Financial Crime World

Terrorist Financing Risks in Afghanistan Worsen as Economic Crisis Deepens

Afghanistan’s financial system remains a high-risk environment for accessing reliable, transparent, and low-cost financial services. Despite efforts to improve the situation, the country’s economic crisis has worsened, posing significant challenges for financial stability.

Banking Sector Challenges

The banking sector in Afghanistan has been severely impacted by structural vulnerabilities and limited international connectivity since the Taliban administration took over in August 2021. International banks have de-risked their operations, making it difficult for Afghanistan to receive international payments through banking channels. This has resulted in a reliance on physical cash shipments worth over $2 billion.

  • Limited international connectivity
  • Structural vulnerabilities
  • De-risking by international banks

Strained Domestic Banking Channels

Domestic banking channels are also strained due to liquidity constraints and withdrawal limits, eroding public confidence in the system. Lightly regulated financial services such as money service providers or hawala have filled the void, providing everyday financial services for many Afghans.

  • Liquidity constraints
  • Withdrawal limits
  • Erosion of public confidence

Capacity and Expertise Gaps at Central Bank

The lack of expertise and capacity at Afghanistan’s central bank, Da Afghanistan Bank (DAB), has further complicated financial regulation and supervision in the country. This has led to increased anti-money laundering and terrorist financing risks.

  • Lack of expertise and capacity
  • Complicated financial regulation and supervision
  • Increased anti-money laundering and terrorist financing risks

Isolation from International Markets

Afghanistan remains perceived as a high-risk jurisdiction for international banks, resulting in greater isolation of the Afghan financial system from international markets. Despite efforts by the international community and Afghan stakeholders to develop pragmatic policy and economic responses to avert an unprecedented humanitarian crisis, the country is all but cut off from formal international payment channels.

  • Perceived high-risk jurisdiction
  • Greater isolation from international markets

World Bank Conference: Unlocking Constraints in Afghanistan’s Payments System

A recent conference convened by the World Bank in Dubai aimed to build a shared vision for unlocking constraints in Afghanistan’s payments system. The event brought together over 100 stakeholders, including experts from domestic and international banks, digital service providers, international partners, money service providers, and civil society representatives.

  • Key takeaways:
    • Issues and risks faced by development partners
    • Challenges faced by the private sector in conducting business with fractured payment channels

Strengthening the Payments System and Bolstering the Private Sector

Strengthening the payments system and bolstering the private sector are key to reviving the economy and improving the lives of the Afghan people. An opportunity exists to work more closely with private financial services providers to reassess existing payment modalities and develop safer, sustainable, and lower-cost alternatives.

  • Strengthening the payments system
  • Bolstering the private sector
  • Reassessing existing payment modalities and developing alternative solutions