Informal Value Transfer System (IVTS)

🔹 Definition

An Informal Value Transfer System (IVTS) is a method of transferring money or value that operates outside the formal financial system, such as banks or licensed money remittance businesses. These systems rely on networks of trusted intermediaries, often across borders, and include traditional systems like hawala, hundi, fei ch’ien, and black market peso exchange.

Although IVTS can serve legitimate purposes—such as remittances in areas lacking formal financial infrastructure—it poses significant AML/CFT risks due to its anonymity, lack of regulation, and absence of audit trails.

🔹 Frequently Asked Questions (FAQs)

Q1: How does IVTS work?

1. A sender gives money to an intermediary (operator) in their country.
2. The operator contacts another operator in the recipient’s country.
3. The recipient is paid from local cash or settlement channels, often without any cross-border fund transfer.
4. The operators settle balances informally, through trade, cash couriering, or netting.

Q2: What are common types of IVTS?

• Hawala – Middle East, South Asia
• Hundi – South Asia
• Fei ch’ien (flying money) – East Asia
• Black Market Peso Exchange (BMPE) – Latin America
  These systems are often based on ethnic, familial, or business trust networks.

Q3: Why are IVTS systems high-risk from a compliance standpoint?

• Transactions are unregulated and unrecorded
• Users often bypass KYC/AML obligations
• May be used for terrorist financing, sanctions evasion, or money laundering
• Difficult for authorities to monitor and trace end-to-end flow

Q4: What do regulators do to mitigate IVTS risks?

• Require registration and licensing of money service businesses (MSBs)
• Encourage financial inclusion to reduce demand for IVTS
• Promote public-private information sharing
• Work with FATF to issue typologies and red flags (e.g., use of trade as cover for settlement)

Q5: Is all IVTS illegal?
Not necessarily. Some countries allow informal value transfer under specific licensing regimes or cultural allowances, but unregistered or unlicensed operations are typically illegal and subject to enforcement.