Hawala is legal in the USA, but only when the person running it has registered with the federal government and holds a money transmitter license in every state where it operates. Without that, running a hawala network is a federal felony that carries up to five years in prison. Using a hawaladar is a separate question, and the answer there is different: the criminal statute targets the operators, not the customers.
What Makes a Hawala Operation Legal
Federal law treats hawala the same way it treats Western Union. Under the Bank Secrecy Act, any business that transfers funds on behalf of others is a money services business, and FinCEN has made clear that hawaladars fall inside the definition of “money transmitter.”1eCFR. 31 CFR 1010.100 – General Definitions2FinCEN. The Bank Secrecy Act Three things have to be in place for the operation to be lawful.
First, federal registration. The hawaladar must file FinCEN Form 107 within 180 days of setting up the business and renew it every two years. The form asks for owners and officers, business locations, the banks the business uses, and an estimate of annual transaction volume.3Internal Revenue Service. Money Services Business (MSB) Information Center4Office of the Law Revision Counsel. 31 U.S. Code 5330 – Registration of Money Transmitting Businesses
Second, state licensing. Federal registration does not replace state law, and nearly every state requires its own money transmitter license. A hawaladar needs one in each state where they do business.4Office of the Law Revision Counsel. 31 U.S. Code 5330 – Registration of Money Transmitting Businesses Applications typically involve a business plan, financial statements, background checks, and a surety bond. Fees and bond amounts vary widely by state and can add up to a serious sum before a single dollar moves.
Third, an anti-money-laundering program. A licensed hawala operation has to verify customer identity, keep records, file the reports FinCEN requires, and respond to law enforcement requests.5eCFR. 31 CFR Part 1022 – Rules for Money Services Businesses – Section: 1022.210 Anti-Money Laundering Programs The reporting piece is the part that clashes hardest with traditional hawala practice. Cash transactions over $10,000 trigger a Currency Transaction Report,6FinCEN. Notice to Customers: A CTR Reference Guide suspicious transactions of $2,000 or more trigger a Suspicious Activity Report within 30 days, cash payments over $10,000 require Form 8300 within 15 days,7Internal Revenue Service. Reference Guide on the IRS/FinCEN Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business and every transfer of $3,000 or more requires identity verification and detailed recordkeeping for five years.8FinCEN. BSA Quick Reference Guide A lawfully operating hawaladar effectively runs a regulated financial institution, because that’s what they are under federal law.
What Happens If a Hawaladar Skips the Paperwork
Running a hawala operation without FinCEN registration or the required state licenses is a federal felony under 18 U.S.C. § 1960. The statute reaches anyone who knowingly runs, controls, manages, or owns any part of an unlicensed money transmitting business.9Office of the Law Revision Counsel. 18 U.S. Code 1960 – Prohibition of Unlicensed Money Transmitting Businesses Conviction carries up to five years in federal prison and fines up to $250,000 for individuals or $500,000 for organizations.10Office of the Law Revision Counsel. 18 U.S. Code 3571 – Sentence of Fine
Two things about § 1960 catch operators off guard. One is that ignorance of state licensing law is not a defense: an operator can be convicted for failing to hold a state license they didn’t know was required.9Office of the Law Revision Counsel. 18 U.S. Code 1960 – Prohibition of Unlicensed Money Transmitting Businesses The other is civil forfeiture. Property involved in unlicensed money transmission — real estate, bank accounts, cash — can be seized by the government even without a criminal conviction.11Office of the Law Revision Counsel. 18 U.S. Code 981 – Civil Forfeiture
Prosecutors also stack charges. When unlicensed hawala is linked to money laundering, terrorism financing, or tax evasion, the penalties under those separate statutes climb sharply. Structuring — deliberately breaking a transaction into pieces under $10,000 to avoid a CTR — is a separate federal crime on its own.12Office of the Law Revision Counsel. 31 U.S. Code 5324 – Structuring Transactions to Evade Reporting Requirement Prohibited
Enforcement is real, not theoretical. In June 2025, six men were sentenced in the Southern District of New York for running an unlicensed hawala network that moved more than $15 million. Sentences ranged from time served to 27 months in federal prison.13U.S. Department of Justice. Six Men Sentenced For Illegally Transmitting More Than $15 Million Dollars Using Halawa Network
Where Customers Stand
Section 1960 targets operators, not customers. Walking into a hawaladar’s shop to send $500 to a relative abroad does not by itself violate the statute, even if the hawaladar turns out to be unlicensed.
That is not the same as saying it’s safe. Using an unlicensed hawala network carries risks the criminal statute doesn’t capture. There is no FDIC insurance behind a hawaladar. There is no regulator to complain to if a transfer disappears. If the operation gets shut down or its accounts are seized, there is often no paper trail proving you’re owed anything, and your money can simply be gone. And if the funds you’re sending are connected to illegal activity — or law enforcement suspects they are — you can be pulled into a money laundering or structuring investigation regardless of what you thought you were doing.
Taxes apply either way. Money received through hawala is not invisible to the IRS. Income sent or received through a hawaladar is still income for tax purposes, and business transfers still need standard documentation. The informal nature of the transfer creates no exemption.
How to Check Whether a Hawaladar Is Licensed
Before handing cash to any money transfer operator, you can verify their status. FinCEN maintains a public registration database of money services businesses. Most states participate in the Nationwide Multistate Licensing System (NMLS), which has a free public search that lets you look up a company by name, location, or NMLS ID and confirm whether it holds an active money transmitter license in your state.
A properly licensed hawaladar should be willing to give you their FinCEN registration number and their state license information on request. If they can’t or won’t, use someone else. The cost and effort of becoming a legal money transmitter in the United States is high enough that operators who’ve done it are usually eager to show the paperwork.