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 is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

OVERVIEW

 

Terrorist and insurgent financing, money laundering, bulk cash smuggling, abuse of informal value transfer systems, and other illicit activities financing criminal activity continue to threaten Afghanistan’s security and development. Afghanistan remains the world’s largest opium producer and exporter. Corruption remains a major obstacle to the nation’s progress. The National Unity Government (GNU) has enacted laws and regulations to combat financial crimes, but faces a significant challenge in implementing and enforcing the law.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

The narcotics industry, corruption, and fraud are major sources of illicit revenue. Afghanistan has a small banking sector but large enforcement and regulatory challenges, even though most of its banks strive to adhere to international standards. Traditional payment systems, particularly hawala networks, provide a significant range of financial and non-financial business services in local, regional, and international markets. Some Afghan business consortiums that control both hawaladars and banks allow criminal elements to manipulate domestic and international financial networks to administer and launder illicit funds.

 

KEY AML LAWS AND REGULATIONS

 

In 2014, Afghanistan enacted a comprehensive AML law, which was amended in March 2015 via presidential decree. Significant provisions include an adequate legal basis to criminalize money laundering; KYC and STR provisions; establishment of an operationally independent FIU; and the authority to confiscate funds or property derived from criminal activity, to dispose of such property, and to hold the proceeds of criminal profits in an asset recovery/sharing fund. In June 2015, Afghanistan issued Fit and Proper Regulations to ensure financial institutions are well managed and persons who own or control them are competent and meet certain criteria. In May 2015, Afghanistan issued Cash Courier Regulations establishing a cross-border currency reporting requirement. Amendments to that regulation that came into force in March 2016 ensure that seizure or restraint of funds is authorized where there is a suspicion of money laundering.

 

Although Afghanistan’s Law on Extradition of the Accused, Convicted Individuals, and Legal Cooperation allows for extradition based upon multilateral arrangements such as the 1988 UN Drug Convention, Article 28 of the Afghan Constitution requires reciprocal agreements between Afghanistan and the requesting country. The United States does not have an extradition treaty with Afghanistan and cannot reciprocate under the multilateral treaties.

 

AML DEFICIENCIES

 

Afghanistan should ensure market manipulation and counterfeiting are predicates for money laundering. It should increase supervision of financial institutions and DNFBPs to ensure their compliance with AML regulations. Afghanistan should also increase the number of MSB/hawala inspections, enact a comprehensive registration regime, and expand implementation of the MSB/hawala licensing program. Afghanistan should create an outreach program to notify and educate hawaladars about licensing, transaction reporting requirements, and STRs. Regulators and enforcement officers need adequate resources to supervise the financial sector and investigate financial crimes.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

Afghanistan’s law enforcement and institution regulation are hampered by corruption. Limited resources, lack of technical expertise, and poor infrastructure also deter effective regulatory oversight. No clear division exists between the hawala system and the formal financial sector. Hawaladars use bank accounts and wire transfer services to settle with other hawaladars abroad and within Afghanistan. Hawaladars generally fail to file STRs as legally required. Insurance companies and securities dealers are also required to file STRs, but the government does not enforce this requirement. Precious metals and stones dealers, lawyers, accountants, and real estate agents are not supervised as financial businesses in Afghanistan.

 

Afghanistan’s FIU, the Financial Transactions and Reports Analysis Center of Afghanistan (FinTRACA), has limited capacity to identify bad actors and build cases against them.

 

FinTRACA often faces administrative hurdles within the Attorney General’s Office (AGO) regarding prosecution. The AGO is authorized to prosecute money laundering and seize illicit assets, but its new management team, seated in the second half of 2016, has yet to effectively grapple with weak prosecutorial capacity to pursue money laundering cases and asset seizures. Furthermore, the Afghan government has yet to establish a recovery mechanism for the value of assets seized, and therefore no entity, including the police and courts, has responsibility for post- conviction asset recovery. Early positive indications show that FinTRACA’s new leadership is dynamic and anxious to pursue the organization’s objectives.

 

Kabul International Airport lacks effective currency controls for all passengers. Beyond the formal border crossings, the Afghanistan-Pakistan frontier is notoriously porous, enabling smugglers to cross with relative ease.

 

Law enforcement officers, prosecutors, and judges need training on effective, lawful asset seizure, and the GNU should implement procedures for money laundering seizures. It should continue to increase seizure and confiscation procedures in cases involving narcotics and drug trafficking. Afghanistan also should strengthen inspection controls and enforcement of the currency declaration regime at airports.

 

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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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