AFGHANISTAN
Summary

Sanctions

UN and EU Financial Sanctions in force

FAFT AML Deficient

Yes

Higher Risk Areas

 

Non - Compliance with FATF 40 + 9 Recommendations

US Dept of State Money Laundering Assessment

Supporter of or Safe Haven for International Terrorism

Not on EU White list equivalent jurisdictions

Corruption Index (Transparency International & W.G.I.)

World Governance Indicators (Average Score)

Failed States Index (Political Issues)(Average Score)

International Narcotics Control Majors List

Medium Risk Areas

Weakness in Government Legislation to combat Money Laundering

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Afghanistan is on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Latest FATF Statement - 24 February 2017

Since June 2012, when Afghanistan made a high-level political commitment to work with the FATF and APG to address its strategic AML/CFT deficiencies, Afghanistan has substantially addressed its action plan at a technical level, including by: (1) introducing mechanisms for policy and operational level coordination on AML/CFT; (2) adequately criminalising money laundering and terrorist financing; (3) establishing adequate provisions for freezing and asset confiscation; (4) establishing a targeted financial sanctions framework; (5) establishing an adequate supervisory and oversight system; (6) improving the legal status and resources of the FIU; (7) and developing a cross-border currency declaration system. The FATF will conduct an on-site visit to confirm that the process of implementing the required reforms and actions is underway to address deficiencies previously identified by the FATF.

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Afghanistan was undertaken by the Financial Action Task Force (FATF) in 2011. According to that Evaluation, Afghanistan was deemed Compliant for 1 and Largely Compliant for 1 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for all 6 of the Core Recommendations.

 

US Department of State Money Laundering assessment (INCSR)

Afghanistan was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR).

Key Findings from the report are as follows: -

Perceived Risks:

The Islamic Republic of Afghanistan is not a regional or offshore financial center. Terrorist and insurgent financing, money laundering, bulk cash smuggling, abuse of informal value transfer systems, and other illicit activities designed to finance organized criminal activity continue to pose serious threats to the security and development of Afghanistan. Afghanistan remains a major narcotics trafficking and producing country, and is the world’s largest opium producer and exporter. The narcotics trade, corruption, and contract fraud are major sources of illicit revenue and laundered funds. Corruption permeates all levels of Afghan government and society.

Afghanistan has a small banking sector, and the government has implemented management reforms over the past year. Traditional payment systems, particularly hawala networks, remain significant in their reach and scale. Less than 10 percent of the Afghan population uses banks, depending instead on the traditional hawala system, which provides a range of financial and non-financial business services in local, regional, and international markets. Approximately 90 percent of financial transactions run through the hawala system, including foreign exchange transactions, funds transfers, trade and microfinance, as well as some deposit-taking activities. Corruption and weaknesses in the banking sector incentivize the use of informal mechanisms and exacerbate the difficulty of developing a transparent formal financial sector in Afghanistan. The unlicensed and unregulated hawaladars in major drug areas, such as Helmand, likely account for a substantial portion of the illicit proceeds being moved in the financial system. Afghan business consortiums that control both hawaladars and banks allow criminal elements within these consortiums to manipulate domestic and international financial networks to send, receive, and launder illicitly-derived monies or funds intended for criminal, insurgent, or terrorism activities.

 

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SANCTIONS

In 1999 the United Nations required all member states to freeze the assets, prevent the entry into or the transit through their territories, and prevent the direct or indirect supply, sale and transfer of arms and military equipment with regard to any individual or entity associated with Al-Qaida, Usama bin Laden and/or the Taliban as designated by the relevant Sanctions Committee.

In 2011 the Security Council split the sanctions regime into two groups - an Al-Qaida regime and a country-specific Afghanistan regime.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

15

World Governance Indicator – Control of Corruption

5

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

The Afghan economy experienced steady economic growth averaging 10 percent between 2005 and 2012. That growth has been driven largely by the international presence, including spending by the International Security Assistance Force (ISAF) and international aid agencies. As international troops withdraw and international aid declines, growth is expected to drop to 3-5 percent per year in the short- to medium-term. This growth will not be sufficient to cover anticipated government budget deficits. As such, the Afghan government will have to focus on improving domestic revenue generation. We anticipate they will place increasing focus on private-sector-led development. The success of this approach will depend on their ability to convince reluctant investors of the business opportunities in the country.

The Government of Afghanistan (GOA) recognizes the development of a vibrant private sector is crucial to the reconstruction of an economy ravaged by decades of conflict and mismanagement. The government has stated a commitment in principle to fostering private-sector-led economic development and increasing domestic and foreign investment, as reflected in the Afghanistan National Development Strategy (ANDS). However, its efforts to build an enabling environment for a competitive private sector; to expand the scope of private investment by developing natural resources and infrastructure; and to promote investment from domestic sources, the Afghan diaspora, and foreign investors have been limited by weak capacity and political will to undertake necessary reforms.

As part of its World Trade Organization (WTO) accession process, the Government of Afghanistan is modifying existing legislation and drafting new laws and regulations to bring its trade policy framework into accordance with WTO standards. At present, Afghanistan’s legal and regulatory frameworks and enforcement mechanisms remain nascent. Much of the framework necessary for encouraging and protecting private investment is not in place, and the existence of three overlapping systems Sharia (Islamic Law), Shura (traditional law and practice), and the formal legal system instituted under the 2004 Constitution can be confusing to both investors and legal professionals. Moreover, corruption affects the consistency of the application of the laws.

Although most senior Afghan government officials express strong commitment to a market economy and foreign investment, many businesses maintain that this attitude is not always reflected in practice. Many government officials, some of whom demand bribes, levy unofficial taxes and inflict bureaucratic delays, are out of step with official government policy. Commercial regulatory bodies are often understaffed and hampered by weak capacity. Financial data systems are limited.

Security threats limit investors’ opportunities to develop businesses in some provinces. Certain sectors (such as mining and hydrocarbons) still lack a regulatory environment that fully supports investment. Domestic and foreign investors rank pervasive corruption high on the list of impediments.

 

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FURTHER REPORTS

AML News / Updates

Afghanistan: 2015 Article IV Consultation and First Review Under the Staff-Monitored Program (December 2015) - Extract

To support a business-friendly environment, the authorities will strengthen anticorruption and AML/CFT frameworks. As noted, the authorities are determined to improve the business environment. They have implemented measures to strengthen the anti-corruption and AML/CFT frameworks. The October 2014 presidential decree on Kabul Bank signaled the intentions of the new administration, which has zero tolerance for corruption and tax evasion. The authorities have made progress since May 2015 to strengthen the AML/CFT legal framework notably through the issuance of two DAB regulations on preventive measures in the financial sector and fit and proper requirements. They also are implementing an AML/CFT Action Plan. Staff welcomed the progress and noted that continued efforts and enhanced implementation are needed for Afghanistan to exit the FATF’s monitoring process, to help detect and disrupt the receipt and use of, and to confiscate the proceeds of crimes, including corruption and drug trafficking. The authorities have initiated asset declarations by senior officials and plan to broaden their scope. Staff welcomed the authorities’ efforts to improve asset declarations and emphasized the importance of reducing incentives and opportunities for corruption as well as improving enforcement, while noting that more is needed to facilitate audit and publication of asset declarations. Staff underscored the role of well-trained staff, capacity building and efficient use of the information technology, particularly in customs, to fight against corruption.

Read Full Report

 

 

28 July 2014  -  Financial flows linked to the production and trafficking of Afghan opiates
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14 February 2013  -  UNODC Report:  Despite progress, Afghanistan's total corruption cost increases to $3.9 billion
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