Strengthening Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Measures in Afghanistan

Current State of AML/CFT Measures

The government of Afghanistan has supported the growth of microfinance, but most financial transactions are still conducted through money service providers (MSPs) or hawaladars. However, current AML/CFT preventive measures are insufficient and need to be strengthened to improve compliance with international standards.

Weaknesses in Current AML/CFT Measures

• Lack of Regulations on Correspondent Relationships: There are no requirements for gathering information on respondent institutions, making it difficult to understand their business and determine their reputation.
• Inadequate Wire Transfer Rules: The current rules lack clarity, particularly for domestic transfers, and the threshold for verifying originator information is higher than the standard.
• Limited Reporting of Suspicious Transactions: Few financial institutions have reported suspicious transactions (STRs), and the scope of this requirement is too narrow.
• Weak Internal Policies and Procedures: Financial institutions are required to develop internal policies and procedures, but no guidance has been provided on what should be covered.

Additional Challenges

• Inadequate Market Entry Conditions and AML/CFT Supervision: The existing framework has not been effectively implemented due to a lack of resources, expertise, vested interests, and corruption.
• Limited Regulation of MSPs: Many MSPs continue to operate outside the legal framework, particularly in Kandahar, Helmand, and Herat provinces.

Conclusion

These findings highlight the need for stronger AML/CFT measures in Afghanistan to prevent money laundering and terrorist financing. Strengthening these measures will require a comprehensive approach that addresses the weaknesses identified above and provides guidance on what financial institutions should be doing to comply with international standards.