Islamic Republic of Afghanistan

273 Pages·2012·1.51 MB·English

© 2011 International Monetary Fund November 2011
IMF Country Report No. 11/317

Islamic Republic of Afghanistan: Detailed Assessment Report on
Anti-Money Laundering and Combating the Financing of Terrorism

This Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of
Terrorism for the Islamic Republic of Afghanistan was prepared by a team of the International
Monetary Fund using the assessment methodology adopted by the Financial Action Task Force in
February 2004 and endorsed by the Executive Board of the IMF in March 2004. The views
expressed in this document are those of the IMF team and do not necessarily reflect the views of
the Government of the Islamic Republic of Afghanistan or the Executive Board of the IMF.

Copies of this report are available to the public from

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International Monetary Fund
Washington, D.C.
I R
SLAMIC EPUBLIC OF
A
FGHANISTAN

D A
ETAILED SSESSMENT
R A -M
EPORT ON NTI ONEY
L
AUNDERING AND
C F
OMBATING THE INANCING
T
OF ERRORISM

J 21, 2011
ULY

INTERNATIONAL MONETARY FUND
LEGAL DEPARTMENT
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Contents Page
Acronyms ............................................................................................................................................... 4 
Preface .................................................................................................................................................... 6 
Executive Summary ............................................................................................................................... 7 
1.  GENERAL .............................................................................................................................. 13 
1.1.  General Information on the Islamic Republic of Afghanistan ................................... 13 
1.2.  General situation of ML and FT ................................................................................. 24 
1.3.  Overview of the financial sector ................................................................................ 32 
1.4.   Overview of the DNFPBs ........................................................................................... 36 
1.5.   Overview of commercial laws and mechanisms governing legal persons and
arrangements ........................................................................................................................... 38 
1.6.   Overview of strategy to prevent money laundering and terrorism financing ............. 39 
2.  LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES ................................. 40 
2.1.  Criminalization of Money Laundering (R.1 and 2) .................................................... 40 
2.2.  Criminalization of Terrorist Financing (SR.II) .......................................................... 51 
2.3.  Confiscation, freezing and seizing of proceeds of crime (R.3) .................................. 56 
2.4.  Freezing of funds used for terrorist financing (SR.III) ............................................... 63 
2.5.  The Financial Intelligence Unit and its Functions (R.26) .......................................... 69 
2.6.  Law enforcement, prosecution and other competent authorities—the framework for
the investigation and prosecution of offenses, and for confiscation and freezing (R.27, & 28)83 
2.7.  Cross-Border Declaration or Disclosure (SR.IX) ....................................................... 90 
3.  PREVENTIVE MEASURES—FINANCIAL INSTITUTIONS ............................................ 98 
3.1.  Risk of money laundering or terrorist financing ...................................................... 101 
3.2.  Customer due diligence, including enhanced or reduced measures (R.5 to 8) ......... 102 
3.3.  Third Parties and Introduced Business (R.9) ............................................................ 121 
3.4.  Financial Institution Secrecy or Confidentiality (R.4) ............................................. 122 
3.5.  Record-keeping and wire transfer rules (R.10 & SR.VII) ........................................ 124 
3.6.  Monitoring of Transactions and Relationships (R.11 and 21).................................. 131 
3.7.  Suspicious Transaction Reports and Other Reporting (R.13-14,19, 25 & SR.IV) .. 135 
3.8.  Internal Controls, Compliance, Audit, and Foreign Branches (R.15 and 22) .......... 143 
3.9.  Shell Banks (R.18) ................................................................................................... 150 
3.10.  The Supervisory and Oversight System—Competent Authorities and SROs. Role,
Functions, Duties, and Powers (Including Sanctions) (R. 23, 29, 17 and 25) ....................... 152 
3.11.  Money or Value-Transfer Services (SR.VI) ............................................................. 173 
4.  PREVENTIVE MEASURES—DESIGNATED NON-FINANCIAL BUSINESSES AND
PROFESSIONS .................................................................................................................................. 183 
4.1.  Customer Due Diligence and Record keeping (R.12) .............................................. 183 
4.2.  Suspicious Transaction Reporting (R.16)................................................................. 189 
4.3.  Regulation, Supervision, and Monitoring (R.24-25) ................................................ 193 
4.4.  Other Non-Financial Businesses and Professions—Modern, Secure Transaction
Techniques (R.20) ................................................................................................................. 195 
5.  LEGAL PERSONS AND ARRANGEMENTS & NON-PROFIT ORGANIZATIONS ...... 196
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5.1.  Legal Persons—Access to Beneficial Ownership and Control Information (R.33) . 196 
5.2.  Legal Arrangements—Access to Beneficial Ownership and Control Information
(R.34)……………. ................................................................................................................ 199 
5.3.  Non-Profit Organisations (SR.VIII) ......................................................................... 200 
6.  NATIONAL AND INTERNATIONAL CO-OPERATION ................................................. 208 
6.1.  National Co-Operation and Coordination (R.31 & R. 32) ....................................... 208 
6.2.  The Conventions and UN Special Resolutions (R.35 & SR.I) ................................. 210 
6.3.  Mutual Legal Assistance (R.36-38, SR.V) ............................................................... 211 
6.4.  Extradition (R.37, 39, SR.V) .................................................................................... 219 
6.5.  Other Forms of International Co-Operation (R.40 & SR.V) .................................... 223 
7.  OTHER ISSUES ................................................................................................................... 226 
7.1.  Resources and Statistics ........................................................................................... 226 
7.1.1.  Other relevant AML/CFT Measures or Issues ......................................................... 227 
7.1.2.  General Framework for AML/CFT System (see also section 1.1) ........................... 227 

Tables
1. Ratings of Compliance with FATF Recommendations .................................................................. 228 
2. Recommended Action Plan to Improve the AML/CFT System ..................................................... 250 

Annexes
1. Details of All Bodies Met During the On-Site Visit ...................................................................... 271
2. List of All Laws, Regulations, and Other Material Received……………………….…….……...272
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ACRONYMS

ACBR Afghanistan Central Business Registry
Af Afghani
AGO Attorney General’s Office
AISA Afghanistan Investment Support Agency
AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism
AML/CFT RR Regulation on the Responsibilities of Financial Institutions in the Fight against
Money Laundering and Terrorist Financing
AML LD Anti-Money Laundering and Proceeds of Crime Law (legislative decree)
ANP Afghan National Police
BL Banking Law
CC Criminal Code
CFT LD Law on Combating the Financing of Terrorism (legislative decree)
CDD Customer due diligence
CNBIR Cash and bearer negotiable instruments report
CNPA Counter-Narcotics Police of Afghanistan
CPC Criminal Procedure Code
CSP Company Service Provider
CTU Counter-Terrorism Unit
DAB Da Afghanistan Bank
DNFBP Designated Non-Financial Businesses and Professions
FATF Financial Action Task Force
FI Financial institution
FIU Financial Intelligence Unit
FinTRACA Financial Reports and Analysis Centre of Afghanistan
FSD Financial Supervision Department (Da Afghanistan Bank)
FSRB FATF-style Regional Body
FT Financing of terrorism
IAIS International Association of Insurance Supervisors
KIA Kabul international airport
KYC Know your customer/client
LCTR Large cash transaction report
LEG Legal Department of the IMF
MCTF Major Crime Task Force
MEF Ministry of Economy and Finance
MFA Ministry of Foreign Affairs
ML Money laundering
MLA Mutual legal assistance
MOI Ministry of Interior
MoF Ministry of Finance
MOU Memorandum of Understanding
MSP Money Service Providers
NDS National Directorate of Security
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NPO Nonprofit organization
PEP Politically-exposed person
ROSC Report on Observance of Standards and Codes
SIU Sensitive Investigation Unit
SRO Self-regulatory organization
STR Suspicious Transaction Report
UN United Nations Organization
UNSCR United Nations Security Council Resolution
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PREFACE
This assessment of the anti-money laundering (AML) and combating the financing of terrorism (CFT)
regime of Afghanistan is based on the Forty Recommendations 2003 and the Nine Special
Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF), and was
prepared using the AML/CFT assessment Methodology 2004, as updated from time to time. The
assessment team considered all the materials supplied by the authorities, the information obtained on
site during their mission from January 23 to February 8, 2011, and other verifiable information
subsequently provided by the authorities. During the mission, the assessment team met with officials
and representatives of most of the relevant government agencies and the private sector. A list of the
bodies met is set out in Annex 1 to the detailed assessment report.

The assessment was conducted by a team of assessors composed of staff of the International
Monetary Fund (IMF) and two experts acting under the supervision of the IMF. The evaluation team
consisted of Nadim Kyriakos-Saad, Senior Counsel (team leader); Nadine Schwarz, Senior Counsel,
Emmanuel Mathias, Senior Financial Sector Expert, Chady El-Khoury, Counsel, and Melissa Tullis,
Senior Projects Officer (all LEG); Emiko Todoroki, Senior Financial Sector Specialist (World Bank)
and Raisa Sheynberg, Policy Advisor (U.S. Department of the Treasury). The assessors reviewed the
institutional framework, the relevant laws, decrees, regulations, guidelines and other requirements,
and the regulatory and other systems in place to deter and punish money laundering (ML) and the
financing of terrorism (FT) through financial institutions and Designated Non-Financial Businesses
and Professions (DNFBP). The assessors also examined the capacity, implementation, and
effectiveness of all these systems.

This report provides a summary of the AML/CFT measures in place in Afghanistan at the time of the
mission or shortly thereafter. It describes and analyzes those measures, sets out Afghanistan’s levels
of compliance with the FATF 40+9 Recommendations (see Table1) and provides recommendations
on how certain aspects of the system could be strengthened (see Table2). The report was also
presented to the Asia/Pacific Group on Money Laundering (APG) and endorsed by this organization
as a mutual evaluation report at its annual meeting of July18-22, 2011.

The assessors would like to express their gratitude to the Afghanistan authorities for their hospitality
and cooperation throughout the assessment mission.
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EXECUTIVE SUMMARY
1. This report summarizes the anti-money laundering and counter-terrorist financing
measures (AML/CFT) that were in place in the Islamic Republic of Afghanistan at the time of
the onsite visit (January 23 to February 8, 2011) and shortly thereafter. It describes and analyzes
these measures and offers recommendations on how to strengthen certain aspects of the AML/CFT
system. It also assesses Afghanistan’s level of compliance with the 40+9 Recommendations of the
Financial Action Task Force (FATF) (see the attached table on the Ratings of Compliance with the
FATF Recommendations).
Key Findings

2. Afghanistan is one of the poorest countries in the world and, after decades of ongoing
conflicts and strife, it is still at an early stage of developing its legal and institutional
framework. The main challenges that the authorities face are the precarious security situation
(including regular occurrence of insurgency attacks), vested interests and corruption, capacity
constraints, a large illicit narcotics sector, a weak business environment, and low human capital.
3. Measures have nevertheless been taken to fight crime, including financial crime, and to
lay the foundations for an AML/CFT regime. In particular, two legislative decrees were issued by
the President in 2004 to fight against money laundering and terrorist financing. Although their
constitutionality and, ultimately, the validity of the AML/CFT framework, have not been definitively
established, both decrees have been implemented, to a certain extent, by the authorities and the
private sector.
4. However, current efforts are not commensurate to the high risk of money laundering
and terrorist financing in the country. Illicit narcotic trade and corruption alone generate
considerable amounts of illegal funds. Afghanistan is the world’s largest opium producer and exporter
and ranks amongst the most corrupt countries in the world. Smuggling and fraud are other major
sources of illegal funds. In addition, terrorism and its financing remain a major concern both in terms
of the security of Afghanistan and of the funding of terrorist individuals or organizations, and terrorist
acts in the country and abroad. Despite the authorities’ efforts, investigations into money laundering
and terrorist financing have been few and none of them resulted in charges being brought before the
courts.
5. Structural elements make the effective implementation of AML/CFT preventive
measures challenging in some sectors. Both rudimentary financial relations (cash-based economy,
low rate of financial intermediation, illiteracy, and weaknesses in documentation of identity), and a
financial sector well connected to the outside world (at least through correspondent accounts and
SWIFT) coexist in Afghanistan. Accordingly, while preventive measures are certainly difficult to
implement, even in the medium term, in the rudimentary financial sector, they could be and could
have been better implemented in the banking sector. For example, it would appear that the lack of
implementation and supervision of preventive measures, such as identification of customers and fit
and proper testing did play a role in the making of a major financial fraud in the main commercial
bank.
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Legal Systems and Related Institutional Measures

6. The current government structure of Afghanistan is relatively new. After the December
2001 fall of the Taliban regime, a new Constitution was adopted, putting a new institutional
framework in place. The legislative process, overall, remains however very slow and a number of key
measures have been taken by the President without Parliamentary approval. Over the last decades,
Afghanistan has witnessed continuous instability and conflict. This situation has considerably
challenged the country’s economic and social development, and contributed to an increase in criminal
activities. It also prevented the development of sound structural elements that would foster
transparency and good governance.
7. From 2001 onwards, the authorities adopted legislative and institutional measures to
increase their capacity to fight against crime. Laws, such as the Counter-Narcotics Law, were
issued, and an anti-corruption strategy was adopted. New law enforcement agencies were established,
notably the Major Crime Task Force (MCTF), the Sensitive Investigation Unit (SIU), the Intelligence
and Investigation Unit (IIU) and the National Directorate of Security (NDS). An Anti-Corruption
Unit was also created within the Attorney General’s Office. In 2004, the President issued two
legislative decrees, namely the “Anti-Money Laundering and Proceeds of Crime Law” (Law No.840,
hereafter the AML LD) and the “Law on Combating the Financing of Terrorism” (Law No, 839;
hereafter the CFT LD). Both decrees are still pending final endorsement by Parliament Article.
8. Money laundering is criminalized in a way that meets most of the requirements under
the standard, but it does not apply to the full range of FATF-designated categories of offenses.
The AML LD takes an all-crimes approach in the criminalization of money laundering. Several of the
activities listed in the standard, however, have not been criminalized in Afghanistan, such as
participation in an organized criminal group, kidnapping or illicit arms trafficking, and therefore
remain outside the scope of the money laundering offense. Provisional measures and confiscation
may be ordered in the case of offenses under the Counter-Narcotics Law, but are limited with respect
to money laundering and other types of predicate crimes. While several investigations into money
laundering have been led, none of them resulted in a case being brought before the courts.
9. Illicit activities in Afghanistan generate considerable amounts of assets that may be
laundered. Afghanistan is a major drug trafficking and drug producing country: It is the world’s
largest opium producer and exporter and, by itself, provides 85% of the estimated global heroin and
morphine supply; export value of opiates estimated to amount to some US$4 billion. Corruption is
another major source of illegal funds. It permeates all levels of the Afghan government, and,
according to some estimates, may have generated up to US$2.4 billion in 2009. In its 2010 corruption
perception index, Transparency International ranked Afghanistan 176 out of 178 countries surveyed
(178 being the most corrupt).
10. Terrorist financing has been criminalized, but nevertheless remains a major cause of
concern in Afghanistan. Several terrorist groups are believed to be active in Afghanistan, notably Al
Qaeda. The CFT LD criminalizes the provision and collection of funds for the commission of a
terrorist act. It does not, however, criminalize the collection of funds and their provision to terrorist
individual or terrorist organizations, and the scope of the terrorist financing offenses is further limited
by other deficiencies.
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11. The current framework for freezing terrorist funds suffers from considerable
shortcomings and has not been used in practice. The mechanism in place for the implementation of
the United Nations Security Council Resolution (UNSCR) 1267 is incomplete, and there is no
framework for the implementation of UNSCR 1373. Considering the number of designated persons
and entities that have links with Afghanistan, and, more generally, of the high risk of terrorist
financing in the country, this constitutes a major shortcoming of the current AML/CFT regime.
Moreover, in one instance, the authorities ordered the freeze of an account held by a person
designated under UNSCR 1267, but the President subsequently lifted the freezing order, thus
reportedly enabling the holder of the account to withdraw the funds and leave the country.
12. A financial intelligence unit, the Financial Reports and Analysis Centre of Afghanistan
(FinTRACA), was established in2004, became operational in 2006 and has since led
Afghanistan’s AML/CFT efforts, but additional measures need to be taken to ensure that it can
effectively perform the core functions of an FIU. Pursuant to the AML LD, FinTRACA is the
national center for the receipt, analysis and dissemination of suspicious transactions reports (STRs)
from all reporting entities. In 2010, FinTRACA became a member of the Egmont Group of Financial
Intelligence Units. Major shortcomings nevertheless remain in its current functioning. FinTRACA
does not have the legal authority to disseminate financial information received from non-banks
financial institutions and from designated non-financial businesses and professions (DNFBPs). It is
currently not operationally independent, notably because it lacks human and technical resources and
its financing depends for a significant part on foreign aid. It has not provided sufficient guidance
regarding the manner of reporting. The collection of relevant information needs to be strengthened in
order to allow for enhanced tactical, operational and strategic analysis of STRs and other relevant
information. Finally, FinTRACA has not published periodic reports on its activities that would
include detailed statistics as well as information on typologies and trends of money laundering and
terrorist financing.
13. The recent revamping of law enforcement in Afghanistan is a significant step forward
but the relevant agencies do not appear to be effective in curbing crime, including money
laundering and terrorist financing as expected, due notably to a lack of adequate resources,
expertise and coordination. Specialized agencies have been created without, however, their
establishment and powers being clearly defined in law. While they have been granted the necessary
investigative powers, they do not use them to their full extent. Poor coordination between law
enforcement agencies notably entails a duplication of efforts and squandering of scarce resources.
While investigations have been led into money laundering and terrorist financing cases, none of them
has been prosecuted and forwarded to the courts. Despite continuous efforts by the Afghan
government and foreign donors to build the capacity of law enforcement, Afghanistan continues to be
unable to expose and disrupt financial crimes in an effective way. This is notably due to limited
resources, little expertise and corruption, as well as the lack of focus on the money trail, and a lack of
clarity as to the level of evidence required to (i) initiate an investigation into, and (ii) secure a
conviction for money laundering and terrorist financing.
14. Afghanistan has established a declaration system for cross-border transportation of
currency and bearer instruments which, in practice, is only implemented (albeit in a limited
way) at the Kabul international Airport (KIA). Implementation at crossings elsewhere along
Afghanistan’s notoriously porous border is particularly challenging. The limited implementation of