Financial Crime World

Afghanistan’s Law Enforcement Struggles to Tackle Money Laundering and Terrorist Financing

Kabul, Afghanistan - The establishment of specialized agencies in Afghanistan aimed at combating money laundering and terrorist financing is a significant step forward, but the country’s law enforcement agencies are still struggling to effectively curb these crimes.

Challenges Faced by Law Enforcement Agencies

  • Lack of adequate resources, expertise, and coordination
  • Investigations into money laundering and terrorist financing cases often result in no prosecutions or convictions
  • Limited resources, corruption, and a lack of focus on the money trail continue to plague efforts

Financial Institutions Face Challenges

Financial Landscape

  • Afghanistan’s financial landscape has changed significantly in recent years, with the banking sector expanding and correspondent banking relationships established with institutions abroad
  • Most financial transactions are still conducted through money service providers (MSPs), which have enabled financial intermediation despite security challenges and the lack of banks in rural areas

AML/CFT Measures

  • Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) preventive measures are imposed on all financial institutions but need to be strengthened to improve compliance with international standards
  • Customer due diligence requirements fall short of the standard, and there is no requirement to determine whether a customer is acting on behalf of another person or to perform enhanced due diligence for higher-risk customers

Correspondent Relationships Lack Regulation

  • Correspondent relationships are not sufficiently regulated, with no requirements beyond basic customer due diligence to gather information on respondent institutions
  • Wire transfer rules lack clarity, particularly with respect to domestic transfers, and the threshold for verifying originator information is substantially higher than international standards

Financial Institutions Fail to Report 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 Lack Guidance

  • 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
  • Samples of policies and procedures provided to the assessment team varied from one institution to another and in some cases were not in line with international standards

Market Entry Conditions and Supervision Fall Short

  • Market entry conditions and AML/CFT supervision fall short of international standards, particularly due to a lack of resources and expertise, as well as vested interest and corruption
  • The central bank and the Ministry of Finance are responsible for supervising financial institutions, but insufficient measures are in place to ensure the fit and properness of beneficial owners and conduct criminal background checks
  • Although efforts have been made to bring money service providers under government monitoring in 26 out of 34 provinces, a large number continue to operate outside the legal framework, particularly in Kandahar, Helmand, and Herat
  • These providers are required to obtain a license from the Da Afghanistan Bank (DAB) to operate and are subject to specific customer due diligence obligations, but security constraints and limited resources have impeded enforcement of these requirements

Conclusion

The struggle to combat money laundering and terrorist financing in Afghanistan highlights the need for continued international support and cooperation to strengthen the country’s law enforcement agencies and financial institutions.