[DRAFT] [CONFIRM: compliance review before publication] Migrated from the 2021 research note "Hawala Payments and its presence within the INGO sector". [CONFIRM: migrate this post]

What hawala is

Hawala is an informal system for moving value between countries. It predates modern banking by centuries and is still widely used.

A sender pays an agent in one country. The agent contacts a counterpart in another country, who pays the recipient in local currency. No money crosses a border. The two agents settle between themselves later, often by netting off flows in the opposite direction.

It is quick, it reaches places banks do not, and it works on trust between the agents rather than on a payment message.

Why aid organisations encounter it

International organisations meet hawala where the formal system is thin or absent: conflict zones, remote regions, and countries where banks have withdrawn correspondent relationships. In those places it may be the only way local staff and suppliers are being paid.

It is also encountered indirectly. A partner receives a bank transfer and then uses an informal channel to move funds to a field location. The charity's own payment was orthodox; the last leg was not.

The risks a finance team should weigh

• Limited visibility of who ultimately received the money.

• No independent record of the rate applied.

• Anti-money-laundering and sanctions exposure that sits with the charity.

• Funds not safeguarded, and no recourse if they disappear.

• Difficulty evidencing the payment to auditors, donors or a regulator.

Hawala networks are regulated in some jurisdictions and unregulated in others. Whether a particular arrangement is lawful depends on where the agents sit and how they are registered, and that is a question for your own legal and compliance advisers rather than a general guide. [CONFIRM: whether any statement on legality may appear]

Regulated alternatives

Where a corridor is genuinely hard to reach, it is worth testing the formal options before assuming there are none. Local currency delivery through an FCA-authorised payment institution now covers more markets than it did a few years ago, and mobile money settlement reaches recipients without a bank account in several countries.

Neither reaches everywhere. The point is to know which parts of your payment chain are regulated and evidenced, which are not, and whether your trustees have seen that map.

If you would like to review how funds reach a specific country, we are happy to look at the corridor with you. [CONFIRM: how this service may be described]