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Cablegate: Treasury a/S Cohen Urges Major Afghan Banks to Be More

VZCZCXYZ0000
PP RUEHWEB

DE RUEHBUL #0668/01 0541121
ZNY EEEEE ZZH
P 231121Z FEB 10
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 5789
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0985
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC

UNCLAS E F T O KABUL 000668

NOFORN
SENSITIVE
SIPDIS
C O R R E C T E D COPY CLASSIFICATION
DEPT PASS AID/ASIA SCAA DRAY
TREASURY FOR LMCDONALD, MNUGENT, JCASAL, AKIFAYAT
E.O. 12958: N/A
TAGS: EFIN ECON SNAR KTFN KCOR KCRM PGOV PINS AF
SUBJECT: Treasury A/S Cohen Urges Major Afghan Banks to be more
Vigilant

REF: A. KABUL 551
B. KABUL 455

---------
SUMMARY
---------

1. (SBU//NF) In meetings with the heads of Kabul Bank, Azizi Bank
and Afghan United Bank on February 11, Treasury Department Assistant
Secretary for Terrorist Financing David Cohen expressed optimism
that the Afghan banking sector is implementing stronger controls
against anti-money laundering and terrorist financing, but urged the
banks to be more vigilant, especially if they want to pursue
linkages with U.S. and other international institutions. A/S Cohen
expressed particular concern about Kabul Bank's correspondent
relationship with banks in Iran, as well as Afghan United Bank's
association with the New Ansari Financial Network, an organization
under investigation by Afghan law enforcement for its alleged
involvement with illicit finance cash flows and narcotics
traffickers. A/S Cohen also met with the Minister of Economy Haji
Abdul Hadi Arghandewal to emphasize the need to strengthen the
Ministry's oversight of NGOs and charities operating in Afghanistan.
A/S Cohen delivered a strong message to both the banks and Ministry
of Economy on the need to dramatically enhance efforts to combat
illicit financing in Afghanistan. End Summary.

--------------------------------------
KABUL BANK, AFGHANISTAN'S LARGEST BANK
--------------------------------------

2. (SBU//NF) Treasury Assistant Secretary for Terrorist Financing
David Cohen travelled to Afghanistan as part of the delegation led
by Treasury Deputy Secretary Neal Wolin. On February 11, A/S Cohen
met with several Afghan banking leaders, beginning with Kabul Bank
President Khalil Frozi, Director of Internal Audit Raja
Gopalakishnan, Compliance Director Mahboob Frotan and Head of
International Banking, Samir Cena. With the most extensive branch
network and over $1.05 billion in deposits, Kabul Bank is the
largest bank in Afghanistan. Frozi reported that the bank has
approximately one million customers and provides services for
approximately 350,000 civil servants in the form of electronic
salary transfers/payments. Bank officials added that its primary
international customers are foreign NGOs, the U.S. Embassy, the U.S.
Army and ISAF.

-----------------------------
KABUL BANK AML/CFT COMPLIANCE
-----------------------------

3. (SBU//NF) President Frozi maintained that his bank's compliance
practices are strong and that it regularly submits reports of
suspicious and large cash transactions (exceeding Afs 500,000 -
equivalent to USD 10,000) to FinTRACA, Afghanistan's financial
intelligence unit. Additionally, he asserted that the bank profiles
its larger account holders every six months to ensure there are no
unusual transactions. Noting that Kabul Bank understands the
importance of combating terrorist financing, Frozi requested that
Treasury provide the bank with more specific details/identifiers
associated with "blacklisted" individuals, particularly from the UN
list.

4. (SBU//NF) In response to Frozi's comment that his bank is working
to develop its capacity to match international standards and gain
access to U.S. markets, A/S Cohen expressed support for this
approach, reminding the bank officials that the risk of money
laundering and terrorist financing in Afghanistan is significant.
He commended Kabul Bank for establishing stronger controls, but
urged the bank to be extraordinarily vigilant against money
laundering and terrorist financing concerns.

5. (SBU//NF) Kabul Bank indicated it is preparing to introduce
plastic "stored value" cards to transfer cash/value to diminish the
role of money exchangers and service providers in Afghanistan.
(Note: While Kabul Bank aims to diminish the role of money service
providers, it maintains bank accounts for many of these providers.
End Note.)

-------------------------
KABUL BANK'S TIES TO IRAN
-------------------------

6. (SBU//NF) A/S Cohen expressed concern that Kabul Bank has
correspondent relationships with Post Bank of Iran (Ref A). (Note:
In an earlier meeting with Kabul Bank, its leadership indicated a
desire to conduct business with Post Bank of Iran and asked for U.S.

Treasury's position. End Note.) A/S Cohen stated that no U.S.
financial institution will form a correspondent relationship with
Kabul Bank if it facilitates transactions for or on behalf of Iran.
Kabul Bank explained that Iran is one of Afghanistan's largest
trading partners, with some $3 billion per annum worth of trade
between the two countries. Frozi responded that Kabul Bank will
immediately cease its dealings with all Iranian institutions and
close any existing accounts, adding that his bank would provide
Treasury with a record of all transactions from the Iranian
accounts. (Note: The Treasury Attache office will follow up on
Kabul Bank's offer. End Note)

----------------------------
AZIZI BANK, A DISTANT SECOND
----------------------------

7. (SBU//NF) Following his meeting with Kabul Bank, A/S Cohen met
with Azizi Bank President Noor Khan Haider, Deputy CEO Inayatullah
Fazli, and Branch Operations Manager Frogh Lateef. Haider said
Azizi Bank has 230,000 accounts, and is Afghanistan's second largest
bank after Kabul Bank. (Note: Azizi Bank is the second largest in
terms of account holders, but third in terms of deposits; Afghan
International Bank is second in total deposits. End Note.) Haider
asserted that Azizi Bank is fully compliant with Afghan Central Bank
rules and regulations regarding illicit finance and regularly
reports large cash transactions to FinTRACA.

8. (SBU//NF) A/S Cohen asked about Small and Medium Enterprise (SME)
lending and Azizi Bank's issuance of stored value cards. Haider
responded that, per a request from the Minister of Agriculture,
"Azizi is in the process of looking into SME lending, that it is
very risky," but that the Minister had agreed to share some of the
risk. (Note: We are not aware of an agreement between the Ministry
of Agriculture, Irrigation, and Livestock (MAIL) and Azizi Bank for
SME lending - particularly with an agreement to share risk. A
broader agriculture finance plan of action is under discussion
between Embassy Kabul and Washington. End Note.)

9. (SBU//NF) A/S Cohen encouraged Azizi Bank officials to be
cautious and to increase their awareness regarding terrorist
financing and other illicit financing schemes. (Note: As with
Kabul Bank, Azizi Bank is pursuing correspondent relationships with
U.S. Banks (specifically Citibank) but were (according to Azizi
Bank) told by Citi that Government of Afghanistan standards are
unsatisfactory. Azizi Bank maintains correspondent relationships
with Commerzbank (Germany) and Habib American Bank (U.S.). End
Note.)

------------------------------
OVERVIEW OF AFGHAN UNITED BANK
------------------------------

10. (SBU//NF) A/S Cohen then met with Afghan United Bank (AUB)
Chairman Mohammad Jan, CEO Mohammad Hassan and Deputy CEO Haji
Bashir Ahmad. AUB reported that it is in the process of purchasing
and customizing new Oracle software to ensure compliance with
anti-money laundering and combating the financing of terrorism
(AML/CFT) controls. A/S Cohen urged AUB to not rely strictly on
software, but to fully understand its customers. (Note: All three
banks indicated they have acquired or are in the process of
acquiring AML/CFT software. End Note.)

11. (SBU//NF) AUB noted that 90% of its accounts are business
accounts and it has very few individual account holders. As with
the other banks, A/S Cohen stressed that in order for AUB to have
correspondent relationships with U.S. and other international
financial institutions, it needs to have strong AML/CFT controls in
place. Hassan reported that AUB has correspondent accounts with
Habib American Bank, whose representative comes to Afghanistan every
year for a review. Furthermore, he said the auditing firm KPMG
drafted and reviewed AUB's compliance policy. (Note: The Treasury
Attache office is arranging meetings with local audit firms such as
KPMG, PricewaterhouseCoopers, Ernst and Young, and Deloitte to
better understand their relationships with their parent companies
and other area audit firms. End Note.)

--------------------------------------------- ------
AFGHAN UNITED BANK'S LINK TO THE NEW ANSARI NETWORK
--------------------------------------------- ------

12. (SBU//NF) A/S Cohen expressed concern that AUB is part of the
New Ansari Financial Network, asking how AUB is protecting itself
against illicit financial flows associated with New Ansari. CEO
Mohammad Hassan responded that "AUB is not involved with the hawala
network nor influenced in any way by New Ansari." However, when A/S

Cohen asked whether New Ansari had accounts with AUB, Hassan replied
affirmatively, stating that New Ansari and other licensed money
service providers have deposit accounts with AUB, but that
international money transfers are prohibited via AUB. AUB Chairman
Mohammad Jan explained that only eight years ago, all financial
transfers in Afghanistan were done through hawalas, but Afghans had
begun to use banks, adding that the Central Bank should "tax hawala
transfers" to encourage people to move money into banks. A/S Cohen
noted that Treasury would like to encourage the banking sector to
expand and to assist in the broader efforts to bring hawalas in line
with more formal financial practices. Stressing that hawalas are
higher risk bank customers, he said more enhanced procedures are
needed, including ongoing monitoring of hawala accounts. A/S Cohen
encouraged AUB officials to work closely with law enforcement and
the Central Bank to make sure they are in compliance with
international law and best practices. Hassan reiterated that AUB is
cooperating and will continue to do so.

--------------------------------------------- ----
STRENGTHENING MINISTRY OF ECONOMY'S NGO OVERSIGHT
--------------------------------------------- ----

12. (SBU//NF) A/S Cohen also met with Minister of Economy Abdul Hadi
Arghandewal to follow up on concerns regarding the Ministry of
Economy's (MOE) role in monitoring the Afghan NGO sector, as
charities are required to register with the MOE, which also has
responsibility for supervising the sector.

13. (SBU//NF) A/S Cohen emphasized that NGO oversight remains a
serious vulnerability in Afghanistan, as many NGOs serve as
storage/transfer mechanisms for insurgent finance worldwide.
Arghandewal responded that there are 1,625 registered NGOs in
Afghanistan and that there is no requirement for NGOs and charities
to report suspicious activity or currency transactions to the
Ministry or other oversight body. Observing that he has only been
in his position for 20 days and therefore "starting from scratch,"
he noted that capacity throughout the MOE is very low and Ministry
staff do not have the capability to monitor projects properly. A/S
Cohen stressed that the Ministry of Economy should play a key role
moving the Government in a direction that results in better
supervision of this important sector.

--------
COMMENT
--------

14. (SBU//NF) Assistant Secretary Cohen's visit sent a powerful
message on "increased vigilance" to the Afghan financial sector,
which many consider the country's most powerful business grouping.
While the Central Bank's financial supervision department has made
progress, serious concerns remain in the sector, in particular the
level of due diligence exercised by Afghan banks transacting
business with domestic and international customers, which requires
further tightening at both the bank and financial regulator levels.
It was also clear from these meetings that the MOE needs to
strengthen NGO and charity oversight functions immediately.

EIKENBERRY

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