US Agencies’ Technical Assistance to DAB FSD: A Review
The United States government has provided significant technical assistance to the Financial Supervision Department (FSD) of Da Afghanistan Bank (DAB), the central bank of Afghanistan, to strengthen the country’s financial sector. However, not all agencies have continued their support, and some have terminated their programs due to changing circumstances.
USAID’s EGGI Program
USAID began providing technical assistance to DAB FSD in 2003 through a contract with BearingPoint, which was later taken over by Deloitte. The Economic Growth and Governance Initiative (EGGI) program aimed to build the capacity of DAB FSD to regulate the banking sector.
Challenges and Termination
Despite achieving some milestones, the EGGI program faced criticism for its weak oversight and failure to follow up on indications of fraud at Kabul Bank. Following the September 2010 crisis at Kabul Bank, USAID officially terminated the DAB FSD component of the EGGI contract in June 2011.
Conditions for Reengagement
According to USAID officials, the agency would consider resuming activities to strengthen DAB’s supervisory and regulatory capacity if the central bank commits to reforming Afghanistan’s banking laws. The current laws create systemic weaknesses in the banking sector, making it challenging for USAID to train DAB officials.
Treasury’s Support
The US Department of the Treasury began supporting DAB in 2006 through the provision of a resident advisor to the Financial Transactions and Reports Analysis Center of Afghanistan, the country’s financial intelligence unit. In 2010, Treasury assigned another resident advisor to support the newly created Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) Section of DAB FSD.
Achievements
The resident advisor supported the AML/CFT section by:
- Developing examination procedures for banks and money service providers
- Preparing a standard rating system for AML/CFT compliance ratings
- Conducting targeted reviews of suspicious transactions
Conclusion
While US agencies have provided technical assistance to DAB FSD in the past, not all programs have continued uninterrupted. USAID’s EGGI program faced challenges and was eventually terminated due to changing circumstances. However, USAID officials are willing to reengage if certain conditions are met, including the central bank’s commitment to reforming Afghanistan’s banking laws.
The Treasury Department has maintained its support for DAB FSD, providing resident advisors to assist with AML/CFT efforts. As the financial sector in Afghanistan continues to evolve, it remains crucial for US agencies to work together to provide effective technical assistance and support the country’s efforts to strengthen its regulatory framework.