AFGHANISTAN’S BANK COMPLIANCE PROCEDURES: Navigating Complex Regulations

Introduction

In an effort to combat money laundering and terrorism financing, the Afghan government has implemented strict regulations for financial institutions operating within its borders. The Da Afghanistan Bank, the country’s central bank, is responsible for licensing, regulating, and supervising banks, foreign exchange brokers, money service providers, payment system operators, securities service providers, and securities transfer system operators.

The Financial Intelligence Unit (FIU): FinTRACA

At the heart of these efforts is the Financial Transactions and Reports Analysis Center (FinTRACA), a FIU established in 2006 to collect, analyze, and disseminate information on money laundering and terrorism financing. FinTRACA works closely with financial regulators, law enforcement agencies, and lawyers to create an environment conducive to detecting and combating illicit activities.

Complying with Regulations: A Must for Financial Institutions

To ensure compliance, financial service providers must establish a robust Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) program. This includes:

• Developing policies: Adequate policies, procedures, and controls to combat potential money laundering and terrorism financing risks
• Proper customer identification: Properly identifying customers and conducting due diligence on high-risk clients
• Regular audits: Conducting regular audits of the AML/CTF program, including risk assessments, every two years or as requested by the supervisor
• Reporting obligations: Submitting reports to FinTRACA for large cash transactions and suspicious activities
• Record retention: Retaining records of transactions for a specified period
• Staff training: Providing adequate training to staff on AML/CTF regulations and procedures

Risk-Based Approach: The Foundation of an Effective AML/CTF Program

Each reporting entity poses unique money laundering and terrorism financing threats. Financial institutions must adopt a risk-based approach, classifying, evaluating, tracking, handling, and minimizing potential risks associated with illicit activities.

Reporting Obligations

As a financial service provider, you are required to report certain transactions and suspicious matters to FinTRACA, including:

• Threshold reporting: Large Cash Transaction Report (LCTR) - notifying FinTRACA of transactions exceeding AFS 1,000,000 or its equivalent in other currencies
• Suspicious transaction reporting (STR): within three business days of suspicions arising around any transaction or attempted transaction
• Tipping off: prohibiting financial institutions and their staff from reporting to clients or other entities the existence of a FinTRACA or AML/CTF investigative study

Consequences of Non-Compliance

Failure to comply with these regulations can result in severe consequences, including fines, penalties, and reputational damage.