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The watchdog said underground financial networks are heavily exploited to channel funds to terror outfits including ISIL and Da’esh, operating across conflict zones and global hubs
The watchdog said underground financial networks are heavily exploited to channel funds to terror outfits including ISIL and Da’esh, operating across conflict zones and global hubs. (IMAGE: REUTERS)
Indian intelligence agencies have uncovered a transnational hawala infrastructure involving shell companies, forged KYC records, manipulated trade documents and informal settlement networks, as pressure mounts on Islamabad over the unchecked use of hawala and cryptocurrency, according to intelligence sources and a new Financial Action Task Force (FATF) report.
The global watchdog’s findings also validate India’s concerns over underground money networks, with more than 80 per cent of responding jurisdictions identifying informal underground banking and hawala as primary channels used by professional money launderers.
Individual underground banking operations have processed more than €500 million in illicit cash over periods as short as eight months, according to the FATF.
The watchdog said underground financial networks are heavily exploited to channel funds to terror outfits including ISIL and Da’esh, operating across conflict zones and global hubs.
Such informal networks are also regularly used to facilitate illicit value flows linked to transnational crimes including arms trafficking, drug trade, human smuggling and tax evasion.
How Hawala Networks Move Dirty Money
Indian financial intelligence has exposed transnational schemes that used nominee-incorporated shell companies and forged KYC records to remit funds overseas under fake import justifications, according to top intelligence sources who spoke to CNN-News18.
The operations also used circular trade flows. Goods were exported while payments were intentionally withheld under fictitious commercial disputes, allowing the networks to settle informal debts through the arrangement.
Laundering networks systematically manipulated trade invoices through under-invoicing and altered import documentation to create undisclosed offshore balances, the sources said.
Investigations also confirmed the use of non-operational front entities across foreign hubs to conceal beneficial ownership and complete informal settlement loops.
The FATF report highlights how such underground networks have evolved alongside digital financial systems.
Modern operators are using encrypted platforms including WhatsApp, Telegram and Signal, along with virtual assets and stablecoins, for cross-border settlement.
These networks can also combine informal settlement layers with formal banking products, including payment service providers, virtual IBANs and mobile wallets.
Hawala Networks Use Corporate-Style Structures
According to the FATF, hawala networks increasingly function as commercialised money-laundering-as-a-service providers, using hierarchical cell structures and corporate-style ledgers.
Settlements can rely on triangular clearing, trade-based manipulation through over- and under-invoicing, cash couriers and commodity offsets such as gold.
Quick Answers
Ask News18The primary source notes that Pakistan is facing mounting pressure over the unchecked use of hawala and cryptocurrency, but it does not state what specific impact this will have on the country’s FATF status. However, secondary reporting indicates that India plans to use evidence of Pakistan’s support for terror networks to urge the FATF to place Pakistan back on its grey list under enhanced monitoring. Pakistan currently remains under international observation.
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Group Editor, Investigations and Security Affairs, Network18
September 03, 2026, 11:45 PM IST
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