How Hawalas Work In a typical Hawala transaction, funds are transferred between countries through trusted intermediaries, known as Hawaladars, who settle the debt between themselves and deduct a small fee without physically moving any money. This system provides a crucial service in regions where interest charges are forbidden by Islamic law, offering a cost-effective alternative to traditional wire services. The substantial sums involved underscore the urgency for regulatory measures, as well as better investigative tools. There is a debate in many countries, 6 notably in the EU, as to whether to integrate Hawalas into the formal financial sector to enhance oversight or to intensify efforts to deter their use, particularly in contexts like migrant smuggling and drug trafficking, where Hawalas serve as primary conduits for illicit funds. Steps of Hawala transaction 5 The off-the-books nature of Hawala networks makes them vulnerable to exploitation by organized crime groups, money launderers and terrorist networks. In fact, it is estimated that between €300 and €700 million in illegal proceeds from migrant smuggling moves through Hawala networks annually across central and western Mediterranean routes. 2 In Afghanistan, which supplies 80% of the world’s opium, 3 Hawala is the preferred method for international money transfers. 4 In Western Europe, it is estimated that up to €1 million per month of illegal proceeds from drug trafficking are funneled through Hawalas networks. 5 1 Executive Summary 6 About NEXYTE 2 The Hawala Problem 4 How Decision Intelligence Can Help 5 Key Decision Intelligence Capabilities 3 What is Hawala?