Article:

Firms reminded about potential financial crime risks linked to Afghanistan

03 September 2021

In the midst of escalating international situations and geo-political crises, firms would be forgiven for not considering the regulatory impact these may have. Nevertheless, both the Financial Conduct Authority (FCA) and the Office of Financial Sanctions Implementation (OFSI) released statements on 31st August 2021, reminding firms about the potential financial crime risks linked to the situation in Afghanistan.

Specifically, in their statements, the FCA and OFSI highlighted that:

  • firms should be aware of the possible impact these events may have on patterns of financial activity when they assess risks related to particular customers and flows of funds;
  • While Afghanistan is not currently listed as a high-risk jurisdiction in Schedule 3ZA of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLRs’ as amended), firms are required to apply risk sensitive enhanced due diligence measures where there is a high risk of money laundering or terrorist financing;
  • firms should ensure that they appropriately monitor and assess transactions to Afghanistan to mitigate the risks of being exploited to launder money or finance terrorism;
  • suspicious activity should continue to  be reported to the UK Financial Intelligence Unit (UKFIU) at the National Crime Agency (NCA); and
  • sanctions are already in place in respect of Afghanistan (against individuals and entities associated with the Taliban), and firms should continue to screen against the UK Sanctions List and in particular the regime specific list for Afghanistan

What should firms be doing?

As noted by the FCA, firm-wide risk assessments, customer due diligence, enhanced due diligence and transaction monitoring, as required under the MLRs, are particularly relevant in this context. Firms should therefore ensure that:

  • their risk assessments (from a firm-wide, customer, and country perspective) have been updated to consider the impact of the situation;
  • due diligence measures are reviewed and commensurate risk-based measures are applied in situations where customer business relationships have links to Afghanistan; and 
  • transaction monitoring controls are able to adequately identify transactions which include customers and/or the flow of funds to or from Afghanistan.

How can BDO help?

BDO’s Economic Crime Advisory team work in close partnership with clients, obtaining a deep understanding of their business and the specific environment they operate in. We act as a strategic partner, providing clear advice which is both balanced and constructive. We have experience in reviewing and helping firm’s to enhance their risk management frameworks, including risk assessments, due diligence measures, and transaction monitoring controls. Therefore, please do not hesitate to contact a member of the BDO Economic Crime Advisory team if you have any questions regarding how the situation in Afghanistan impacts your firm, or how your financial crime prevention framework needs to be updated to mitigate these developing risks.