Money Laundering Techniques Flourish in Afghanistan as Illicit Actors Exploit Country’s Political and Economic Vulnerabilities

Afghanistan has long been a haven for illicit actors seeking to raise, manage, store, move, and obscure their funds. From drug traffickers to warlords, terrorist groups, and even former government officials, these individuals have exploited the country’s political and economic instability to further their own interests.

Raising Funds

Illicit actors in Afghanistan use a range of mechanisms to raise funds, including:

• Production and trafficking of narcotics
• Taxation and extortion activities
• Illegal mining and timber production
• Other revenue-generating schemes

These funds are often centralized or decentralized, depending on the actor involved, with control vested within a financial head or distributed among several stakeholders.

Storing Wealth

Illicit actors rely on:

• Cash hoarding in Afghanistan
• Hawalas and banks to store and transfer funds out of the country

However, since the Taliban takeover, international sanctions have severely limited the ability of Afghan banks to transact with the global financial sector, forcing them to seek alternative methods.

Moving Funds

Illicit actors use:

• Bulk cash couriers
• Transfer of precious metals and stones
• Trade-based money laundering schemes

These funds are often laundered through neighboring jurisdictions, including:

• United Arab Emirates (UAE)
• Pakistan
• Turkey
• Iran
• Other nearby countries

Challenges and Opportunities

The stability of these illicit financing mechanisms presents opportunities for detection and disruption, but also poses significant challenges. As most of the funds raised by illicit actors in Afghanistan originate from within the country, there are limited opportunities to disrupt internal revenue sources.

Combating Illicit Finance

Policymakers must consider a range of options to combat illicit finance with a nexus to Afghanistan, including:

• Enhancing monitoring of aid and donor funding entering the country
• Facilitating foreign asset and beneficial ownership tracing
• Introducing reforms to the hawala and banking sectors
• Addressing deficiencies in international sanctions regimes

Regional Cooperation

A regionally coordinated policy approach can help reduce the ability of illicit actors to access their wealth and fund their activities. However, without a cooperative government in Afghanistan, there are limits to what can be achieved.

Global Implications

Many of these policy options also serve to strengthen the integrity of the global financial system, address existing policy gaps in other jurisdictions, and enhance international cooperation on counter-illicit financing.