At issue: Afghan banks' failure to do enough to combat money
laundering and terrorist financing.
The Financial Action Task Force (FATF), an international money
laundering watchdog, says Afghanistan has failed to implement its
recommendations and will be blacklisted unless laws that meet global
norms are passed before it meets on June 23-27.
This could cut off its banks from the global financial system,
disrupting up to $10 billion worth of annual imports by the time the
next president takes power.
If the blacklist is enforced, all sectors of the aid-dependent
economy will be put under further strain, market players say. "The
Afghan economy will be in crisis. It would seriously affect traders,
government revenue and even employment," said Afghan International
Bank's CEO, Khalil Sediq.
The new laws are being rushed through parliament but even if both
houses pass them in time, outgoing President Hamid Karzai seems
likely to block their passage, according to banking executives who
met him recently.
"The president does not want any changes to the law," said one CEO
who attended the closed-door meeting. "He believes this threat of
blacklisting is another ploy by the West and the U.S. to put
pressure on Afghanistan."
A spokeswoman for Karzai's office declined to provide details from
the meeting but said the president's decision would be made in the
Karzai's final months in power have been marked by a growing
hostility towards the United States, particularly his refusal to
sign a security deal allowing U.S. troops to stay in the country
beyond a 2014 deadline for foreign combat troops to leave.
The drawdown of foreign forces coincides with an upsurge in
insurgent attacks over the past 18 months.
The last two men in the race to succeed Karzai have vowed to repair
international ties, including signing the bilateral security
agreement, but the final results of the second round will not emerge
until late July at the earliest - over a month past the FATF
Afghanistan's nascent economy is already under massive stress, with
domestic revenue down sharply this year, and international
institutions forecasting GDP growth to fall from a high of about 14
percent in 2012 to about 3.2 percent in 2014.
At the same time, foreign donors, who fund the lion's share of the
budget, are pulling back amid concerns over rampant government
corruption and growing insecurity as foreign combat forces pack
WESTERN BANKS PULL BACK
Many Western banks already refuse to deal with Afghanistan because
of weak regulation, fearing they may inadvertently be embroiled in
money laundering or terrorist financing.
[to top of second column]
Afghan banks route payments through Turkey or China instead, but
this loophole has been gradually closing since FATF downgraded
Afghanistan to "dark grey" in February.
Turkish banks have moved to close Afghan accounts and last month
Chinese banks halted dollar transactions with most Afghan banks for
reasons that remain unclear.
Chinese banks had been used as a gateway by Afghan banks to process
dollar transactions with other parts of the world to pay for imports
of everything from household goods to industrial machinery to
The Afghan Chamber of Commerce and Industries says some commodity
prices have risen 10-15 percent due to the imminent threat hanging
over the banking system.
"The prices of goods and products will increase because traders will
have to pass on the higher prices," said Afghan United Bank CEO
The impact could be greater still if traders fail to quickly
negotiate deals to pay for orders in other currencies as shortages
of some staples, like cooking oil, could hit as early as July, the
start of the holy Muslim month of Ramadan.
"I used to route payments through banks in Afghanistan to import
cooking oil from Turkey and Indonesia, but that is no longer
possible because banks are not transferring my money," said one
trader with imports of around $1 million per month.
How quickly the blacklist may be lifted under a new government is
"It's a million dollar question, " said Shehzad Haider, the former
chief executive of Afghan United Bank, who is now based in Pakistan.
"Both candidates will have to pass this amended anti-money
laundering law at the earliest. They have no other choice."
(Additional reporting by Mirwais Harooni; Editing by Maria Golovnina
and Jeremy Laurence)
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