Afghanistan – Know Your Customer (KYC) Rules

 

 

Afghanistan is not a regional or offshore center. Terrorist and insurgent financing, money laundering, 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 drug trafficking and drug producing country, and is the world‘s largest opium producer and exporter.

The growth in Afghanistan‘s banking sector has slowed considerably in recent years; and traditional payment systems, particularly hawala networks, remain significant in their reach and scale. The weaknesses of the banking sector, as demonstrated by the Kabul Bank crisis, further incentivize the use of informal mechanisms and exacerbate the difficulty of developing a transparent formal financial sector in Afghanistan. The narcotics trade, corruption and contract fraud are major sources of illicit revenue and laundered funds. The unlicensed and unregulated hawalas in major drug areas such as Helmand likely account for a substantial portion of the illicit proceeds being moved in the financial system, undetected by authorities. There are estimates that hawaladars in Kandahar, the country‘s second largest city, and the opium producing province of Helmand handle $1 billion in drug money per year. Despite ongoing efforts by the international community to build Afghanistan‘s capacity to regulate its financial sector and the capacity of law enforcement to investigate financial crimes, it is unable to consistently uncover and disrupt financial crimes because of limited resources, lack of expertise, corruption, and insufficient political will. Proposed reforms and efforts to urge law enforcement and the judiciary to take action on financial crimes often conflict with established, traditional processes, which can delay compliance with international standards.

Corruption permeates all levels of Afghan government and society and has a direct impact on the willingness of authorities to investigate financial crimes. Afghanistan ranked 180 out of 182 countries surveyed in Transparency International‘s 2011 Corruption Perception Index. Afghanistan‘s laws related to terrorist financing are not in line with international standards and do not criminalize the full scope of the terrorist financing offense

Afghanistan-Flag-128

KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: YES
    • Domestic PEP: YES

Afghanistan – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Afghanistan Law:

    • Central Bank of Afghanistan (DAB)
    • Banks
    • Registered money service providers
    • Insurance companies
    • Dealers in precious metals and stones
    • Lawyers
    • Accountants
    • Securities dealers
    • Real estate agents

Afghanistan – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 417 from January to October 2011

Number of CTRs received and time frame: 1,744,169 from June 2006 to October 2010

The following is a list of STR covered entities covered by Afghanistan Law:

    • Financial institutions and money service businesses including informal funds transfer providers such as hawaladars

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: None
Convictions: None

 

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Money laundering and terrorist financing investigations in Afghanistan are hampered by a lack of political commitment by the Government of Afghanistan (GOA), and the limited capacity of the regulatory regime and criminal justice system.

Less than 5% of the Afghan population uses banks, depending instead on the entrenched hawala system, which provides a range of financial and non-financial business services in local, regional, and international markets. Approximately 90% of financial transactions run through the hawala system, including foreign exchange transactions, funds transfers, micro and trade finance, as well as some deposit-taking activities. While the hawala system and formal financial sector are distinct, 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. Licensed hawaladars and other money service providers submit few STRs, which does not reflect their exposure to the risk of exploitation by money launderers and terrorist financiers. The GOA should create an outreach program to notify and educate hawaladars about the licensing and STR filing processes.

Border security continues to be a major challenge throughout Afghanistan, with only 14 official border crossings under central government control. 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 inspection controls for all passengers, and includes a VIP lane that does not require subjects to undergo any inspections or controls. The GOA should strengthen inspection controls for airport passengers.

Corruption continues to be an obstacle in the Customs service, although some improvements have been made with assistance from international partners. Approximately $1 billion a year of declared cash flows from Afghanistan into Gulf countries, with Dubai cited as the primary destination. The declared cash leaving Afghanistan, primarily from Kabul International Airport, exceeds Afghanistan‘s official revenue of about $900 million.

The GOA has no formal extradition or mutual legal assistance arrangements with the United States. Requests for extradition and mutual legal assistance are processed on an ad hoc basis, with assistance from the Afghan Attorney General‘s Office. Newly drafted extradition-related legislation is currently pending before the upper house of the Afghan parliament.

The GOA lacks a comprehensive structure for maintaining administrative freezes on seized terrorist assets, and there is no mechanism for asset sharing. The GOA should revise its asset seizure process to ensure its ability to seize and freeze terrorist assets, maintain these asset freezes, and establish a procedure for sharing seized assets with foreign partners. The GOA should increase the capacity of enforcement officers, prosecutors, and judges to provide them a better understanding of the basis for seizing and forfeiting assets.