Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

Which of the following statements best describes hawala?

1. A legal framework for international banking

2. An informal method of transferring money

3. A formal remittance service

4. A regulated banking practice

The correct answer is: An informal method of transferring money

Hawala is best described as an informal method of transferring money. This system operates outside traditional banking channels and formal financial institutions, allowing individuals to send money quickly and often with lower costs than conventional methods. The transactions are based on trust and networks of brokers who facilitate the transfer without the physical movement of cash. Hawala is commonly used in regions where people may lack access to banking services or where regulatory frameworks make formal money transfers difficult. Unlike formal remittance services that are typically regulated and documented, hawala relies on personal connections and agreements, which can make it difficult to trace or intervene in these transactions. This characteristic distinguishes hawala from formal banking practices and remittance services, confirming its nature as an informal money-transfer method.