Countries/Jurisdictions of Primary Concern - Afghanistan
The Islamic Republic of Afghanistan is not a regional or offshore financial center. Terrorist and insurgent financing, money laundering, bulk cash smuggling, abuse of informal value transfer systems, and other illicit activities designed to finance organized criminal activity continue to pose serious threats to the security and development of Afghanistan. Afghanistan remains a major narcotics trafficking and producing country, and is the world’s largest opium producer and exporter. The narcotics trade, corruption, and contract fraud are major sources of illicit revenue and laundered funds. Corruption permeates all levels of Afghan government and society.
Afghanistan has a small banking sector, and the government has implemented management reforms over the past year. Traditional payment systems, particularly hawala networks, remain significant in their reach and scale. Less than 10 percent of the Afghan population uses banks, depending instead on the traditional hawala system, which provides a range of financial and non-financial business services in local, regional, and international markets. Approximately 90 percent of financial transactions run through the hawala system, including foreign exchange transactions, funds transfers, trade and microfinance, as well as some deposit-taking activities. Corruption and weaknesses in the banking sector incentivize the use of informal mechanisms and exacerbate the difficulty of developing a transparent formal financial sector in Afghanistan. The unlicensed and unregulated hawaladars in major drug areas, such as Helmand, likely account for a substantial portion of the illicit proceeds being moved in the financial system. Afghan business consortiums that control both hawaladars and banks allow criminal elements within these consortiums to manipulate domestic and international financial networks to send, receive, and launder illicitly-derived monies or funds intended for criminal, insurgent, or terrorism activities.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: http://www.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: YES
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes
Are legal persons covered: criminally: YES civilly: NO
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Banks (public and private), money service businesses (MSBs), hawaladars, lawyers, real estate agents, trust companies, securities dealers, independent legal professionals, insurance companies, and dealers of bullion, precious metals, and stones
Number of STRs received and time frame: 342 in 2014
Number of CTR received and time frame: 1,908,610 in 2014
STR covered entities: Banks (public and private), MSBs, hawaladars, lawyers, real estate agents, trust companies, securities dealers, independent legal professionals, insurance companies, and dealers of bullion, precious metals, and stones
money laundering criminal Prosecutions/convictions:
Prosecutions: 4 in 2014
Convictions: 4 in 2014
Records exchange mechanism:
With U.S.: MLAT: NO Other mechanism: YES
With other governments/jurisdictions: YES
Afghanistan is a member of the Asia/Pacific Group on Money Laundering (APG), a FATF-style regional body. Its most recent mutual evaluation can be found at: http://www.apgml.org/members-and-observers/members/member-documents.aspx?m=69810087-f8c2-47b2-b027-63ad5f6470c1
Enforcement and implementation issues and comments:
The Government of Afghanistan’s ability to enforce relevant laws and regulate institutions is hampered by corruption. Limited resources and lack of technical expertise and infrastructure also hamper effective regulatory oversight. Afghanistan has made progress with the enactment of its July 2014 AML and CFT laws. Significant provisions include the creation of an adequate legal basis to criminalize money laundering; and the authority to confiscate funds or real property derived from criminal activity, sell property, and hold the proceeds in an asset recovery/sharing fund. In addition, in mid-2015, Afghanistan enacted a comprehensive banking law to enhance reporting and the governance of private and state-owned banks. The law, which also includes criteria for fit and proper determinations and a regime for declaring cross-border transportation of cash and bearer negotiable instruments, will go into effect in early 2016.
Despite making some regulatory progress on banking, no clear division exists between the hawala system and the small formal financial sector. Hawaladars often keep accounts at banks and use wire transfer services to settle their balances with other hawaladars abroad. Due to limited bank branch networks, banks occasionally use hawaladars to transmit funds to hard-to-reach areas within Afghanistan. Afghanistan’s financial intelligence unit, FinTRACA, reports that no MSBs or hawaladars have ever submitted suspicious transaction reports (STRs), as compared to the 10 to 15 STRs FinTRACA receives daily from traditional financial institutions.
Insurance companies and securities dealers are also technically under the regulatory regime and are required to file STRs, but the government does not enforce this requirement. Precious metals and stones dealers, lawyers, accountants, and real estate agents are not supervised in Afghanistan.
Border security continues to be a major challenge throughout Afghanistan, with the country’s 14 official border crossings under central government control. Afghanistan’s cross-border reporting requirement applies to those entering or exiting the country with an amount of more than $10,000 but less than $20,000; however, the system is not enforced across Afghanistan’s borders due to lack of resources. If Afghanistan implements its cross border regulation on cash movements to prohibit travelers from carrying more than $20,000 across borders or through airports, bulk cash smuggling could become increasingly difficult. However, implementing the law requires harmonization with existing customs regulations and other administrative changes. Customs regulations, issued in September 2015, lack clarity on what should be done by authorities when there is suspicion of ML/TF. Cargo is often exempted from any screening or inspection due to corruption at the border crossings and customs depots. Outside of official border crossings, most border areas are under-policed or not policed at all, and are particularly susceptible to cross-border trafficking, trade-based money laundering, and bulk cash smuggling. Kabul International Airport lacks stringent currency inspection controls for all passengers and includes a VIP lane that does not require subjects to undergo any inspections or controls. Beyond the formal border crossings, the Afghanistan-Pakistan frontier is notoriously porous, presenting an additional challenge for the government to control and enforce illicit cash and trade movements.
In 2011, the Afghanistan/Pakistan Transit Trade Agreement (APTTA) expanded trade cooperation between the two countries and attempted to minimize smuggling by maximizing oversight and technical monitoring. Yet the designated trade routes pass through key locations where insurgent and terrorist groups operate. It appears insurgents are finding creative ways to utilize APTTA’s new rule of being able to maintain control of a cargo truck from country of origin to cross-border destinations without having to risk unloading trucks at border crossings. In addition, since the initiation of the new APTTA agreement, it appears organized smuggling groups have increased their use of Iranian ports of entry. With the phasing-out of Iranian sanctions, this trend will continue to grow. The Afghan transit trade is used in trade-based money laundering, value transfer, and in counter-valuation or the process of settling accounts between hawaladars.
Although Afghanistan enacted the Law on Extradition of the Accused, Convicted Individuals and Legal Cooperation, which would seemingly allow for extradition based solely upon multilateral arrangements, such as the 1988 UN Drug Convention, this interpretation conflicts with Article 28 of the Afghan Constitution, which more clearly requires reciprocal agreements between Afghanistan and the requesting country. Thus, Afghanistan’s law on extradition is unclear. The U.S. does not have an extradition treaty with Afghanistan.
Afghanistan’s laws related to terrorism financing are largely in line with international standards. The CFT law provides the basic framework needed to authorize Afghanistan’s ability to freeze and seize terrorist assets; however, the corresponding implementing regulations lack clarity and effectiveness. FinTRACA’s limited capacity to identify bad actors and build cases against them often meets administrative hurdles at the Attorney General’s Office (AGO), which is considered ineffective in other criminal or anticorruption contexts, as well. The AGO is authorized to prosecute a case and freeze or seize illicit assets, but its senior leaders have expressed reluctance and skepticism regarding money laundering prosecutions in general and seizing assets in particular.
While the authority to seize assets exists, the Afghan government has yet to establish an asset recovery mechanism to recover the value of any assets seized, and as a result, no entity, including the police or the courts, has responsibility for post-conviction asset recovery. A small number of criminal investigations with asset forfeiture issues have been reported by Afghan authorities, but they have not led to seizures of real property or prosecutions or convictions for money laundering. However, for the first time, prosecutors are going after the real property of a high profile drug trafficker. Drug kingpin Haji Lal Jan Ishaqzai was convicted in 2013 and given a 15-year sentence for opium trafficking under Afghan’s Counternarcotics (CN) law. Despite his questionable release from prison in June 2014, prosecutors are using the AML law to attempt to seize a shopping center owned by Lal Jan as proceeds of criminal activity. The case is pending before Afghanistan’s CN Supreme Court.
Although Afghanistan has taken steps toward improving its AML/CFT regime, certain deficiencies remain. Afghanistan should pass and enforce legislation to regulate financial institutions and designated non-financial businesses and professions and ensure their compliance with AML/CFT regulations. Afghanistan also should issue the necessary regulatory instruments to increase the number of MSB/hawala inspections and enact a comprehensive registration regime, and expand implementation of the MSB/hawala licensing program. Afghanistan should create an outreach program to notify and educate hawaladars about the licensing, large transaction reporting requirement, and STR filing processes. Afghanistan should continue to implement an adequate framework for identifying, tracing, and freezing terrorist assets; work with the international community to train enforcement officers, prosecutors, and judges to provide them a better understanding of the basis for seizing and forfeiting assets; provide regulators and enforcement officers with the resources to carry out their oversight and investigative duties; implement adequate procedures for the confiscation of assets related to money laundering; and enhance the effectiveness of FinTRACA. Afghanistan also should strengthen inspection controls for airport passengers.