money 

Laundering Regulations. Theoretically, unregistered IVTS were subject to the 1993 

regime. However, in practice no enforcement action would have been taken without 

another substantive offense, such as drug money laundering. This practice continues to 

be the focus of law enforcement efforts in the UK to date. 

Countries on the receiving end of workers’ remittances are sometimes jurisdictions 

with controls on capital flows and currency exchange rates. These include Pakistan, India, 

Sri Lanka, and others. While hawala enables expatriates to help their families in their 

homeland, it also facilitates tax evasion, evasion of exchange controls, capital flight, and 

corruption. Combined with false invoicing, gold, or precious stones smuggling, the capital 

flow can actually be negative for such regions. As hawaladars allow for the draining of 

financial resources and deprivation of highly valued foreign currency in those countries, 

hawala has been outlawed for some time both in India and Pakistan. In spite of these legal 

restrictions, the hawala business thrives in both nations. 

In India, the Foreign Exchange Management Act (FEMA) of May 2000 has 

replaced the Foreign Exchange Regulation Act of 1973 (FERA). The old law had 

criminalized the practice of hawala, and carried penalties of up to three years in prison for 

amounts less than 100,000 Indian rupees, seven years in prison for higher amounts, and 

fines up to five times the amount involved. Under the new law, hawala is a civil offense 

carrying a penalty of up to three times the amount involved. However, legal action is often 

difficult to pursue due to the general lack of evidence. The money seized may be 

confiscated under both Acts. 

In Pakistan, only banks can conduct money transfers, although the State Bank 

announced in the summer of 2002 that it intended to authorize money changers also to 

engage in fund transfers. Under the proposed plan, some money changers may be issued 

Exchange Company Licenses. Details of how these would be regulated are not yet 

available. 

Following the Abu Dhabi conference in May 2002 on 

hawala, sponsored by the United Arab Emirates (UAE) 

Central Bank, the UAE seemed ready to provide the lead in 

43
introducing a regulatory regime that would take into 

consideration the views and interests of hawaladars, their 

competitors, and the clients of hawala in the Gulf region. As of 

November 4, 2002, the central bank of the UAE began 

registering brokers of informal overseas money transfers 

known as hawala in a bid to curb money laundering.

44
Appendix E

Acknowledgments 

1. California Department of Financial Institutions 

2. California Department of Justice 

3. Central Intelligence Agency 

4. Coral Gables Florida Police Department 

5. Drug Enforcement Administration

6. El Dorado Task Force (New York/New Jersey) 

7. Federal Bureau of Investigation 

8. Federal Reserve Bank of New York 

9. Federal Reserve Board 

10. Financial Crimes Enforcement Network 

11. Financial Review Group (Federal Bureau of Investigation) 

12. Federal Law Enforcement Training Center 

13. High Intensity Drug Trafficking Areas (HIDTA) 

a. Atlanta, GA 

b. Chicago, IL 

c. New York/New Jersey 

14. High-Risk Money Laundering and Related Financial Crime Areas (HIFCA) 

a. Chicago, IL 

b. Los Angeles, CA 

c. New York/New Jersey 

d. San Francisco, CA 

e. San Juan, PR 

15. Immigration & Naturalization Service 

16. Internal Revenue Service (Criminal Investigation Division; Compliance 

Division) 

17. International Monetary Fund 

18. Los Angeles Police Department 

19. Miami-Dade Police Department 

20. National Drug Intelligence Center 

21. National Security Council 

22. New York City Police Department

23. New York County District Attorney’s Office 

24. Office of Foreign Assets Control 

25. Operation Green Quest (United States Customs Service) 

26. State of New York Banking Department 

27. State of New York Office of Attorney General 

28. State of Texas Office of Attorney General 

29. United Kingdom 

a. HM Customs & Excise 

b. National Crime Squad 

c. National Criminal Intelligence Service 

45
d. National Investigation Service 

30. United States Attorney’s Office 

a. Atlanta, GA 

b. Charlotte, NC 

c. Los Angeles, CA 

d. Newark, NJ 

e. San Diego, CA 

f. Washington, DC 

g. U.S. Virgin Islands 

31. United States Customs Service 

32. United States Department of Agriculture 

33. United States Department of Justice 

34. United States Department of Labor 

35. United States Department of State 

36. United States Department of the Treasury 

37. United States Postal Inspection Service 

38. United States Secret Service 

39. United Nations Monitoring Group

40. World Bank 

The research group would like to thank member nation Financial Intelligence 

Units (FIUs) of the Egmont Group who responded to our IVTS Survey. 

We would also like to acknowledge the assistance and expertise provided by 

Professor Nikos Passas of Temple University. His contributions were invaluable 

to the research conducted in the study. 

46
Seminars Associated with the IVTS Study

On May 15, 2002, FinCEN assisted in a presentation at the UAE Hawala Seminar 

held at Abu Dhabi, United Arab Emirates. And on May 25, 2002, FinCEN gave a 

presentation at the Institute of Banking Studies Money Laundering Seminar held in 

Kuwait City, Kuwait. Both seminars drew hundreds of attendees from government 

agencies – both regulatory and law enforcement – and the private sector. Many in 

attendance were able to share with FinCEN their perspectives and 

recommendations regarding the challenges posed by IVTS. 

FinCEN’s Office of Strategic Analysis, Non-Traditional Methodologies Branch, 

hosted a Hawala Seminar on May 29, 2002. Fifty-five attendees representing 

seventeen agencies participated in this seminar. 

On October 9, 2002, FinCEN hosted an international conference for the Egmont 

Group Financial Intelligence Units on IVTS and international observations, 

challenges, and enhanced coordination of counter measures. 

47