Financial Crime World

Afghanistan’s Law Enforcement Efforts Fall Short in Combating Money Laundering and Terrorist Financing

Despite recent efforts to revamp law enforcement in Afghanistan, the country’s agencies are struggling to effectively combat money laundering and terrorist financing. A lack of adequate resources, expertise, and coordination has hindered progress in this area.

Inadequate Law Enforcement Agencies

The Afghan government has established specialized agencies to tackle financial crimes, but their establishment and powers have not been clearly defined in law. While these agencies have been granted investigative powers, they do not appear to be using them to their full extent.

  • Lack of clear definition in law
  • Investigative powers not being utilized effectively

Poor Coordination between Law Enforcement Agencies

Poor coordination between law enforcement agencies has led to a duplication of efforts and the squandering of scarce resources. Investigations into money laundering and terrorist financing cases have been launched, but none have resulted in prosecutions or convictions.

  • Duplication of efforts
  • Scarce resources wasted

Financial Landscape Challenges

The country’s financial landscape has changed significantly over the past few years, with the banking sector expanding and correspondent banking relationships being established with institutions abroad. However, most financial transactions continue to be conducted through money service providers (MSPs), which are not subject to the same level of regulation as banks.

  • Expanding banking sector
  • Correspondent banking relationships established
  • MSPs not regulated equally

Weak AML/CTF Measures

AML/CFT preventive measures are imposed on all financial institutions in Afghanistan, but they need to be strengthened significantly to improve compliance with international standards. The measures in place fall short of the standard in several instances:

  • Lack of requirements to determine customer ownership and control
  • Failure to verify respondent institution reputation
  • No requirement to gather information on the originator

Wire Transfer Rules and FinTRACA Reporting

The country’s wire transfer rules also lack clarity, particularly with respect to domestic transfers. The threshold for verifying originator information is substantially higher than what is contemplated in international standards.

  • Unclear wire transfer rules
  • High threshold for verifying originator information

Financial institutions are required to report suspicious transactions to FinTRACA, but few have done so in practice. The scope of this requirement is too narrow, as not all activities listed under the standard have been criminalized in Afghanistan.

Internal Policies and Procedures Lacking

Internal policies and procedures for preventing money laundering are also lacking, with no guidance provided on what exactly should be covered.

  • No internal policies or procedures for preventing money laundering

Central Bank Supervision and Ministry of Finance Regulation

The central bank is responsible for supervising banks and other financial institutions, but its ability to do so is hindered by a lack of resources and corruption. The Ministry of Finance has the authority to regulate and supervise the insurance sector, but market entry conditions are insufficient.

  • Lack of resources and corruption in central bank supervision
  • Insufficient market entry conditions for insurance sector

International Community’s Urge for Action

The international community is urging the Afghan government to take concrete steps to strengthen its anti-money laundering and counter-terrorist financing regime, including:

  • Increasing resources and expertise
  • Improving coordination between agencies
  • Enhancing regulation and supervision of financial institutions