Hawala Meets Encryption: How Traditional Remittance Networks Become a Regulatory Nightmare?

Question

Have you ever wondered why a large portion of the $785 billion in remittances worldwide each year bypasses the banking system? The answer is Hawala—an underground transfer network that has existed for centuries, based entirely on trust, with zero records and zero regulation. And now, this ancient system is combining with cryptocurrencies like Bitcoin, Ethereum, and other encryption assets, turning into the ultimate nightmare for regulators.

What is Hawala? The Ultimate of Trust Economics

Hawala is very simple: you give cash to a broker in Dubai, he makes a call to his partner in Mumbai, and your family can receive the equivalent amount of money. The entire process - zero banks, zero fees, zero government.

This is why it is so popular: for regions in South Asia and the Middle East where the banking systems are weak, this is the only way to make cross-border transfers quickly and cheaply. However…

Dark Web Hawala + encryption of a terrifying combination

The United Nations Office on Drugs and Crime estimates that 800 billion to 2 trillion dollars of dirty money is laundered globally each year through informal channels. Hawala is a key player in this.

Now encryption has arrived. Imagine this:

Hawala itself has zero records
encryption trading pseudo-anonymity
Combining the two? Regulators directly breach defenses.

There is a real case: An Indian named Anurag Pramod Murarka opened a Hawala-encryption money laundering service on the dark web under the alias “elonmuskwhm”, laundering 20 million dollars before being caught by the FBI. He used encryption to transfer funds between the US and India, hiding cash in books and sending them out. He was ultimately sentenced to over 10 years.

Regulatory Counteroffensive: From FATF to MiCA

Countries can no longer sit still:

Financial Action Task Force (FATF) released the “Travel Rule” in 2019 - virtual asset transfers exceeding $1,000 must disclose the identity information of both parties, just like traditional banks.

The United States is tougher: The 2021 Infrastructure Law requires reporting all cryptocurrency transactions over $10,000.

EU MiCA will take effect in 2024, requiring all encryption exchanges and wallets to conduct KYC and AML reviews.

Middle East and South Asia: The UAE requires Hawala brokers to be licensed; although India and Pakistan have technically banned Hawala, it is still used informally—because there really is no cheaper alternative.

Core Paradox: Is Hawala a “Demon” or an “Angel”?

There is an interesting contradiction here:

Reverse: Hawala + encryption = the perfect money laundering tool

Front: Research shows that blockchain-based Hawala systems can actually improve tracking efficiency while simultaneously meeting AML compliance and Islamic finance principles (Sharia compliant).

In other words, if Hawala is put on the chain and made transparent, it may actually be easier to regulate than the current underground networks.

Status: The cat-and-mouse game continues

The two major weapons of regulators:

International Cooperation — FATF is promoting intelligence sharing and rule uniformity among countries.
Black Technology — AI + On-chain analysis tools to track suspicious patterns

But the problem is: the core advantage of Hawala is precisely the information asymmetry. The more you enforce transparency, the more you undermine its competitiveness as a low-cost remittance channel. For the 500 million people without bank accounts, Hawala is a lifeline.

Bottom Line

This is not just a cryptocurrency regulation issue, but a fundamental conflict between global financial inclusion and anti-money laundering. While you effectively curb dirty money, you may also cut off the lifeline of ordinary people. Where will the balance point be in the future? No one knows right now.