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In a big setback for Taliban, UK banks red flag transactions with Afghan entities

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Britain’s financial watchdog has warned banks to closely watch their customer transactions with individuals and business groups in Afghanistan to ensure that they are not exploited to launder money or finance terrorism (Photo: Financial Times)

In major setback to the Taliban, Britain’s financial watchdog has warned banks to closely watch their customer transactions with individuals and business groups in Afghanistan to ensure that they are not exploited to launder money or finance terrorism.

The warning issued merely a day after the US and NATO allies pulled out of Afghanistan comes amid fears that various terrorist groups will enjoy more freedom with the Taliban coming into power. 

Since London is an international financial centre the impact of the move is bound to have a worldwide effect. 

The UK Financial Conduct Authority has issued a notice to all banks and financial institutions stating: “We expect firms to establish and maintain systems and controls to counter the risk they might be used to further financial crime,” according to a report in leading British daily The Guardian.

Also read:  After IMF, World Bank too halts funding for Afghanistan in major blow to Taliban

“Developments in Afghanistan have highlighted the continuing need for robust systems and controls that respond to changing risks,” the FCA said in its release.

Financial firms were also told to report any suspicious activity to the UK Financial Intelligence Unit and the National Crime Agency, and review existing sanctions already in place in relation to Afghanistan.

The order comes at a time when the Taliban is desperately trying to revive its banking network and get back funds deposited by its central bank in foreign banks.

Haji Mohammad Idris, a Taliban loyalist who has no formal financial training, was appointed to head the central bank last week. He is reported to have played a key role in mobilising funds for the Taliban through the illegal narcotics trade which runs into billions of dollars.

Idris reportedly told members of the Afghanistan Banks Association and other bankers this week that the Taliban considers the bank sector as very important

wants a functioning financial system, according to a Reuters report.

The US has also frozen the Afghanistan central bank’s reserves in U.S. bank accounts, blocking the Taliban from accessing billions of dollars.

Afghanistan former central bank governor Ajmal Ahmady after fleeing Kabul has disclosed that Da Afghanistan Bank (DAB) had around $9 billion in reserves, but most of that is held in banks overseas, out of reach of the Taliban.

Ahmady said the US Federal Reserve holds $7 billion of the country's reserves, including $1.2 billion in gold, while the rest is held in international accounts.

The World Bank and IMF have also put on hold all financial assistance to Afghanistan as the Taliban government that took over power through military force is not being recognised.

The Afghanistan economy was heavily dependent on these international aid flows which represented roughly 43% of the country’s GDP in 2020, according to the World Bank.

Following its swift takeover of the country last month, the Taliban has inherited an  economy that is on the verge of collapse due to a severe drought and the adverse impact of the coronavirus pandemic. The war-ravaged Afghanistan economy is forecast to contract by 9.7% during the current financial year, according to Fitch Solutions.