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Problems dog U.S.-led efforts to boost Afghan financial system

KABUL, Afghanistan — U.S.-led efforts to bolster Afghanistan's financial sector and prevent American cash payments from being stolen or diverted to the insurgency are hampered by loose controls, poor Afghan cooperation and limited coordination among U.S. agencies, an American watchdog said Wednesday.

Afghan President Hamid Karzai has banned U.S. government advisers from working at the central bank, Karzai's government has failed to prosecute suspected financial crimes and authorities conduct only lax checks on U.S. currency carried abroad through Kabul International Airport, said the report by the U.S. special inspector general for Afghanistan reconstruction.

"U.S. agencies have not done all they can to safeguard U.S. funds, and the Afghan government has not provided the cooperation needed to build a strong, secure financial system," said Herbert Richardson, the acting inspector general.

The report provided fresh evidence of flaws and political interference that are undermining the war-torn country's fragile financial system, especially the commercial banking sector. The sector has been shaken by last year's near-collapse of the Kabul Bank, the country's largest private bank, from an estimated $850 million in allegedly fraudulent loans to bank insiders, including a brother of Karzai's.

"The United States has poured billions of aid dollars into a country plagued by corruption, insurgency and the narcotics trade. It is essential that we use all available tools to ensure that U.S. dollars are protected from fraud and diversion to the insurgency," Richardson said.

Widespread corruption within Karzai's U.S.-backed government and the political elite is stoking the decade-old insurgency by the Taliban and allied groups, and has helped turn American public opinion against the war.

The special inspector general's report assessed U.S.-led efforts to bolster the Afghan government's regulation of the financial sector. It also looked at U.S. agencies' ability to track American cash payments — out of some $70 billion Congress has appropriated for security and aid programs since 2002 — to contractors and government workers as they flow through Afghanistan's economy.

Despite taking steps to track those payments, the report said, U.S. agencies have "limited visibility over how these funds flow through the Afghan economy, leaving them vulnerable to fraud or diversion to insurgents."

U.S. Treasury officials described the working conditions at the Afghan central bank as "hostile," making it difficult for U.S. government advisers to train regulators and fight financial crimes such as money laundering. Karzai recently banned U.S. advisers from working at the bank, and there are no plans for U.S. officials to go back there, the report said.

Among other problems, American agencies don't record the serial numbers of cash dispersed to contractors or other recipients, and they've continued to use unlicensed dealers, known as hawalas, to transfer cash to far-flung provinces, it said.

The report noted one case in which an unlicensed hawala dealer failed to pass on $2.8 million in aid for infrastructure projects in the Taliban stronghold of eastern Paktika province.

"Data on the serial numbers on cash paid by U.S. agencies could be used to prevent financial crimes. For instance, U.S. law enforcement personnel could scan the serial numbers of cash recovered from military operations (against insurgents) to trace the source of these funds and determine the extent to which they've passed through U.S. contractors," the report said.

American and Afghan officials could identify U.S. funds being carried abroad through Kabul's airport using bulk currency counters to record the serial numbers and then match them with cash payments made to American contractors.

The report, however, noted that disagreements over the placement of two U.S.-provided bulk currency counters at the airport delayed their installation for seven months.

The machines were in operation by April, but were being used only to count declared cash and not to record serial numbers or report financial data to an anti-money laundering unit overseen by the U.S. Treasury Department, the report said.

It also said that the government continued to allow VIPs to bypass security and customs screenings. While these people are required to declare their currency, there are no plans to scan their cash to record serial numbers, and U.S. customs officials are barred from the airport facility that Afghan VIPs use.

In February, the Treasury Department slapped sanctions on the New Ansari Money Exchange, a major hawala dealer, and 15 executives — some with links to Karzai — for allegedly sending billions of dollars in cash out of the country through the airport as part of a scheme to conceal drug-trafficking proceeds.

Programs to strengthen the country's financial sector and to fight money-laundering and terrorism financing have been hampered by "limited Afghan cooperation," the report said.

As an example, it said that of 21 "leads" on financial crimes provided to the Afghan attorney general's office, only four were pursued to prosecution.


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