AML IN AFGHANISTAN

Afghanistan faces persistent threats to its security and development due to money laundering, terrorist financing, mass cash smuggling, and fraud. Terrorist organizations operating in Afghanistan engage in various illicit activities such as drug trafficking, smuggling, fraudulent schemes, and irregular trade to manage their financial affairs. Afghanistan holds the unfortunate distinction of being the world’s largest opium producer, contributing to the increased production of methamphetamine and facilitating drug trafficking. These activities not only hinder the country’s economic progress but also provide funding to terrorist groups that undermine its stability. Money laundering plays a critical role in facilitating this support, further obstructing Afghanistan’s economic growth and sustainability. To counter these financial crimes, the Afghan government has implemented laws and regulations. However, the effective enforcement and implementation of these measures present significant challenges.

A significant portion of economic activities in Afghanistan operate within the informal sector. Irregular cash transactions and transfers are commonly conducted through the hawala system, a traditional money transfer network in the country. The hawala system, which involves a network of brokers, is utilized in over half of all transactions in Afghanistan, as identified by the Financial Action Task Force (FATF), an international body focused on anti-money laundering efforts.

The informality and lack of transparency surrounding the hawala system have made it a focal point for money laundering issues in Afghanistan. Hawala brokers often maintain bank accounts and utilize bank transfers to settle transactions with other brokers both domestically and internationally. Afghan banks also rely on the hawala system to facilitate money transfers to remote regions of the country. Consequently, it becomes challenging for the government to distinguish between legitimate funds and those involved in illicit activities within the hawala system. This difficulty hampers efforts to effectively combat money laundering, leading to detrimental effects on the Afghan economy.

Moreover, the failure of the Afghan government to acknowledge the hawala system as an informal cash flow instrument can result in significant fluctuations in money demand and increased volatility in international capital flows, as well as interest and exchange rates. The unpredictable nature of money laundering and the loss of policy control it entails can impede the achievement of sound economic policies in Afghanistan.

The Financial Action Task Force (FATF) conducted the most recent Mutual Evaluation Report in 2011 to assess Afghanistan’s implementation of anti-money laundering and counter-terrorism financing standards. Afghanistan is no longer included on the FATF Country List, which designates jurisdictions with significant anti-money laundering deficiencies. However, Afghanistan continues to be monitored by the FATF as part of the ongoing global compliance process for anti-money laundering and counter-terrorism financing.

In line with the Anti-Money Laundering (AML) law enacted by the President of Afghanistan in 2006, the Afghanistan Financial Transactions and Reports Analysis Center (FinTRACA) was established as an independent Financial Intelligence Unit (FIU). FinTRACA plays a vital role in facilitating the identification and combatting of money laundering activities and terrorist financing within Afghanistan. By fulfilling these objectives, FinTRACA contributes to both national and international priorities, aligning with Afghanistan’s obligations to combat money laundering (AML) and terrorist financing (CTF). The effective execution of these responsibilities will enhance Afghanistan’s capacity to combat AML and CTF, thereby strengthening its relationships with foreign countries and international organizations.