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Afghanistan: Understanding US firms’ exposure and risk

Sanctions Knowledge & Training

This week it was announced that financial institutions in the US may process personal remittances to Afghanistan, in order to support the provision of humanitarian aid.

Many Afghans are dependent on payments from migrant workers overseas – an estimated $789m in remittances was processed in 2020. While the US has stopped shipments of cash to Afghanistan, it has now encouraged financial service providers to resume operations. Western Union, which suspended its services after the Taliban takeover, has now resumed money transfers to help those who rely on them to pay for food.

The situation in Afghanistan is evolving, with governments around the world debating to what extent the Taliban-led government could – or should – be excluded from the global financial system. 

The US response so far has included freezing around $9bn in assets belonging to Afghanistan’s central bank, but blanket sanctions have been avoided for humanitarian reasons.

When it comes to the imposition of further sanctions, the US and its allies are walking a geopolitical tightrope. They are balancing how far to exclude Afghanistan from the global economy alongside fears of greater involvement from China, Iran, and other world powers.

For now, the US is watching and waiting. In August, President Biden commented: “Our only vital national interest in Afghanistan remains today what it has always been: preventing a terrorist attack on the American homeland.” 

And the Canadian government says it is “closely monitoring developments in Afghanistan and coordinating its response with international partners accordingly.”

Commenting to the Wall Street Journal on the ongoing compliance risks in Afghanistan Dan Stipano, a former top official in the U.S. Office of the Comptroller of the Currency, said: “Nobody wants to be in a position where they’re in the role of facilitating payments to terrorists, for obvious reasons, and nobody wants to have a sanctions violation.”

What does this mean for global finance?

Financial firms need to tread carefully and fully understand their exposure in Afghanistan via transactions and their client base. Transactions and exposure have been carefully scrutinized by regulators in the past during periods of significant geopolitical instability  – such as in Russia in 2018 and Turkey in 2019 – and risks need to be effectively managed.

It is important that investigative and compliance teams work together to aid understanding and help navigate the patchwork of sanctions, remittance, and other measures that are being simultaneously imposed and lifted across Afghanistan.

If dealing with any transactions to Afghanistan, institutions should make sure they understand their exposure from both a client and transactional perspective. They should also be aware of emerging relationships between the Taliban and other countries, which makes it critical that firms are scanning the latest available sanctions lists.

Our ‘Evolving Use of Sanctions report’ explores how sanctions are being used around the world today, and outlines the core compliance responsibilities businesses face.

Originally published September 9, 2021, updated May 6, 2022

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