VZCZCXRO0801
PP RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #0668/01 0541121
ZNY EEEE 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 SECTION 01 OF 03 KABUL 000668 
 
NOFORN 
SENSITIVE 
SIPDIS 
 
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. 
 
KABUL 00000668  002 OF 003 
 
 
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 
 
KABUL 00000668  003 OF 003 
 
 
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