Hawaladars in Afghanistan: An Afghan Experience

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1 In the name of the Creator who created mankind from a drop of blood and who taught mankind to learn Hawaladars in Afghanistan: An Afghan Experience (FinTRACA) Web: Financial Transactions and Reports Analysis Center of Afghanistan

2 Money Service Providers in Afghanistan 100 years of history in the financial Sector of Afghanistan; Hawala is one of the well-functioning systems in Afghanistan Existed before the new banking industry and served as a great source of typical banking in Afghanistan; Level of trust much higher as has been tested by years of civil war; Cheap, fast, reliable.

3 Da Afghanistan s Bank Approach Banking Law sets obligations for licensing; Financial Supervision Department (FSD) is authorized by law to license and regulate Hawaladars or Money Service Providers (MSPs); Licensing process started in 2004 at a very slow pace; FSD did not have the manpower and the resources to take the process forward; FinTRACA was established in 2006 under the AML Law with the goal to combat money laundering and the financing of terrorism. FinTRACA did not have the mandate to license the MSPs; however, it was the ultimate beneficiary of the information;

4 Da Afghanistan s Bank Approach Cont d The regulation set very high requirements for licensing e.g. Fee for HQ was set at 50,000 AF (equivalent to 1,000 USD) Fee for branches set at 25,000 AF Deposit in trust at DAB set at 50,000 USD The fee requirement was used as an excuse by the MSPs not to obtain license. DAB had to come up with a strategy to resolve the dilemma in consultation with the MSPs association; The goal was to license and not allow them to move underground and damage the economy.

5 Da Afghanistan s Bank Approach Cont d FinTRACA took the lead in amending the regulation; Consultative meetings started with the head of the association on the fee structure; Fee requirements were brought down to a large degree to take care of their concerns; Next step was to motivate, encourage and educate them to obtain license.

6 Licensing Process Licensing first started in the capital Kabul in 2006; Around 20 MSPs applied for license at the initial phase; The strategy was to first motivate and then use the full force of the law to make them obtain licenses; Teams comprised of DAB personnel, law enforcement and AGO, led by FinTRACA, started visiting the market; The team sealed shops, seized books and records and money; The same strategy was repeated across the country in more than 20 provinces.

7 Next step: Making them Report FinTRACA started meetings with the association on format and mode of reporting; Banks used electronic reporting mechanisms since they possessed the money and the manpower which was impossible to implement on all the MSPs; Manual reporting books were developed by FinTRACA and provided to the MSPs; No reporting threshold existed for CTRs or STRs in 2007.

8 Application of Reporting Software FinTRACA conducted a nation-wide survey to find out the number of MSPs able to report electronically; A number showed positive interest to FinTRACA s offer; FinTRACA developed a free-of-cost software within 6 months; The software and training were provided to the MSPs in their shops; The software performed automatic encryption, decryption and receipt generation; The software was received very positively by many MSPs across the nation.

9 Registered Hawaladars Based on Regions l Kabul 321 Head Quarters of MSP Western Region North Region Eastern Region 76 Head Quarters 42 Branches 36 Head Quarters 46 Branches 21 Head Quarters of MSP 23 Branches

10 Lessons Learned License/register and regulate Hawaladars; Do Not Force them Underground! Talk, listen and come to a mutual agreement and understanding; Study their behavior and patterns and act accordingly Pave the ground for smooth licensing/registration process excessive use of force can cause more harm than good.

11 Reporting Regime of MSPs

12 MSP Transaction Form Monthly income: F/ name: Customer Name: Customer identification Code: Customer Rule: Date fo Birth: ID Card Number: ID Card type: Current Job: Related Agency: Contact number: Address: Date Amount Currency Type Source of Money Transaction Code Hawala No Transaction Type Money Transfer Check Cashing Safe Keeping Relation with customer: F/ name: Customer Name: Customer identification Code: Customer Rule: Date fo Birth: ID Card Number: ID Card type: Current Job: Related Agency: Contact number: Address: Monthly income: Customer Rule: Current Job: F/ name: Date fo Birth: Related Agency: Date Amount Currency Type Source of Money Amount Customer Name: ID Card Number: Contact number: Transaction Code Transaction Code Customer identification Code: ID Card type: Address: Hawala No Transaction Type Money Transfer Check Cashing Safe Keeping Relation with customer: F/ name: Customer Name: Customer identification Code: Customer Rule: Date fo Birth: ID Card Number: ID Card type: Current Job: Related Agency: Contact number: Address: Monthly income: F/ name: Customer Name: Customer identification Code: Customer Rule: Date fo Birth: ID Card Number: ID Card type: Current Job: Related Agency: Contact number: Address: Date Currency Type Source of Money Hawala No Transaction Type Money Transfer Check Cashing Safe Keeping Relation with customer: F/ name: Customer Name: Customer identification Code: Customer Rule: Date fo Birth: ID Card Number: ID Card type: Current Job: Related Agency: Contact number: Address: Signature: Address: Telephone No: Lisencing No: Hawaladar Name:

13 MSP transactions recording book

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15 MSP Data Entry

16 MSP Database`

17 MSP software snapshots

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19 Financial Transactions and Reports Analysis Center of Afghanistan Mohammad Mustafa Massoudi Director General Phone: