Informal Value Transfer Systems (IVTS), Hawala and Unregistered Money Service Businesses

Money Laundering Investigations, Frozen Accounts and Restraint Orders Explained

Investigations into Informal Value Transfer Systems (IVTS), sometimes described as hawala, hundi, underground banking or alternative remittance systems, are increasing across the UK.

Many individuals do not consider themselves to be running a “money transfer business”. They may be helping family, facilitating payments within a community, using gambling or crypto platforms to move funds, or informally settling debts across borders.

However, under UK law, activity that transfers value for others can fall within the definition of a Money Service Business (MSB). If that activity is carried on without registration and compliance with anti-money laundering regulations, it may constitute a criminal offence.

Whilst many of these cases can begin with an arrest or an invitation to attend a voluntary interview under caution, there are other enforcement steps that may be taken including:

• An Account Freezing Order

• A request for information from HMRC

• A Crypto Wallet Freezing Order

• A Restraint Order

• A block on your financial accounts following a Suspicion Activity Report being raised

For an individual or a business affected, the experience can be sudden and disruptive. Funds may be inaccessible for months and allegations of money laundering or running an unregistered money service business may be raised.  What may start as a regulatory issue or enquiry, can quickly escalate into:

• Allegations of operating an unregistered MSB

• Money laundering offences under the Proceeds of Crime Act 2002 (POCA)

• Account Freezing Orders

• Restraint Orders

• Confiscation proceedings

This article explains:

• What IVTS means in UK law

• What is a Money Service Business (MSB)

• When activity may be treated as an unregistered money service business

• How money laundering offences arise

• Enforcement steps typically taken

• What happens if POCA proceedings begin

• Senior management and person exposure

• The importance of early legal strategy

What is an Informal Value Transfer System (IVTS)?

An Informal Value Transfer System (IVTS) describes any method of transferring value outside the traditional regulated banking framework.

These systems are known internationally by different names, including:

• Hawala

• Hundi

• Fei ch’ien

• Black market peso exchange

• Underground banking

• Parallel banking

• Alternative remittance systems

Some of these systems have long-standing cultural or commercial origins. Others are modern, informal arrangements facilitated by digital platforms.  However, UK enforcement bodies focus on how value is transferred, not the label used.

In modern UK investigations, IVTS allegations may arise from:

• Informal money transfers between associates or family

• Cash settlement or balancing arrangements

• Settling debts across borders

• Gambling accounts used to circulate funds

• Cryptoassets used to move value between individuals

• Third-party payment facilitation

The defining feature is that value is moved between parties without using regulated financial institutions in the conventional way.

Many individuals involved do not believe they are running a “money transfer business”. However, if value is transferred for others, enforcement bodies may characterise the activity as a money service business.

What is an unregistered money service business?

Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“the Regulations”), a Money Service Business includes those who, by way of business:

• Act as a currency exchange office

• Transmit money or any representation of money

• Cash cheques payable to customers

A Money Service Business must register with HM Revenue & Customs (unless supervised by the Financial Conduct Authority) and comply with anti-money laundering (AML) obligations. Operating without registration may give rise to criminal liability, not merely a regulatory oversight.

When activity may be treated as an unregistered money service business

An unregistered money service business investigation may arise where someone is said to be:

• Transferring money or value for others

• Operating informally without HMRC registration

• Failing to implement AML checks or record-keeping

Importantly, money laundering does not need to be proven at the outset. The focus is on whether the activity meets the definition of a money service business.

HMRC guidance identifies IVTS and informal remittance systems as priority risk areas, particularly where:

• Transaction volumes are high

• Records are incomplete

• Third parties are involved

• Gambling or crypto platforms feature in the flow of funds

Failure to comply with the Regulations can result in:

• Civil penalties

• Cancellation of registration

• Criminal prosecution

• Public naming of enforcement action

Importantly, once activity is deemed unlawful, this has consequences beyond regulatory breach.

Money laundering offences under POCA

Alongside unregistered MSB offences, IVTS cases often trigger investigation under the Proceeds of Crime Act 2002 (POCA).

Money laundering offences include:

• Concealing, disguising, converting or transferring criminal property

• Entering into arrangements facilitating the use or control of criminal property

• Possessing criminal property

One of the most confusing aspects for those investigated is that money laundering allegations can arise even where no separate criminal offence (such as fraud or drug trafficking) is alleged.

Funds may be treated as “criminal property” on the basis that:

• The underlying activity is said to be unlawful (e.g. operating an unregistered MSB)

• The transaction structure is opaque

• There is no clear audit trail

This allows enforcement bodies to investigate for money laundering and pursue Asset Recovery without charging a separate underlying offence.

Gambling, crypto and IVTS risk

The use of gambling platforms and crypto assets has become a particular focus in IVTS investigations.

The Gambling Commission has highlighted AML risks where:

• Gambling accounts are used as de facto payment wallets

• Funds circulate without meaningful gambling activity

• Third-party funding or withdrawals occur

• Crypto is used as a bridge between cash and regulated accounts

Where gambling or crypto activity appears primarily to move value rather than for genuine betting or investment purposes, enforcement bodies may treat it as an IVTS arrangement.

Enforcement steps typically taken

IVTS, unregistered MSB and money laundering allegations often follow a predictable enforcement pattern.

1. Bank account intervention

A Suspicious Activity Report (SAR) may be submitted to the National Crime Agency. Banks may freeze accounts internally.

2. Account Freezing Orders (AFOs)

Investigators may apply for an Account Freezing Order under POCA. This can:

• Freeze funds for up to two years

• Be obtained without prior notice

• Be granted on reasonable suspicion

The purpose is to preserve funds pending further enquiries or investigation.

3. Production Orders and Information Notices

Enforcement bodies may seek financial records, customer data and transaction history.

4. Restraint Orders

In more serious cases, a restraint order may be obtained from the Crown Court. This can freeze all assets, not just bank accounts, and can apply pre-charge (see below).

5. Criminal Investigation

The investigation may then focus on:

• Operating an unregistered MSB

• Money laundering offences

• Failure to report suspicious activity

• Tipping off

• Sanctions breaches

Restraint orders in more serious cases

In higher-value or more complex investigations where there is a risk of dissipating assets, enforcement bodies may apply for a restraint order.

A restraint order is broader than an Account Freezing Order. It can:

• Freeze all assets, not just specific accounts

• Apply before charge

• Restrict business and personal expenditure

Restraint orders are often based on reasonable grounds of suspicion, in addition to other statutory criteria, and are usually obtained at an early stage.

Once imposed, a restraint order will prevent individuals or businesses from being able to deal with or dispose of any assets under their control directly or indirectly.  Early, informed legal intervention at this stage can be decisive and can assist in considering the merits of an application to discharge the restraint order or apply for it to be varied.

When regulatory activity becomes criminal exposure

A consistent pattern in IVTS allegations is how these matters can develop.

What may begin as:

• Informal assistance to friends or family

• Community-based remittance arrangements

• Gambling or crypto account activity

• Side income linked to payment facilitation

Can quickly be reframed as:

• Operating an unregistered money service business

• Money laundering under POCA

• Grounds for freezing, restraint and forfeiture

Without early advice and assistance, this shift can often occur before individuals or businesses fully appreciates the seriousness of the position.

Senior management and personal exposure

The Regulations impose obligations on senior managers, directors and nominated officers.

Individuals can be personally liable if:

• They consent to or are involved in breaches

• The offence occurs due to their neglect

• Suspicious activity is not reported

• Tipping off occurs

This means that sole traders, directors and managers involved in IVTS activity may face personal criminal exposure.

What happens if POCA proceedings begin?

If criminal proceedings are commenced and a conviction follows, the court must consider confiscation under POCA.

Confiscation proceedings follow sentencing and focus on:

• Determining the benefit obtained from criminal conduct

• Considering whether criminal lifestyle assumptions are to be applied

• Assessing available and realisable assets

• Making a confiscation order

Failure to pay a confiscation order can result in further imprisonment.  Even without conviction, civil recovery or forfeiture proceedings may be pursued.

The importance of early advice

IVTS investigations rarely begin with clear allegations. They begin with suspicion, questions and asset control.

The earlier specialist advice is obtained:

• The more effectively assets can be protected

• The better the investigative narrative can be managed

• The greater the opportunity to prevent escalation

If you are facing:

• An Account Freezing Order

• Allegations of hawala or underground banking

• An unregistered money service business investigation

• Money laundering enquiries linked to informal transfers

• A restraint order

Early, informed advice can materially affect the outcome.

Conclusion

Informal value transfer activity whether described as hawala, underground banking, alternative remittance or informal money transfer, carries serious legal risk if it is suggested to be an unregistered Money Service Business or money laundering operation.

What may begin as an informal agreement, may result in:

• A criminal investigation and prosecution

• Money laundering charges

• Asset freezing

• Confiscation under POCA

Understanding the governing law and enforcement process is essential.

If you are facing:

• Allegations of operating an unregistered money service business

• An IVTS or hawala investigation

• An Account Freezing Order

• A restraint order

• Money laundering enquiries

Early specialist advice can materially affect the outcome and protect both assets and liberty.

Frequently asked questions (FAQ's)

Is hawala illegal in the UK?

Hawala itself is not automatically illegal. However, if hawala or informal value transfer activity amounts to operating a money service business “by way of business” without registration under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, it may constitute a criminal offence.

What is an unregistered money service business?

An unregistered money service business is a person or business that transmits money, exchanges currency or cashes cheques without being properly registered with HM Revenue & Customs, Financial Conduct Authority, or authorised where required. Operating without registration may lead to criminal prosecution.

Can you be charged with money laundering without another crime?

Yes. Under the Proceeds of Crime Act 2002, money laundering offences can arise if property represents the proceeds of criminal conduct including the proceeds of operating an unregistered money service business. A separate fraud or drug offence does not need to be charged first.

What is a restraint order in a money laundering investigation?

A restraint order prevents individuals from dealing with their assets during a criminal investigation. It can apply before charge and will apply to all assets, not just a bank account.

What happens if POCA confiscation proceedings begin?

If convicted, the court must assess the benefit obtained from general criminal conduct (if criminal lifestyle assumptions apply) and particular criminal conduct.  It must then decide the recoverable amount and make a confiscation order. Failure to pay can result in additional imprisonment.

Important Notice

SPH Legal operates as a specialist legal consultancy. Where regulated legal services are required, clients are represented by Sam Healey through a regulated law firm. This article is anonymised and illustrative, it does not constitute legal advice, and does not suggest that similar outcomes will be achieved in other matters.