In 2015, the profits generated by Afghanistan's illicit economy were worth more than $1 billion. Drug trafficking, smuggling, unregulated trade, and fraud in procurement contracts are encumbering the country's economic development and funding the terrorist groups that undermine its stability.
Money laundering plays a crucial role in supporting this criminality. Yet over the past decade, the government has not been able to do much to crack down on it: of the many clear cases of the practice that have appeared, only a few have been prosecuted. The problem is a product of several factors, including lax financial and customs controls, inadequate expertise in the Afghan government, high-level opposition to change, and weak enforcement mechanisms.
The hawala system is appealing to Afghans seeking to shield ill-gotten gains from the state.
Chief among the roadblocks, however, is the nature of Afghanistan's capital flows. Most of the country's economic activity is informal, and data provided by the Ministry of Finance suggest that only 35 percent of the financial flows within the country are legal. Unregulated cash transactions and remittances through the country's traditional money transfer system, a network of brokers known as hawala, are the rule. According to the Financial Action Task Force, an international anti-money-laundering body, more than half of all transactions in Afghanistan involve hawala brokers. Ordinary Afghans do not have many other options: although the country's banking sector has grown significantly in recent years, most commercial banks are still concentrated in its cities. For many Afghans, hawala brokers, whose services often leave no paper trail, provide services that are cheaper and more convenient than their counterparts in the official banking sector.
Largely because of its informality and opacity, the hawala system is also at the center of Afghanistan's troubles with money laundering. Many brokers are unlicensed, operating without oversight in violation of domestic laws and foreign exchange regulations. Making matters worse, the line between the official banks and the hawala system is blurry. Hawala brokers often keep bank accounts and use bank transfers to