Financial Action Task Force (FATF) Report on Afghanistan’s Anti-Money Laundering/Counter-Terrorism Financing System

Introduction

The Financial Action Task Force (FATF) has released a report highlighting several weaknesses in Afghanistan’s anti-money laundering/counter-terrorism financing (AML/CFT) system. The report emphasizes the need for improvements to strengthen the country’s AML/CFT framework and mitigate risks associated with money laundering and terrorist financing.

Weaknesses in Afghanistan’s AML/CFT Framework

• Insufficient Customer Due Diligence

  • Measures to determine whether a customer is acting on behalf of another person
  • Understand the ownership and control of legal persons
  • Perform enhanced due diligence for higher-risk customers are lacking

• Weak Implementation of CDD Requirements

  • Insufficient means to verify natural persons
  • Establish beneficial ownership and control of legal persons

• Correspondent Relationships Not Sufficiently Regulated

  • No requirements to gather information on the respondent institution
  • Understand the nature of its business
  • Determine its reputation and supervision quality

• Wire Transfer Rules Lack Clarity

  • Rules do not clearly specify domestic transfers
  • Threshold for verifying originator information is higher than recommended by international standards

• Suspicious Transaction Reporting (STRs) are Filed Infrequently

  • Only banks have filed STRs
  • Primarily related to suspicions of money laundering rather than terrorist financing

• Internal Policies and Procedures for AML/CFT Are Not Comprehensive

  • Institutions lack clear guidance on what should be covered in their internal policies and procedures
  • Leading to variability and potential non-compliance with the law

• Market Entry Conditions and Supervision Fall Short of International Standards

  • Lack of resources and expertise
  • Vested interests and corruption hinder effective implementation of the existing framework

• MSPs Operate Outside the Legal Framework in Some Provinces

  • Despite efforts to bring MSPs under government monitoring
  • Many continue to operate illegally due to security constraints and limited resources

• Lack of Criminal Background Checks for Beneficial Owners of Microfinance Institutions

  • No measures in place to prevent criminals and their associates from owning or controlling these institutions

Recommendations for Improvement

The report emphasizes the need for Afghanistan to strengthen its AML/CFT framework, improve customer due diligence, enhance correspondent relationships regulation, clarify wire transfer rules, increase STR filings, develop comprehensive internal policies and procedures, and ensure effective market entry conditions and supervision.