Legal Aspects of Combating Terrorism Financing and Money Laundering using Informal Money Transfer Systems in the European Union

Currently, in the European Union, in addition to traditional money transfer systems (bank transfers, Western Union, etc.), informal (alternative) systems have spread. The most famous and widespread is hawala, which originated in South Asia many centuries ago, long before the banking system, and is still the most familiar and convenient mechanism for transferring funds in several regions of North Africa and the Middle East. Hawala operates outside the regulated banking and financial sector primarily through a complex settlement system: there is no actual transfer of funds within this system. In most countries, hawala is not regulated by law and is not subject to government supervision. All these factors contribute to the increased risk of money laundering and terrorist financing (ML/TF risk). The paper examines the key characteristics of hawala, its types, circumstances that caused its spread, the features of the system’s functioning, and overviews the main measures of the European Union aimed at reducing the risk of ML / TF, which are a characteristic of hawala.

hawala, informal money transfer systems, hawala operator, anti-money laundering, obtained by criminal means, financing of terrorism, AML / CFT, European Union, EU FATF, FATF Recommendations, payment services

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