ANTI MONEY LAUNDERING
Afghanistan is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies
Latest FATF Statement - 23 June 2017
The FATF welcomes Afghanistan’s significant progress in improving its AML/CFT regime and notes that Afghanistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2012. Afghanistan is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process. Afghanistan will work with APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report, in particular, fully implementing the cross-border regulations at its official land border crossing points.
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Afghanistan was undertaken by the Financial Action Task Force (FATF) in 2011. According to that Evaluation, Afghanistan was deemed Compliant for 1 and Largely Compliant for 1 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for all 6 of the Core Recommendations.
EU Commission’s list of AML/CFT deficient countries
On 13 February 2019, the EU Commission adopted a new list of 23 third countries that had been identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing frameworks as defined under the Fourth and Fifth Anti-Money Laundering Directives. Afghanistan has been included on this list. This list currently includes all countries currently on the FATF AML deficiency lists together with 11 additional jurisdictions.
It is noted that to date the EU Member States have declined to adopt this list. However, as this country has been identified as having AML deficiencies by the EU Commission, we have rated it accordingly.
US Department of State Money Laundering assessment (INCSR)
Afghanistan is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
Terrorist and insurgent financing, money laundering, bulk cash smuggling, abuse of informal value transfer systems, and other illicit activities that finance criminal activity continue to threaten Afghanistan’s security and development. Afghanistan remains the world’s largest opium producer and exporter. Corruption remains a major obstacle to the nation’s progress. The National Unity Government (NUG) has enacted laws and regulations to combat financial crimes, but faces significant challenges in implementing and enforcing existing laws and regulations.
In 1999 the United Nations required all member states to freeze the assets, prevent the entry into or the transit through their territories, and prevent the direct or indirect supply, sale and transfer of arms and military equipment with regard to any individual or entity associated with Al-Qaida, Usama bin Laden and/or the Taliban as designated by the relevant Sanctions Committee.
In 2011 the Security Council split the sanctions regime into two groups - an Al-Qaida regime and a country-specific Afghanistan regime.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 16
World Governance Indicator – Control of Corruption 4
Afghanistan's economy is recovering from decades of conflict. The economy has improved significantly since the fall of the Taliban regime in 2001 largely because of the infusion of international assistance, the recovery of the agricultural sector, and service sector growth. Despite the progress of the past few years, Afghanistan is extremely poor, landlocked, and highly dependent on foreign aid. Much of the population continues to suffer from shortages of housing, clean water, electricity, medical care, and jobs. Criminality, insecurity, weak governance, lack of infrastructure, and the Afghan Government's difficulty in extending rule of law to all parts of the country pose challenges to future economic growth. Afghanistan's living standards are among the lowest in the world.
The international community remains committed to Afghanistan's development, pledging over $67 billion at nine donors' conferences between 2003 and 2010. In July 2012, the donors at the Tokyo conference pledged an additional $16 billion in civilian aid through 2015. Despite this help, the Government of Afghanistan will need to overcome a number of challenges, including low revenue collection, anemic job creation, high levels of corruption, weak government capacity, and poor public infrastructure.
Afghanistan's growth rate slowed markedly in 2014-15. The drawdown of international security forces that started in 2014 has negatively affected economic growth, as a substantial portion of commerce, especially in the services sector, has catered to the ongoing international troop presence in the country. Afghan President Ashraf GHANI Ahmadzai is dedicated to instituting economic reforms to include improving revenue collection and fighting corruption. However, the reforms will take time to implement and Afghanistan will remain dependent on international donor support over the next several years.
Investment Climate - US State Department
Afghanistan remains a very poor, agrarian economy with a small manufacturing base, few value-added industries, and a largely dollarized economy. International financial and security support has been instrumental in developing the Afghan economy post 2001; however, as much as 80-90 percent of Afghanistan’s economy is in the informal sector. Government expenses will continue to exceed revenues, resulting in continued dependency on international donors for the foreseeable future.
The drawdown of international forces has hurt the economy significantly as demand for transport, construction, telecommunications and other services has fallen. Economic growth has slowed significantly after averaging 9.4 percent from 2003-12. The World Bank optimistically estimates growth at 1.9 percent for 2015.
The Bank notes that a return to growth is conditioned on improvements in the security sector, “strong reform momentum,” and investments in key economic sectors (mining and agriculture). Much higher growth rates are required to counter a 2.5 percent population growth and roughly 400,000 new entrants into the labor market each year.
Agriculture remains Afghanistan’s most important source of employment: 60-80 percent of Afghanistan’s population works in this sector, although it accounts for just a third of GDP due to insufficient irrigation, uneven rainfall, lack of market access, and other structural impediments. Most Afghans farmers are primarily subsistence farmers.
Investment has fallen off significantly in recent years, and what remains is largely financed by donors and the public sector. New firm registrations tailed off dramatically in 2014, with half as many new firms registered in 2014 compared to 2013. That level has remained constant in 2015. Afghanistan has a small formal financial services sector and domestic credit remains tight.
Challenges to business in Afghanistan center around a still-developing legal environment, security, varying interpretations of tax law, and the impact of corruption on administration:
On the enabling environment for business, the Afghan government at all levels has emphasized its commitment to fostering private sector-led development and increasing domestic and foreign investment. Important government and civil society efforts to build an enabling environment for the private sector and to expand investment by developing natural resources and infrastructure have been hindered by institutional capacity and rent-seeking.
Afghanistan’s legal and regulatory frameworks and enforcement mechanisms remain underdeveloped and irregularly implemented. The existence of three overlapping legal systems -- Sharia (Islamic Law), Shura (traditional law and practice), and the formal system under the 2004 Constitution -- can be confusing to investors and legal professionals. Moreover, corruption hampers fair application of the laws. Commercial regulatory bodies are often understaffed and under capacity. Financial data systems are limited. Crucial sectors such as mining and hydrocarbons still lack a regulatory environment and policymaker support for investment.
Afghanistan has continued work to improve business regulation and administrative transparency in connection with its pending accession to the World Trade Organization (WTO), a positive sign for business reform. Afghanistan was formally welcomed into the WTO in December 2015. Afghanistan has also made a measure of progress on working with foreign investors in an attempt to resolve longstanding disputes over taxes and extrajudicial actions.
On security, Afghanistan’s challenges are headline news, particularly for foreign businesses.
Nevertheless, domestic and foreign business leaders in most parts of Afghanistan often report corruption and patronage in government administration are tougher challenges than lack of security.
Although government officials express strong commitment to a market economy and foreign investment, Afghan and foreign business leaders report this attitude is not always reflected in practice. Private sector leaders routinely note that some government officials levy unofficial taxes and inflict bureaucratic delays to engage in corrupt practices.
Afghanistan: 2015 Article IV Consultation and First Review Under the Staff-Monitored Program (December 2015) - Extract
To support a business-friendly environment, the authorities will strengthen anticorruption and AML/CFT frameworks. As noted, the authorities are determined to improve the business environment. They have implemented measures to strengthen the anti-corruption and AML/CFT frameworks. The October 2014 presidential decree on Kabul Bank signaled the intentions of the new administration, which has zero tolerance for corruption and tax evasion. The authorities have made progress since May 2015 to strengthen the AML/CFT legal framework notably through the issuance of two DAB regulations on preventive measures in the financial sector and fit and proper requirements. They also are implementing an AML/CFT Action Plan. Staff welcomed the progress and noted that continued efforts and enhanced implementation are needed for Afghanistan to exit the FATF’s monitoring process, to help detect and disrupt the receipt and use of, and to confiscate the proceeds of crimes, including corruption and drug trafficking. The authorities have initiated asset declarations by senior officials and plan to broaden their scope. Staff welcomed the authorities’ efforts to improve asset declarations and emphasized the importance of reducing incentives and opportunities for corruption as well as improving enforcement, while noting that more is needed to facilitate audit and publication of asset declarations. Staff underscored the role of well-trained staff, capacity building and efficient use of the information technology, particularly in customs, to fight against corruption.
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