Financial Crime World

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Lack of Effectiveness in Curbing Crime in Afghanistan

The establishment of specialized agencies aimed at combating money laundering and terrorist financing in Afghanistan has been a significant step forward. However, despite their creation, these agencies appear to be struggling due to inadequate resources, expertise, and coordination.

Challenges in Combating Financial Crimes

  • The agencies have been granted the necessary investigative powers but are not utilizing them to their full extent.
  • Poor coordination between law enforcement agencies results in duplicated efforts and a waste of scarce resources.
  • Limited resources, little expertise, corruption, and a lack of focus on the money trail contribute to the failure to effectively expose and disrupt financial crimes.

Financial Institutions

The Afghan financial landscape has undergone significant changes over the past few years, with the banking sector expanding significantly and correspondent banking relationships established with institutions in several countries. However:

  • Most financial transactions continue to be conducted through money service providers (MSPs), which have enabled financial intermediation despite the security challenges facing the country.
  • AML/CTF preventive measures are imposed on all financial institutions, but they need to be strengthened considerably to improve compliance with international standards.

Correspondent Relationships

  • Regulation of correspondent relationships is lacking, with no requirements beyond regular CDD to gather information on respondent institutions and understand their nature of business.
  • The lack of clarity has hindered the effective supervision of correspondent banking relationships.

Reporting Suspicious Transactions

  • All 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, considering that not all activities listed under international standards have been criminalized in Afghanistan.

Internal Policies and Procedures

  • Financial institutions are required to develop internal policies and procedures to prevent money laundering, but no guidance has been provided on what exactly should be covered.
  • The depth and coverage of the limited number of samples of policies and procedures reviewed by the assessment team varied from one institution to another and were not always in line with requirements.

Market Entry Conditions and Supervision

  • Market entry conditions and AML/CTF supervision fall short of international standards, with a general lack of resources and expertise contributing to this failure.
  • The central bank is responsible for supervising banks, including depository microfinance institutions, MSPs, and foreign exchange dealers, but its effectiveness has been hindered by limited resources and vested interests.
  • A large number of money service providers continue to operate outside the legal framework, particularly in Kandahar, Helmand, and Herat.