The sector in brief
Hawala is a long-established system in which one broker takes money from a customer in one place and another broker pays out the equivalent in another, with the two brokers settling between themselves later. It is cheap and fast and widely used by migrant workers, but because the money does not travel with the instruction, there can be little formal trace.
The UAE does not ban hawala but requires providers to register with the Central Bank and to follow AML rules. In practice, that means keeping detailed records of who sends and who receives, reporting suspicious activity and accounting for the settlements between brokers.
The register matters. A provider that is not registered is operating illegally, and a registered one that keeps poor records is the kind of firm that supervisors expect to find weaknesses in. Good record keeping is the difference between a legitimate service and an opaque one.
Where the risk sits
Weak audit trail
Where records are paper-based or inconsistent, it is hard to show who sent what, to whom, and how the settlement was made. This is the main concern of supervisors.
Settlement between brokers
Settlement may happen through goods, cash, trade invoices or other transfers, not always through banks. Understanding how and when it takes place is essential.
Use by criminals
A method that is quick, informal and cross-border can be attractive for moving proceeds of crime and for funding terrorism, which is why the registration regime exists.
Cash and structuring
As in other money transfer businesses, splitting large sums into smaller transfers is a way of staying beneath attention.
Links to trade-based value transfer
Settlement through goods and invoices can be used to disguise the movement of value if documents do not reflect real trade.
Who supervises you
Hawala providers in the UAE register with and are supervised by the Central Bank. If you offer money transfer services in a financial free zone, check with that zone's regulator, because the rules may be different. Operating without registration is a serious breach, so confirm your status before you accept any customer money.
The supervisor decides the detailed rules for your licence category, so always read its current guidance alongside this page.
What supervisors expect
- Registration with the Central Bank and compliance with the conditions of registration, including any reporting it requires.
- A named person responsible for compliance, with a clear programme that fits the size and nature of the business.
- Identification of customers and recording of the details of senders and receivers for every transfer.
- Complete, accurate and retrievable records of transfers and of the settlements between brokers.
- Screening of customers, beneficiaries and countries against sanctions lists, and action on matches.
- Reporting of suspicious activity through goAML and care not to alert the customer.
- Training for everyone who deals with customers and regular checks that the procedures are followed.
Red flags to watch
- A customer who wants to send a large sum with no reason or paperwork.
- Repeated payments of similar amounts to the same receiver by different senders.
- Reluctance to provide identification or to explain the purpose of the transfer.
- Settlement arrangements that cannot be explained or do not match real trade.
- Requests to avoid keeping a record.
- Customers using the service to move sums that do not fit their income.
A worked example
A broker who settles in invoices
A registered hawala broker settles its balance with a counterpart abroad through the purchase of goods that the counterpart ships later. Nothing is recorded beyond a handwritten note. A supervisor asking how a specific transfer was settled cannot be given a document that shows it. The broker should instead record each transfer, link it to the settlement and keep invoices and shipping documents that show real trade. If the broker cannot do this, the provider's risk is that the arrangement may be treated as a means of moving value without a proper audit trail.
How Adventant helps
Questions answered
Is hawala legal in the UAE?
Providers can operate if they are registered with the Central Bank and follow the rules attached to that registration. Operating without registration is not allowed. You should confirm your own status with the Central Bank.
What records do I need to keep?
Records of each customer, each transfer and each settlement, in a form that can be produced when asked. The Central Bank's conditions set the minimum, and good practice is to keep more rather than less.
Can a small hawala broker run a simple AML programme?
Yes. The programme can be proportionate to the size and risk of the business, but it must exist, be written down, be followed and be tested. Simple does not mean absent.
What if a customer refuses identification?
You should not complete the transfer. If the refusal looks suspicious, consider a report. Do not explain to the customer that you are considering one.
Do I have to report through goAML?
Registered providers are expected to report suspicion through goAML. Register early, because you need access to the system at the moment you want to file.