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The Fall of Afghanistan and Financial Crime Risks

Waheed Zaman explains that the fall of Afghanistan to the Taliban has widespread implications for money laundering and a range of other financial crimes.

This piece was written on 22 August 2021, almost immediately after the fall of Kabul.

Nobody knew Afghanistan would see such dramatic scenes and rapid changes in a short period of time. The Taliban seized the whole of Afghanistan in no time at all and shocked U.S.A & rest of the world with their lightning take over.

This is something which made people curious about Afghanistan and the Taliban on social media. If we look at history, we will come to know that the superpower Soviet Union (Russia) invaded and later removed troops from Afghanistan in 1988. So did the U.S.A.

There is a saying “Afghanistan is a graveyard of the greatest empires”.

We will not drag ourselves into this never-ending political discussion but instead will discuss ever-changing situations & their effects on global financial institutions and, especially, Pakistan’s financial systems.

We will also discuss possible risks leading to money laundering and terrorist and proliferation financing emanating from the prevailing civil war-like situation in Afghanistan.

What urgent warnings should Pakistan’s regulators or financial institutions issue & disseminate to their Bank’s branches especially located at border areas, e.g. KPK & Balochistan?

To evaluate possible risks leading towards money laundering, terrorist and proliferation financing, bribery, corruption, embezzlement and illegal sale of arms & munitions,  we have to take stock of the current factors involved which set the stage for risks, threats and vulnerabilities.

Moneylaundering.com and Task&purpose.com say that The Taliban currently controls USD20,000 million in a largely cash-based economy depending on agriculture, mining, construction, foreign aid and the illegal opium trade. Further, The Taliban have access to the full complement of the economy: the banking system, credit cards, remittance payments. Further, The Taliban had got hold of a sea of weapons and key logistics which have been left behind by U.S.A troops due to sudden withdrawal from Afghanistan. The U.S.A has provided Afghan Forces approximately 884,311 pieces equipment from 2003 to 2016, which comprises communications equipment (162,643), vehicles 75,898, weapons 599,692,explosives 29,681, intelligence surveillance equipment 16,191 and aircraft 208.

The Taliban as a group is blacklisted in some jurisdictions but only two of its leaders—deputy chief Sirajuddin Haqqani and military commander Mullah Mohammad Yaqoob—are subject to U.S. sanctions.

The above facts portray a very scary picture and it seems like a cloud of challenges is getting darker and darker. Currently, Afghanistan has become home to crimes and lawlessness. Besides this, poor management of stockpiles of small arms & light weapons will increase the availability of weapons to other criminals.

Some expect that the UN, U.S.A, U.K, European Union, Russia & other countries may impose sanctions on The Taliban & their associates soon.

It is fact that Pakistan shares a lengthy porous border with Afghanistan & Afghan refugees are making efforts to enter into bordering countries including Pakistan. Persons may transport arms and ammunition for illegal sale and activate cash couriers in border areas. This is high time for the country’s financial institutions to brace for taking concrete measures on a war footing basis.

Financial institutions especially banks with branches in border areas may issue notices to their bank branches to exercise meticulous compliance with actions such as those mentioned below:
 
COMPLIANCE WITH SANCTIONS SCREENING:

(1): Branches must be advised to keep an eye on any upcoming regulatory requirements/sanctions in the wake of new developments taking place especially in Afghanistan,

(2): It must be ensured that the screening is carried out against each individual, entity & transaction as required in the  Anti-Money Laundering, Combating the Financing of Terrorism & Countering Proliferation Financing (AML/CFT/CPF) Regulations (download here: https://www.sbp.org.pk/l_frame...)

(3): Digits of the CNIC (Pakistan’s national identify card) & spelling of the name play a pivotal role in screening. This is why it must be checked at user, authoriser & checker level.

(4): Since record-keeping is a mandatory regulatory requirement and production can be required at any in time valid arrangements must be made to keep intact the record of all screenings performed in the branches.
 
TRADE-BASED TRANSACTIONS:

Criminals exploit the complex structure of International trade and use it as a vehicle to move their illicit money through trade-based transactions. Criminals use many techniques to make these transactions. One such technique is the “Phantom Shipment” where no supply is shipped/dispatched, it is just shown in packing lists & invoices. In this way, both parties (buyer & seller) become able to move the value/funds for their ultimate nefarious goals & designs. This is why bank branches must apply all checking points while processing such transactions.

REMITTANCE TRANSACTIONS:

Reuters.com reported that, due to the current situation in Afghanistan, Western Union said: “it had suspended its services from Aug. 18, 2021, until further notice”.

This is a wake-up call for other countries including Pakistan to process payments for authorised locations only. Bank branches must consider the warning signs expressed by these companies before processing any cash-based remittance transactions. Further, banks must coordinate with companies such as Western Union, Money gram, Ria, Express Money, etc for any change in their instructions, warning signs or prohibited locations.

Bank branches must keep the current perspective of Afghanistan and ensure enhanced due diligence for all remittance inflow and outflow.
 
ESTABLISHING NEW RELATIONSHIPS:

Bank branches must apply due diligence while dealing new to banking clients: there is a war-like situation and people are escaping; they are entering into neighbouring countries.

In this situation, criminals often try to penetrate and they hire local agents for financial transactions. The probability of opening ″mule accounts″ cannot be ruled out.

Mule accounts have two types:
first, the account is created/opened by identity fraud; and
secondly using existing or new legitimate accounts.

Criminals often opt for the opening of mules accounts by hiring local agents against the agreed commission for the benefit of hidden principles (criminals).

Bank branches must ensure that they comply with the bare minimum requirements as below:
(1): Screening with proper checking by user, authoriser &checker.
(1): To Identify customers, obtain information & require valid documentation
(2): Validation of identity against identity documents & identity tools. (Biometric and National Identity system – in Pakistan the Nadra Verisys)
(3): Validation of identity & documents from open sources.
(4): Current Profile i,e. source of funds and wealth
(5): Intended purpose & nature of the account
(6): Physical visits to customer’s residence or business premises.
 
RE-ACTIVATION OF DORMANT ACCOUNTS:
Opportunities exist for the exploitation of the current exemption from biometrics due to CoVid-19 and processing of account re-activation requests (in exceptional cases) through registered emails, mailing addresses & landline numbers.

Since personal appearance in the opening and management of accounts has been waived, in exceptional cases bank branches must employ a parallel unbreakable verification system to ensure that the request has been made by the genuine customer.

It is highly advisable to re-verify from customers the details previously mentioned in the account such as account type, balance in the account, address, mother’s name, next of kin or any other information that may help establish that the request has been raised by actual customers.

Further, when these accounts are re-activated after due verification then bank branches must compare the current and previous transactions applying both financial and pattern analysis.

Branches must conduct enhanced due diligence in case of frequent large transactions. It must be ensured that the said transactions are commensurate with the profile of the account and that transactions make logical and economic sense.  
 
AMENDMENTS IN ACCOUNTS:

Bank branches must warrant care in receiving and processing amendments such as contact details, change of signature, change of addresses or any deletion or addition of Mandate, attorney, nominee, partner, trustee, director, etc. in existing accounts.

If the request is received for a change in account details, it must be processed as per given guidelines, policies, procedures and the Regulations.

Bank branches must be aware of the sensitivity of the change in beneficial ownership, it must be seen from the current perspective the necessary risk-based approach must be applied in all cases.

Hence enhanced due diligence with proper screening, verification & validation is highly recommended.
 
CONCLUSION:

Banks and their branches must be aware that financial institutions are currently operating under multiple obligations, rules & regulations and international bodies. Domestic regulators & other sanctions authorities have strict policies against breaches.

In the continued fight against money laundering, terrorism and proliferation financing, the reputation of many countries, supervisors and financial institutions is at stake. Delinquent financial institutions have to face the wrath of regulators international bodies and may immediately face operational, reputational and legal risk.
It would be safer to assume that any blunder, at the hands of staff, may become lethal not only for themselves but also for senior management, financial institutions, regulators and governments.

Keeping in view the above facts, there is no need panic & make mistakes, but rather to rise to the challenge and apply all regulatory requirements, internal policies and pre-defined rules of thumb.

Disclaimer: ideas expressed above are purely personal & have no official binding or patronage.
References:
https://taskandpurpose.com/new...
https://www.moneylaundering.co...

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Mr. WAHEED ZAMAN is and Area Operations Manager and has worked for Al Baraka Bank, Karachi, Pakistan since 2019. He holds an MBA from University of Sindh, Jamshoro and has 16 years of experience in Branch Banking operations. He writes articles on money laundering and other financial crimes and is a certified Trainer in AML/CFT/CPF.

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