Informal Value Transfer System (IVTS)
An informal value transfer system (IVTS) is any network that moves money for customers outside the conventional banking system, typically by having an operator in one place instruct a counterpart elsewhere to pay out, with the operators settling between themselves later.
Also called: IVTS · informal value transfer · informal funds transfer system · alternative remittance system · hawala and other similar service providers
Hawala is the best-known example; others include hundi, fei ch'ien and the black market peso exchange. They share a mechanism. The customer hands over cash, the operator sends an instruction, and a partner abroad pays the recipient from its own funds. No money crosses the border for that transaction. The operators square their accounts afterwards through reverse flows, trade, cash couriers or bank transfers.
These systems persist because they are fast, cheap and reach places banks do not. For the same reasons they are attractive for evading capital controls, taxes and sanctions, and settlement through trade overlaps with trade-based money laundering.
'Informal' describes the method, not the legal status. In the United States an IVTS operator is a money transmitter and must register with FinCEN as a money services business, keep records and report suspicious activity, and most states require a licence as well. FATF standards require every country to license or register such providers. Operating without doing so is a criminal offence in many jurisdictions, whatever the customers' purposes.
In practice
Banks and payment firms are expected to identify customers that are operating as unregistered value transfer services. Patterns such as many unrelated third-party deposits followed by transfers abroad are typical indicators.
Commonly confused with
| Term | How it differs |
|---|---|
| Hawalah (classical) | Classical hawalah is the transfer of a debt from one debtor to another in Islamic commercial law. The modern remittance network called hawala is an informal value transfer system. |
See also
- Money Services BusinessA money services business is a category in US federal law under the Bank Secrecy Act, covering seven capacities: dealer in foreign exchange, check casher, issuer or seller of money orders or traveler’s checks, provider of prepaid access, seller of prepaid access, money transmitter, and the US Postal Service.
- RemittanceA remittance is a cross-border transfer sent by one individual to another — typically a migrant worker sending money home to family. It is distinct from a commercial payment between businesses, and regulators define it more narrowly than everyday speech does.
- NettingNetting is offsetting mutual obligations so that only the difference actually moves. Two parties that have been paying each other all day settle one payment for the net amount, which cuts both the funds transferred and the liquidity each side must hold to support them.
- Trade-Based Money LaunderingTrade-based money laundering (TBML) is the use of trade transactions to disguise and move criminal proceeds or to shift value across borders, most often by misstating the price, quantity or nature of goods on the documents.
- FATFThe Financial Action Task Force, or FATF, is the intergovernmental body that sets the international standards for anti-money-laundering and counter-terrorist financing, assesses countries against them, and maintains the lists — informally the grey list and the black list — that drive country risk ratings across the industry.
- HawalahHawalah is the classical Islamic contract for transferring a debt from one debtor to another: the original debtor's obligation is discharged and the creditor collects from the new party instead.