Listen to What the Taliban Resurgence Means for Money Laundering (9mins):
On August 15, much of the world watched with a mix of horror, shock, and sorrow as the Taliban rapidly regained control of Afghanistan after a 20-year war. Images of Afghan citizens clinging to airplanes in a desperate attempt to escape the militant group will be forever burned into our memories. Unfortunately, we could be witnessing just the beginning of Afghanistan’s troubles. The resurgence of the Taliban will likely open new avenues for money laundering activities and a host of atrocities that it supports.
Who is Impacted Most by the Taliban’s Resurgence?
The biggest question for the global community is who will be most affected by the Taliban’s return to power. The most obvious answer, of course, is the people of Afghanistan. This is especially true for women and girls who gained many civil rights, including the right to work and attend school in the past 20 years.
Human slavery is just one of the criminal activities that fuel the Taliban’s operations. The group is also linked to extortion, kidnapping, child soldiers, and collaboration with terrorist organizations like al Qaeda. Its most lucrative source of revenue comes from drug trafficking, however. As recently as last year, the group is estimated to have earned $460 million from opium poppy cultivation. Simultaneously, the Taliban have also circumvented UN sanctions and collect revenues from illegal mining operations and outside sources.
All of these criminal activities will have real impacts on real people. Enabling the Taliban to expand their access to legitimate banking services could have serious consequences for the global financial ecosystem and the many banks that serve as a gateway.
The Taliban’s AML Challenges for Banks
Before banks can decide the most appropriate risk strategy to address an Afghan government run by the Taliban, it’s important to understand the challenges banks face.
First, the Taliban have historically stayed outside traditional banking channels. Instead, the group has relied heavily on physical U.S. banknotes and an informal trading system known as hawala to conduct business. However, the Taliban is now in control of the Afghan Central Bank (Da Afghanistan Bank – DAB), which holds foreign currency and gold and access to a large global financial network through its branch network. It’s safe to assume they are highly motivated to embrace modern financial service tools to expand their reach and widen their potential customer base.
Second, the global community’s knee-jerk reaction will be to issue sanctions. The Biden administration has already taken steps to freeze over $9 billion in assets held in U.S. financial institutions (FIs). The goal is to apply financial pressure to the Taliban-controlled government to change their treatment of women and deny terrorist groups a footing in the country. However, because the Taliban has historically steered clear of conventional banking systems, sanctions could be ineffective.
Finally, the Taliban essentially now controls one of the largest reserves of natural resources that the world desperately needs. These include materials such as copper, gold, iron, and lithium. The value of these resources is estimated to be close to $1 trillion. This gives the Taliban considerable leverage when dealing with outside interests and potentially gives them political capital with which to negotiate.
This combination of factors – a hard-line militant group used to operating outside traditional banks, able to avoid serious damage from sanctions, and with access to a trove of sought-after resources – means Afghanistan could become a central hub of money laundering activities under Taliban rule. Banks will need to seriously review their AML strategies as they adjust to the impact of the Taliban-controlled government.
How Banks Can Address Money Laundering Under the Taliban
So how can banks and FIs address these new realities? With the situation rapidly changing in Afghanistan, banks need to remain vigilant about the latest sanctions updates and how their operations are connected to the Taliban regime. Here are some crucial steps to take for now.
Mind the middlemen
As noted earlier, the Taliban now controls vast supplies of resources. This means several global entities, from governments to multinational corporations, are likely to want access to them for their own ends. When, not if, new sanctions are issued, intermediary actors and politically exposed persons (PEPs) are likely to be leveraged to engage with Taliban forces to access the resources. Banks should heavily scrutinize the relationships between those who use their services and those connected by one, two, or more degrees to Afghanistan-connected interests.
By looking at connected parties via network analytics and scoring the overall risk of the network, banks should be able to identify potentially suspicious patterns of activity that may be indicative of sanctions evasion.
Identify customers and know your risk exposure
Banks should also note how money moves in and out of the country and research the corresponding relationship to bank partners. Understanding if other banks or entities have ties to Afghanistan or are working to direct money in or out of the country should be a top priority for banks as they adjust their AML policies. Once banks have identified correspondent bank relationships, customers, and legal entities located in or connected to Afghanistan, they can review these groups for suspicious transactions, risky behavior, and adverse media. Knowing these entities’ risk exposure will be critical for banks as they update their AML compliance strategies to address the Taliban’s return. Banks will need to rely heavily on screening and risk management solutions to monitor their customer base against evolving sanctions updates, PEP designations, and new adverse media as the updates with Afghanistan evolve.
Stay alert to policy changes
Some sanctions have already been issued against known Taliban members. But the situation is shifting rapidly, and new sanctions are expected. Banks should stay tuned to the latest sanction updates to ensure they don’t give safe haven or unwittingly process transactions for targeted individuals or entities. Sanctions updates will put pressure on teams within the banks to respond quickly to ensure they update their systems to account for new names or entities. There are opportunities to look at automation in these processes to reduce overhead and ownership costs.
Follow the supply chain
Taliban and Taliban-backed players will likely look to continue to profit off of their lucrative criminal activities and, in doing so, will need to conceal the source and movement of money. It’s essential to monitor how a business’ supply chain interacts with entities in and connected to Afghanistan to assess whether something suspicious is underway. For example, trade-based monitoring will be crucial to determine if a shipping container delivering materials like iron ore is also used to contain illegal drugs, trafficked people, or hard cash. Banks will need to closely monitor if the transactions associated with goods and materials being shipped in and out of the region, and the players connected to the supply chain, appear to be normal or outside of expected activity.
The next few months and weeks will be fraught with uncertainty as evacuations continue and leaders from around the world develop strategies for Afghanistan’s now Taliban-led government. The situation will be fluid during this time, and sanctions will undoubtedly change in the short term. Banks and FIs must be vigilant as the reality constantly shifts and ensure they remain compliant with AML regulations, even as they are quickly updated.
Money laundering activity is poised to surge under Afghanistan’s Taliban regime. Banks can do their part by understanding how their customers and entities could be exposed to greater risk during this period of uncertainty and reporting on suspicious or outlier activity.
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