Underground Banking: Complete Guide to Informal Value Transfer Systems

Introduction

Underground banking refers to informal value transfer systems that operate parallel to the formal banking system, moving money across borders without traditional banking channels. These alternative remittance systems include hawala, hundi, and fei ch’ien networks that serve both legitimate remittance needs and criminal organizations seeking to launder money or evade financial controls.

Hawala is the most globally recognized informal value transfer system, originating in South Asia and the Middle East. It operates on personal relationships and reputation among brokers (hawaladars) who coordinate transfers across borders. Widely used by migrant workers for legitimate remittances, hawala has also been exploited for illicit activities such as terrorist financing.

Hundi is a traditional South Asian system similar to hawala but often involves physical promissory notes called hundi as documentation. It blends informal trust with some documentary practices, facilitating both domestic and international money transfers outside formal banking regulations.

Fei ch’ien, meaning "flying money