SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance

OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

Limited Interagency Coordination and Insufficient 

Controls over U.S. Funds in Afghanistan Hamper U.S. 

Efforts to Develop the Afghan Financial Sector and 

Safeguard U.S. Cash

July 20, 2011
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page i

OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

July 20, 2011

Executive Departments and Agencies:

This report discusses the results of a performance audit of U.S. efforts to improve the capacity of the 

Afghan government to regulate the financial sector and to strengthen the controls that U.S. agencies use 

to track U.S. funds as they flow through the Afghan economy. This report includes one recommendation 

to the U.S. Ambassador to Afghanistan to improve interagency coordination on financial sector 

development programs and three recommendations to the Secretary of State and the Secretary of

Defense to strengthen oversight over the flow of U.S. funds through the Afghan economy.

When preparing the final report, we considered comments from the U.S. Embassy in Kabul, USAID, and 

DHS, which generally concurred with the report’s recommendations. These comments are reproduced 

in appendices II-IV, respectively. 

A summary of this report is on page ii. This performance audit was conducted by the Office of the 

Special Inspector General for Afghanistan Reconstruction under the authority of Public Law No. 110-181, 

as amended; the Inspector General Act of 1978; and the Inspector General Reform Act of 2008. 

Herbert Richardson 

Acting Special Inspector General 

for Afghanistan Reconstruction 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page ii

List of Addressees

The Honorable Hillary Rodham Clinton

Secretary of State

The Honorable Leon E. Panetta

Secretary of Defense

The Honorable Janet Napolitano

Secretary of Homeland Security

The Honorable Timothy F. Geithner

Secretary of the Treasury

The Honorable James B. Cunningham

Charge d’Affaires, U.S. Embassy Afghanistan

Dr. Rajiv Shah

Administrator, U.S. Agency for International Development

Dr. S. Ken Yamashita

USAID Mission Director to Afghanistan
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page iii

For more information contact: SIGAR Public Affairs at (703) 602-8742 or PublicAffairs@sigar.mil

SIGAR

Special Inspector General for Afghanistan Reconstruction

SIGAR Audit-11-13 July 2011

Limited Interagency Coordination and Insufficient Controls 

over U.S. Funds in Afghanistan Hamper U.S. Efforts to 

Develop the Afghan Financial Sector and Safeguard 

U.S. Cash

What SIGAR Reviewed

Since 2002, Congress has appropriated more than $70 billion to implement security and development assistance 

projects in Afghanistan, with some of those funds converted into cash and flowing through the Afghan economy. The 

United States is implementing programs to increase the capacity of Afghanistan’s central bank (Da Afghanistan Bank, or 

DAB) to regulate the nation’s 17 commercial banks and to strengthen U.S. and Afghan law enforcement agencies’

oversight over the flow of funds through the Afghan economy. This report (1) evaluates U.S. efforts to improve the 

capacity of the Afghan government to regulate the financial sector (which includes commercial banks and informal 

financial organizations, or hawalas) and (2) assesses the controls that U.S. agencies use to track U.S. funds as they flow 

through the Afghan economy. To accomplish these objectives, we reviewed Afghan laws and U.S. policies, plans, and 

progress reports relevant to U.S. financial sector development initiatives. We met with officials from the Departments 

of State, Homeland Security (DHS), Treasury, Defense (DOD), and the U.S. Agency for International Development 

(USAID). We conducted our work in Washington, D.C., and Kabul, Afghanistan, from October 2010 to July 2011 in 

accordance with generally accepted government auditing standards.

What SIGAR Found

Although U.S. agencies reported some progress in strengthening the Afghan government’s ability to regulate its 

financial sector, two challenges prevent U.S. programs from fully achieving their intended results. First, U.S. agencies 

have not fully coordinated the implementation of their efforts. For instance, a key interagency working group did not 

include all U.S. agencies involved in implementing financial sector development programs. Additionally, DOD and DHS 

officials have not coordinated their work with the same commercial banks. Limited interagency coordination puts U.S.

agencies at risk of working at cross-purposes or, at a minimum, missing opportunities to leverage existing relationships 

and programs. Second, Afghan ministries have not cooperated consistently with the United States, thereby delaying 

U.S. programs or preventing them from succeeding. For instance, Treasury reported that its programs to strengthen 

the Afghan government’s ability to identify financial crimes have had limited results because of Afghan officials’

reluctance to prosecute some cases. Additionally, because of disagreements between the U.S. and Afghan 

governments, the Afghan government has banned U.S. government advisors from working at DAB. Without full

cooperation from the Afghan government, U.S. financial sector development efforts are limited.

While U.S. agencies have taken steps to strengthen their oversight over U.S. funds flowing through the Afghan 

economy, they still have limited visibility over the circulation of these funds, leaving them vulnerable to fraud or 

diversion to insurgents. First, U.S. agencies do not record the serial numbers of cash disbursed to contractors and other 

recipients. Second, commercial banks do not record the serial numbers of electronic payments made by U.S. agencies 

to contractors and other recipients when their electronic payments are converted into cash. Third, U.S. contracting 

regulations neither prohibit prime contractors from using unlicensed hawalas to pay subcontractors nor require them 

to use banks capable of handling electronic funds transfers. These vulnerabilities limit the U.S.’s ability to track 

information on U.S. funds as they enter and circulate through the Afghan economy – information that could be 

important for law enforcement purposes. 

What SIGAR Recommends

Our draft of this report included a recommendation that the members of the Financial Sector Working Group include 

DHS in their planning meetings. In commenting on a draft of this report, the U.S. Embassy in Kabul, USAID, and DHS 

provided documentation that all U.S. agencies involved in implementing financial sector development programs are 

now included in the key interagency working group. As a result, SIGAR deleted the recommendation. SIGAR is making 

one recommendation to the U.S. Ambassador to Afghanistan to improve interagency coordination on financial sector 

development programs and three recommendations to the Secretaries of State and Defense to strengthen oversight 

over the flow of U.S. funds through the Afghan economy. The U.S. Embassy in Kabul agreed to take some steps to 

implement the recommendations, but also noted continuing challenges to financial sector development in Afghanistan. 

DOD chose not to comment on this report. 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page iv

TABLE OF CONTENTS

Background ...................................................................................................................................................2

Limited Interagency Coordination And Inconsistent Afghan Cooperation Hamper 

Effectiveness of Programs to Strengthen the Afghan Financial Sector..................................................6

Lack of Visibility Over U.S. Cash Entering the Afghan Economy Leaves These 

Funds Vulnerable to Fraud or Diversion to Insurgents ........................................................................13

Conclusion...................................................................................................................................................20

Recommendations......................................................................................................................................21

Comments...................................................................................................................................................21

Appendix I: Scope and Methodology.........................................................................................................23

Appendix II: Comments from the U.S. Embassy Kabul ..............................................................................26

Appendix III: Comments from the Department of Homeland Security .....................................................30

Appendix IV: Comments from the U.S. Agency for International Development.......................................32

TABLES

Table 1: U.S. Obligations and Expenditures for Programs to Improve Afghan 

Financial Sector Regulation, as of December 2010................................................................................6

FIGURES AND PHOTOS

Figure 1: Mechanisms Used by U.S. Agencies to Make Payments to Contractors 

and Afghan Civil Servants.......................................................................................................................4

Figure 2: Number of Commercial Bank Branches and Dollar Value of Assets 

Managed by Afghan Banks (in millions) ...............................................................................................10

Figure 3: Percentage of U.S. Army Finance Offices’ Payments Made in Cash in 

Afghanistan...........................................................................................................................................15

Figure 4: Percentage of State’s Payments Made in Cash in Afghanistan ..................................................16

Figure 5: Vulnerabilities in Flow of U.S. Funds Through the Afghan Economy..........................................17

Figure 6: Map Indicating Locations of EFT Capable Banks and Licensed Hawalas 

in Afghanistan.......................................................................................................................................20
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page v

ACRONYMS

AIB Afghanistan International Bank

AML/CFT Anti-Money Laundering/Countering the Financing of Terrorism

ANSF Afghan National Security Forces

ATFC Afghan Threat Finance Cell

ATM/POS Automatic Teller Machine/Point Of Sale 

ARTF Afghanistan Reconstruction Trust Fund

CENTCOM U.S. Central Command

DAB Da Afghanistan Bank

DHS Department of Homeland Security

DOD Department of Defense

EFT Electronic Funds Transfer

EGGI Economic Growth and Governance Initiative

FAIDA Financial Access for Investing in the Development of Afghanistan

FinTRACA Financial Transactions and Reports Analysis Center of Afghanistan

GAO Government Accountability Office

IMF International Monetary Fund

ISAF International Security Assistance Force 

SIGAR Special Inspector General for Afghanistan Reconstruction

SY Solar Year

TFBSO Task Force for Business and Stability Operations

USAID U.S. Agency for International Development

USFOR-A U.S. Forces-Afghanistan
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 1

Limited Interagency Coordination and Insufficient Controls over U.S. Funds in 

Afghanistan Hamper U.S. Efforts to Develop the Afghan Financial Sector and 

Safeguard U.S. Cash

In 2002, Afghanistan did not have an active banking system. With support from the U.S. government 

and other donors, the country reestablished its central bank (Da Afghanistan Bank or DAB), which, as of 

August 2010, was responsible for regulating 17 commercial banks with about 320 branches throughout 

Afghanistan. However, DAB’s oversight and regulatory operations are not yet fully developed, many of 

the commercial banks lack basic capabilities, and the Afghan population continues to rely heavily on 

cash transactions through informal networks, known as hawalas.1

The U.S. government has an interest in addressing these weaknesses, both to reduce the risk that U.S. 

funds are used for fraudulent purposes or diverted to insurgent networks and to help the Afghan 

government develop the financial capacity to support sustained development—a key reconstruction 

goal. As a result, U.S. agencies, particularly the U.S. Agency for International Development (USAID) and 

the Departments of the Treasury (Treasury), Defense (DOD), and Homeland Security (DHS) have 

implemented programs to develop the Afghan government’s capacity to regulate the financial sector 

and strengthen controls over U.S. funds. This audit (1) evaluates U.S. efforts to improve the capacity of 

the Afghan government to regulate the financial sector and (2) assesses the controls that U.S. agencies 

use to track U.S. funds as they flow through the Afghan economy.

 Moreover, Afghanistan’s financial 

sector faced a significant crisis in September 2010, when Kabul Bank (Afghanistan’s largest commercial

bank) nearly collapsed after news of alleged fraud and corruption at the bank led to a run on deposits.

To accomplish these objectives, we reviewed Afghan laws, and U.S. policies, plans, and progress reports 

relevant to U.S. initiatives to improve the Afghan government’s capacity to regulate the financial sector 

and to strengthen oversight over U.S. funds as they flow through the Afghan economy. We met with 

officials from the Department of State (State), DHS, Treasury, and DOD, as well as USAID and various 

officials at DAB. We also observed a meeting of an interagency working group focused on financial 

sector issues. We conducted site visits at the Kabul International Airport and various offices of DAB. We 

conducted our work in Washington, D.C. and Kabul, Afghanistan from October 2010 through July 2011,

in accordance with generally accepted government auditing standards. Appendix I includes a discussion 

of our scope and methodology.

 1 Hawala dealers are individuals engaged in an informal money transfer system common in the Middle East and South Asia.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 2

BACKGROUND

U.S. funds enter the Afghan economy primarily through disbursements to contractors and salary 

payments to Afghan civil servants.

• Disbursements to contractors and other entities: DOD, State, and USAID2 obligate funds to 

contractors and other entities to implement contracts, grants, and cooperative agreements for 

reconstruction in Afghanistan.3

 U.S. agencies rely on civilian contractors or other recipients to 

provide supplies and services in support of contingency operations and reconstruction programs 

in Afghanistan. U.S. Forces-Afghanistan (USFOR-A) serves as the command and control 

headquarters for U.S. Forces operating in Afghanistan.4

• Salary payments to civil servants and Afghan National Security Forces (ANSF) personnel:

 Its responsibilities include overseeing all 

DOD contractors in Afghanistan and managing, coordinating, and monitoring DOD contractors 

throughout Afghanistan through its major subordinate commands and liaisons with civilian 

agencies (such as State and USAID). USFOR-A’s Financial Management Center provides technical 

oversight of all theater finance operations, including negotiating with commercial banks on 

expanding their use of electronic payments.

5

 As 

of February 2010, State and USAID provided about $7.9 million in payments to support the 

salaries of at least 900 Afghan civil servants. Under this initiative, the U.S. government makes 

contributions directly to DAB, which transfers the funds to the Afghan Ministry of Finance for 

payment. Additionally, the Law and Order Trust Fund for Afghanistan, an international trust 

fund managed by the United Nations Development Programme, pays for salaries, allowances, 

and other benefits of Afghan National Police personnel. Using this trust fund, the United States

and other international donors have contributed almost $1.5 billion since 2002 to support the 

salaries of as many as 125,000 personnel.6

U.S. agencies typically use two mechanisms to pay contractors and other entities and Afghan civil 

servants—electronic funds transfer (EFT) or cash payments, either in U.S. dollars or Afghanis.

7

 2 While other U.S. agencies have awarded contracts in Afghanistan, Congress has appropriated the majority of funds for 

reconstruction in Afghanistan to DOD, State, and USAID. As a result, we focused on these three agencies for the purposes of 

this report.

 The 

U.S. government also supports a pilot program to deliver salaries to Afghan National Security Forces 

3 We previously reported that between fiscal year 2007-2009, DOD, State, and USAID obligated as much as $17.7 billion to 

contractors and other entities based in the United States or Afghanistan. Funds may be disbursed to bank accounts based in 

the United States, in which case they may not directly enter the Afghan economy. Other disbursements are made directly into 

Afghan bank accounts, where they enter the Afghan economy. Data on total disbursements entering the Afghan economy 

directly are not available. See SIGAR Audit-11-4, DOD, State, and USAID Obligated Over $17.7 Billion to about 7,000 Contractors 

and other Entities for Afghanistan Reconstruction During Fiscal Year 2007-2009 (Washington, D.C.: October 27, 2010). 4 U.S. command structure in Afghanistan has evolved over time. To perform its military missions around the world, DOD 

operates geographic combatant commands that conduct activities within assigned areas of responsibility. Combatant 

commanders oversee U.S. military operations that take place within their area of responsibility. In Afghanistan, American 

forces fight as part of the International Security Assistance Force (ISAF), a multinational strategic unit. The Combined Joint Task 

Force, which was subordinate to ISAF, was responsible for the command and control of operations throughout Afghanistan. In 

2009, the U.S. troops’ designation became U.S. Forces-Afghanistan. USFOR-A develops strategies and priorities for U.S. 

operations in Afghanistan.

5 We completed two audits related to U.S. salary support provided to Afghan civil servants. See SIGAR Audit-11-5, Actions 

Needed to Mitigate Inconsistencies in and Lack of Safeguards over U.S. Salary Support to Afghan Government Employees and 

Technical Advisors (Washington, D.C.: October 29, 2010) and SIGAR Audit-11-10, Despite Improvements in MoI’s Personnel 

Systems, Additional Actions are Needed to Completely Verify ANP Payroll Costs and Workforce Strength (Washington, D.C.: 

April 25, 2011). 6 U.S. agencies provided about $441 million to this fund through September 30, 2010. 7 The Afghani is the official currency of Afghanistan.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 3

personnel through mobile phones. In an EFT payment, funds are electronically transferred from the 

U.S. Federal Reserve Bank, via Citibank to either DAB, Alfalah Bank (a Pakistani bank with a Kabul 

branch), or Afghanistan International Bank (AIB), which then transfers the funds directly into the 

vendor’s bank account.8

According to U.S. officials, U.S. funds typically flow through the Afghan economy in three phases. First, 

DOD, State, and USAID disburse funds to recipients, either through an EFT or in cash. Once an EFT 

payment is made, contractors and other entities or civil servants convert the electronic payment into 

cash at a commercial bank, a process known as monetization. Because Afghanistan’s economy is cashbased, these recipients typically purchase raw materials or pay subcontractors in cash. Finally, 

contractors, subcontractors, and civil servants circulate funds through the Afghan economy using EFTs, 

cash, or hawalas to transfer funds between individuals. Afghans depend heavily on hawalas to transfer 

money within Afghanistan and abroad. In a typical hawala transaction, cash is transferred from one 

person to another through a network of trusted agents, who have representatives in the locations 

where money is being sent and received. For example, a prime contractor or another recipient that 

receives U.S. funds may use a hawala dealer to make payments to its subcontractors in remote areas. 

Figure 1 shows how U.S. funds enter and flow through the Afghan economy.

 DOD and State also make payments to contractors in cash whereby payment 

officials disburse cash directly to vendors. When USAID and State pay Afghan civil servants, they do so 

by making EFTs to DAB, which are forwarded to the civil servant either in cash or via an EFT through the 

Afghan Ministries of Finance or Interior. Fifty-six percent of Afghan civil service employees and nearly 

80 percent of Afghan National Police personnel receive their salaries electronically.

 8 A formal partnership was formed between Citibank and AIB in September 2010, which established AIB as the predominant 

intermediary Afghan commercial bank to transfer DOD vendor payments. 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 4

Figure 1: Mechanisms Used by U.S. Agencies to Make Payments to Contractors and Afghan Civil 

Servants

DOD, State, and USAID 

payments made to 

contractors and other 

entities

EFT

Electronic 

payment made to 

contractor’s bank

Contractor 

monetizes EFT 

payment

Contractor 

receives 

payment

Direct cash 

payment to 

contractor

Cash

Contractor circulates 

funds through the 

Afghan economy, 

including paying 

subcontractors through 

unlicensed hawalas

Salary support payments 

made by USAID, State, 

and the 

U.S. Embassy in Kabul

Da Afghanistan 

Bank

Ministry of 

Finance or 

Interior (for ANSF 

personnel)

EFT payment 

made to civil 

servant’s bank

EFT

Direct cash 

payment made to 

civil servant

Cash

Civil servant 

monetizes EFT 

Payment

Civil 

servant 

receives 

payment

Payment circulates 

through economy

Some funds 

leave 

Afghanistan 

through 

airports and 

other border 

crossings

Cash Payment

EFT Payment

Disbursement:

U.S. agencies use EFT or 

cash to make payments to 

contractors and Afghan 

civil servants. EFT 

payments flow through a 

contractor’s commercial 

bank account, while cash 

is paid directly to the 

recipient.

Monetization:

Payments are converted 

into cash at a commercial 

bank.

Key:

Circulation:

Funds are used to pay 

subcontractors or 

circulated through the 

Afghan economy. Some 

funds leave the country to 

pay for imports or to settle 

foreign debts.

Source: SIGAR analysis of information provided by State, Treasury, DOD, and DHS.

Note: Figure shows payments made through Afghan banks. U.S. agencies also make payments through U.S. banks, but these 

payments do not directly enter the Afghan economy and are, therefore, not depicted in this figure. As we note elsewhere in 

this report, USAID does not make cash payments to recipients.

Because of the level of corruption in Afghanistan and the continuing insurgency, the U.S. government’s 

lack of visibility over its funds is a significant concern. Reports of as much as $10 million a day in cash 

leaving the Kabul International Airport have added to these concerns. Treasury officials reported that 

about $1.3 billion in outbound cash was declared to Afghan Customs Department personnel at the Kabul 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 5

International Airport during 2010, including about $482 million (or 36 percent of the total) in 

U.S. dollars. As a result, the U.S. government has implemented programs to develop the Afghan 

government’s capacity to regulate its financial sector and strengthen controls over U.S. funds that enter

and leave Afghanistan.

• USAID’s Economic Growth and Governance Initiative (EGGI), a program active from August 

2009 until it was terminated for convenience by USAID in April 2011, provided support to DAB 

to, among other things (1) strengthen its ability to conduct oversight of commercial banks 

through onsite and offsite audits (2) improve macroeconomic decision-making through data 

collection and analysis, and (3) promote the adoption of amendments to existing banking laws. 

Under this initiative, EGGI advisors mentor and support various departments in DAB, including 

the Financial Supervision Department (which regulates commercial banks, hawalas, and other 

financial institutions in Afghanistan) and the Office of General Counsel (which drafts commercial 

banking regulations and proposes financial sector laws on behalf of DAB to the Afghan 

Parliament).9

• Treasury’s Hawala Registration and Support for the Financial Transactions and Reports

Analysis Center of Afghanistan (FinTRACA)

 

10

• DOD’s Task Force for Business and Stability Operations (TFBSO) has initiatives to increase 

Afghan banks’ ability to accept EFT transactions and to develop a retail payments infrastructure

that will allow banks to establish an Automatic Teller Machine/Point of Sale (ATM/POS) 

network.

supports DAB in its efforts to register hawalas and 

prevent money laundering or the illicit use of U.S. funds. Under Afghan law, all operating 

hawalas are required to be licensed and report their transactions periodically to DAB. Treasury 

has also mentored DAB’s anti-money laundering/countering the financing of terrorism 

(AML/CFT) staff to more effectively regulate AML/CFT programs being implemented at 

commercial banks and other financial institutions. In addition, Treasury has provided 

equipment and technical assistance to FinTRACA to increase its capacity to monitor currency 

flows throughout Afghanistan. 

11

• DHS’s Bulk Cash Flow Action Plan is a program to help the Afghan government monitor the flow 

of currency leaving the Kabul International Airport—an important component of strengthening 

Afghanistan’s financial sector. DHS officials have trained Afghan law enforcement officials in 

methods to identify bulk cash smuggling. DHS also established Operation FinTRAX, an initiative 

to place bulk currency counters at the Kabul International Airport to monitor the outflow of 

funds from Afghanistan. Additionally, U.S. and Afghan law enforcement personnel can use 

 In March of 2010, TFBSO established an EFT Assistance Center, which receives calls 

from banks, contractors, and U.S. agency contracting offices to address problems they may have 

when making EFT payments.

 9 USAID has provided assistance to build DAB’s capacity under other initiatives since 2003. 10 FinTRACA is the financial intelligence unit of DAB and receives data on financial activity to identify financial crimes and assist 

law enforcement agencies in investigation and prosecution of criminal activity. Typically, financial intelligence units are based 

within the central bank , the Ministry of Finance , or regulatory agency of a country and provide intelligence on suspicious 

transactions to law enforcement organizations for investigation and arrest. 

11A POS transaction is a form of electronic payment developed for the retail sector in which consumers may use credit or debit 

cards to make payments to vendors. According to TFBSO officials, the funding for the development of the retail payments 

infrastructure project has been put on hold by State and negotiations among TFBSO, State, and Treasury are underway to 

continue the project or find alternatives. 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 6

these data to identify individuals suspected of bulk currency smuggling or other financial 

crimes.12

Table 1 shows the funds that USAID, Treasury, DOD, and DHS have obligated and expended under these 

initiatives.

 

Table 1: U.S. Obligations and Expenditures for Programs to Improve Afghan Financial 

Sector Regulation, as of December 2010

Department or 

Agency Program

Obligations 

(dollars in 

millions)

Expenditures

(dollars in 

millions)

USAID Economic Growth and Governance Initiative $8.9 $5.9

Treasury Hawala registration and support to FinTRACA $6 $2.7

DOD TFBSO banking sector development initiative $4 $2

DHS Bulk Cash Flow Action Plan implementation $1.8 $1.2

Total $20.7 $11.8

Source: SIGAR Analysis of USAID, Treasury, DOD, and DHS data.

Note: Obligations for the EGGI program were derived from contractor estimates.

Additionally, the Afghan Threat Finance Cell (ATFC), an interagency fusion center established in 2009, 

uses diplomacy, law enforcement actions, military operations, and targeted financial measures to 

address threat finance in Afghanistan. The Drug Enforcement Administration heads the ATFC, with 

representatives from Treasury and DOD. ATFC operations are focused on addressing corruption within 

the Afghan government, disrupting insurgency financing, and attacking the Afghan narcotics trade. 

According to ATFC officials, the ATFC works with two Afghan counterparts, FinTRACA and a vetted 

police unit called the Sensitive Investigative Unit’s Financial Investigative Team.13

LIMITED INTERAGENCY COORDINATION AND INCONSISTENT AFGHAN COOPERATION 

HAMPER EFFECTIVENESS OF PROGRAMS TO STRENGTHEN THE AFGHAN FINANCIAL SECTOR

 

Although U.S. agencies reported some progress in strengthening the Afghan government’s ability to 

regulate its financial sector, two challenges are preventing U.S. programs from fully achieving their 

intended results. First, U.S. agencies have not fully coordinated their development efforts. Although 

several U.S. strategic documents concerning operations in Afghanistan emphasize the importance of 

interagency coordination in Afghanistan, we found instances in which U.S. agencies were not fully 

 12 Because the Bulk Cash Flow Action Plan and Operation FinTRAX are designed both to strengthen the Afghan financial sector 

and to bolster visibility over U.S. funds flowing through the Afghan economy, we discuss findings related to these initiatives in 

both sections of this report. 

13 According to DHS Officials, the Afghan Sensitive Investigative Unit is a cadre of Afghan National Police investigators who have 

been trained and mentored by DHS and other U.S. agency advisors.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 7

collaborating with one another. For example, DOD and DHS officials have not coordinated their efforts

involving their work with the same banks. As a result of limited interagency coordination, these 

agencies are at a risk of working at cross purposes, or, at a minimum, missing opportunities to leverage 

existing relationships and programs. Second, limited cooperation from Afghan ministries has delayed 

the implementation of U.S. programs or is preventing them from achieving their intended results. For 

instance, USAID officials reported that DAB has resisted efforts to conduct an onsite examination of 

Afghan commercial banks because DAB officials believe that such supervision would be too difficult to 

implement. Additionally, officials from the U.S. Embassy in Kabul reported that as of May 2011,

Treasury no longer provides technical advisors at DAB and described the working conditions at DAB as 

“hostile.” Limited cooperation from the Afghan ministries may reduce the effectiveness of U.S. financial 

sector development efforts.

U.S. Agencies Have Not Fully Coordinated Their Programs to Develop Afghanistan’s Financial 

Sector

Interagency coordination has improved in the wake of the Kabul Bank crisis; however, we found that 

U.S. agencies have not fully coordinated their financial sector development programs. Several U.S. 

strategic documents for Afghanistan emphasize the importance of interagency coordination. For 

instance, according to the Afghanistan/Pakistan Regional Stabilization Strategy,14 U.S. civilian and 

military agencies are to combine their efforts to achieve their objectives in Afghanistan. Additionally, 

the U.S. Government Integrated Civilian-Military Campaign Plan for Support to Afghanistan15 states that 

the implementation of U.S. reconstruction initiatives in Afghanistan depends on effective integration of 

civilian and military resources. Finally, the U.S. Government Accountability Office (GAO) has identified 

key practices that can help enhance and sustain interagency coordination.16

Prior to the run on Kabul Bank, officials from USAID, Treasury, and DOD did not regularly meet to discuss 

their efforts to develop the Afghan financial sector. In September 2010, USAID and Treasury created the 

Financial Sector Working Group to coordinate their response to the Kabul Bank crisis and share 

information on relevant development programs. The Financial Sector Working Group was created to 

increase the volume of information that U.S. agencies and international organizations, such as the 

International Monetary Fund (IMF), receive from DAB and other Afghan ministries regarding the health 

of Kabul Bank. According to USAID and Treasury officials, while the working group was created in 

response to the Kabul Bank crisis, they intend to continue meeting after the crisis is resolved to continue 

coordinating U.S. agency financial sector development efforts. In addition to Treasury and USAID 

officials, the working group includes representatives from DOD’s TFBSO and Deloitte contractors that 

performed work for USAID under the EGGI contract. Representatives from the World Bank and the 

International Monetary Fund also attend. In weekly meetings, working group members provide updates 

on their agencies’ financial sector development efforts and identify areas where members can reduce 

duplication of effort. Additionally, members discuss systemic risks to the financial sector in Afghanistan. 

Previous topics have included the health of banks that DOD uses to make EFT payments to contractors,

negotiations between DAB and the International Monetary Fund over DAB’s response to the Kabul Bank 

These practices include 

establishing communication tools to operate across agency boundaries, including all stakeholders in 

developing mutually reinforcing or joint strategies, leveraging resources by defining and addressing 

problems, and agreeing on agency roles and responsibilities. 

 14 Office of the Special Representative for Afghanistan and Pakistan: Afghanistan and Pakistan Regional Stabilization Strategy

(Washington, D.C.: February, 2010).

15 U.S. Embassy in Kabul/U.S. Forces-Afghanistan: United States Government Integrated Civilian-Military Campaign Plan for 

Support to Afghanistan (Kabul, Afghanistan: February, 2011). 16 GAO-06-15, Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal 

Agencies (Washington, D.C.: October 21, 2005).
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 8

crisis, and the effects of the Kabul Bank crisis on U.S. operations in Afghanistan. The working group has 

also coordinated efforts to finance the forensic audit of Kabul Bank and other Afghan banks. We

observed a working group meeting and found that members engaged in a frank and open discussion of 

financial sector issues and shared important updates on financial sector development program 

initiatives. U.S. agencies also participate in other working groups to discuss financial sector and counter 

threat finance issues, including the U.S. Embassy’s Executive Level Working Group and the Illicit Finance 

Working Group.

Nevertheless, we found instances where agencies were not achieving the level of coordination needed 

to realize U.S. reconstruction objectives for Afghanistan. For instance, we found that the Financial 

Sector Working Group did not include all agencies involved in implementing financial sector 

development programs. Specifically, DHS, which is implementing programs to strengthen the visibility 

over currency flows through the financial sector, was not a member of the working group. As a result, 

DHS may have been unaware of other agencies’ efforts, and members of the Financial Sector Working 

Group may not know of DHS’s efforts. For instance, some DHS officials we spoke with were unaware of 

DOD’s role in renovating FinTRACA’s headquarters.

17

Furthermore, U.S. agencies involved in financial sector initiatives have not always developed mutually 

reinforcing or joint strategies to guide their efforts. For instance, TFBSO provides assistance to Afghan 

commercial banks to develop their EFT processing capabilities through a commercial bank consortium

that provides a platform whereby Afghan commercial banks can develop a retail electronic payments 

infrastructure. TFBSO has also facilitated the partnership signed between Citibank and AIB. The 

agreement established AIB as the primary Afghan commercial bank for DOD vendor payments. DHS has 

also been working directly with AIB to install bulk currency counters at the bank through Operation 

FinTRAX. However, TFBSO officials told us they were unaware of DHS’ efforts. As a result, these 

agencies may be missing opportunities to leverage their efforts and implement their projects more 

efficiently and effectively.

 The renovation has caused a delay in connecting 

the bulk currency counters that DHS is installing at the Kabul International Airport to FinTRACA and 

ATFC. DHS and FinTRACA officials agreed to postpone the installation of the server at their office until 

FinTRACA has relocated to its new location. (DHS did not want to incur the cost of installing the servers, 

which would connect the counters to FinTRACA and ATFC through the internet, at both FinTRACA’s old 

and new locations). Had DHS been a member of the Financial Sector Working Group, the two agencies 

could have coordinated more closely to avoid the delay or, at a minimum, ensured that DHS was fully 

informed as to the reason for the delay.

Inconsistent Afghan Cooperation Has Negatively Impacted Programs to Strengthen 

Afghanistan’s Financial Sector from Achieving Their Intended Results

Although USAID, Treasury, and DHS have reported progress in strengthening the Afghan financial sector, 

we identified instances in which limited Afghan cooperation has hindered these programs. For example, 

USAID officials reported that some Afghan ministries have resisted efforts to strengthen oversight over 

Afghanistan’s banking system. Additionally, the Afghan government has appeared reluctant to 

prosecute cases despite Treasury’s efforts to help DAB identify and respond to financial crimes. 

Furthermore, the Afghan government has banned U.S. government advisors from working at DAB. 

Finally, Afghan officials have resisted instituting certain controls over cash leaving Kabul International 

Airport, thereby threatening the success of DHS’s Bulk Cash Flow Action Plan. 

 17Funds used to support FinTRACA’s move to its new facility were committed by ATFC, which used Drug Enforcement 

Administration obligations.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 9

USAID has made some progress in its initiative to build DAB’s capacity to regulate the financial sector, 

but inconsistent Afghan cooperation has limited the effectiveness of USAID’s program. USAID initiated 

EGGI in 2009 through a contract with Deloitte, LLP.

Lack of Sufficient Cooperation from Afghan Ministries Limits Effectiveness of USAID’s EGGI Program

18 The EGGI program’s goals included implementing a 

variety of economic development activities and capacity building efforts such as mentoring the staff of 

DAB’s Financial Supervision Department on methods to regulate the financial sector.

19 Additionally, 

EGGI’s goals included providing assistance to DAB in strengthening macroeconomic policies and 

strengthening financial sector legal and regulatory reforms. USAID obligated about $8.9 million20

Other data indicate that EGGI has had some successes. For example, Deloitte showed progress in 

meeting a number of USAID-established performance indicators, such as the growth of the financial 

sector in Afghanistan. With EGGI’s support, the number of commercial banks operating in Afghanistan 

(a key performance indicator) has increased from 6 state-owned banks that provided limited commercial

banking services in 2003 to 17 commercial banks in 2010, 10 of which are Afghan-owned companies. 

The number of bank branches has also increased to 327 in SY 1388 (see Figure 2). Collectively, these 

banks reported managing more than $3.4 billion in assets in SY 1388 (March 2009-March 2010). 

Furthermore, the number of Afghans with accounts at commercial banks (another key performance 

indicator) has also grown, from roughly 2 percent in SY 1386 (March 2007-March 2008) to more than 

5 percent in SY 1388 (March 2009-March 2010).

to 

provide advisors and technical equipment to support its training programs. With EGGI’s support, the 

Financial Supervision Department’s staff increased from 12 personnel, who had limited qualifications, to 

60 personnel, who had been trained in methods to regulate banks. According to USAID officials, 

regulators from the Financial Supervision Department now conduct monthly and quarterly audits of 

commercial bank financial records. EGGI advisors also assisted DAB in reporting its solar year (SY) 1388 

(March 2009-March 2010) financial statements on time for the first time since DAB’s reestablishment in 

2003.

 18 Deloitte’s responsibilities under the EGGI contract unrelated to developing DAB’s capacity to regulate the financial sector 

include (1) providing support to the Ministry of Finance to improve economic forecasting; (2) assisting various Afghan ministries 

to strengthen private sector development; and (3) working with local governments to implement economic policy reforms. 

USAID originally awarded the contract (EEM-I-00-07-00005-00) to BearingPoint, which sold its public services businesses 

(including the EGGI contract) to Deloitte in May 2009. Because the same advisors who worked for BearingPoint continued to 

perform services under Deloitte, we refer to Deloitte as the contractor for the purposes of this report. 

19 DAB’s Financial Supervision Department’s responsibilities include regulating Afghanistan’s commercial banks and other 

financial institutions by conducting oversight over the financial statements of these organizations to reduce systemic failures in 

the financial sector.

20 While the total cost of the EGGI contract was $92 million, $8.9 million was dedicated to financial sector development.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 10

Figure 2: Number of Commercial Bank Branches and Dollar Value of Assets Managed by Afghan Banks 

(in millions)

253

285

327

0

50

100

150

200

250

300

350

1386

(2007-2008)

1387

(2008-2009)

1388 

(2009-2010)

Number of Bank Branches

Commercial Bank Branches in Afghanistan

$1,712

$2,942

$3,478

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

1386

(2007-2008)

1387

(2008-2009)

1388

(2009-2010)

Value of Assets in U.S. Dollars

Dollar Value of Total Banking Sector Assets

Source: SIGAR Analysis of DAB data.

However, our review of EGGI also indicates that Deloitte did not meet all of the targets set by USAID. 

For example, EGGI contractor personnel produced only 2 of the 4 monetary policy briefs they were 

supposed to produce from October 2010 to March 2011. Additionally, several of EGGI’s performance 

targets for conducting onsite and offsite reviews of commercial banks were not always met from 

October 2010 to March 2011. For instance, EGGI contractor personnel planned to assist DAB’s Financial 

Supervision Department in conducting 41 onsite examinations of commercial bank financial records, but

DAB completed only 22 from October 2010 through March 2011. Additionally, EGGI’s targets included 

supporting the Financial Supervision Department’s issuance of 27 enforcement actions against 

commercial banks to call for an improvement in commercial bank management, but the DAB only issued 

16 such actions. 

This uneven performance may be due, in part, to the difficulty that USAID experienced obtaining full 

cooperation from the Afghan government in implementing EGGI. We identified a number of instances 

in which this occurred. For example, EGGI’s goals included supporting the passage of key banking sector 

reform legislation, such as strengthening risk assessment procedures at commercial banks and 

preventing commercial bank shareholders from serving as bank executives. However, EGGI contractor

officials stated that, in some cases, the Afghan Parliament has been reluctant to pass laws, such as the 

adoption of leading banking regulation practices that conflict with the interests of Afghan commercial 

banks. Additionally, according to USAID, Afghan ministries have not developed long-term strategic plans 

that ensure sustainability of USAID-funded projects, despite pressure from USAID to do so. In some 

cases, USAID officials stated that DAB officials resisted programs that they believed to be difficult to 

implement, even though they represented best practices for central bank operations. For instance, as 

part of their support to the Financial Supervision Department, USAID officials proposed that DAB 

employees conduct detailed onsite examinations of commercial banks to ensure the soundness of the 

banking sector. However, according to USAID, senior DAB officials did not agree to onsite examination 

of commercial banks and instead proposed that the DAB employees being supervised by USAID mentors

review records that commercial banks provide to DAB headquarters. Eventually, DAB officials agreed to 

support the establishment of onsite examinations by DAB’s Financial Supervision Department. Finally, 

U.S. officials reported that weak cooperation from Afghan ministries delayed the forensic audit of Kabul 

Bank.21

 21 A forensic audit includes reviews of payments to identify financial misconduct, abuse, or wasteful activity.

 Following media reports that raised concerns of widespread fraud at Kabul Bank, EGGI 

contractors advised DAB to conduct a forensic audit of Kabul Bank and other Afghan banks to explore 

the possibility of fraudulent loans made by Afghan commercial banks. DAB initially agreed to conduct a 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 11

forensic review of Kabul Bank and asked for Treasury and the International Monetary Fund to finance it. 

However, the Afghan government withdrew the request in November 2010, after Treasury specified 

that to finance the audit, a number of conditions would have to be met. Under Treasury’s conditions, 

independent auditors would conduct the forensic audit, Treasury could review the results of the audit, 

and the Afghan government would agree to implement any recommendations made in the audit. After 

continuing negotiations, the British and Canadian governments agreed to finance the forensic audit in 

January 2011. According to ATFC officials, DAB will be responsible for passing a copy of this audit to the 

IMF once it is completed.

In February 2011, USAID terminated the financial sector-strengthening component of the EGGI program 

and moved DAB activities to a 5-year project – the Financial Access for Investing in the Development of 

Afghanistan (FAIDA) – whose goals include strengthening the Afghan financial sector. In May 2011, 

USAID announced the launch of FAIDA, a $74 million project that was awarded to Chemonics 

International. FAIDA’s objectives include working with Afghan ministries, commercial lenders, and 

financial sector organizations to improve financial access in Afghanistan and developing the legal 

framework and market infrastructure to improve the Afghan economy. 

Treasury has had some success in its efforts to strengthen DAB’s capability to address financial crimes, 

but the Afghan government has not always prosecuted these crimes. Treasury’s initiatives include 

providing support to DAB’s AML/CFT office in its efforts to license hawalas, training and mentoring 

AML/CFT personnel in conducting reviews of commercial banks’ AML/CFT compliance programs, and 

assisting FinTRACA in improving its ability to identify persons suspected of financial crimes. Treasury has 

made some progress in these efforts, including assisting DAB to register almost 170 Kabul-based 

hawalas which have more than 650 branches in the provinces. Additionally, Treasury implemented a 

program to train DAB regulators in conducting AML/CFT reviews at commercial banks, which as of 

October 2010 had had overseen reviews of 15 of the 17 commercial banks operating in Afghanistan to 

assess their compliance with AML/CFT standards. FinTRACA’s ability to identify money laundering has 

increased with Treasury’s assistance. For instance, according to Treasury officials, FinTRACA information 

has been used to stop two money laundering networks operating at the Kabul International Airport, one 

of which recovered more than $1.2 million in illicit funds. In another instance, FinTRACA worked with 

the ATFC and the Afghan Sensitive Investigative Unit to support an investigation into money laundering 

activities in connection with the Hajj.

Limited Number of Prosecutions by Afghan Government Hinders Treasury’s Efforts to Address Money 

Laundering and Terrorist Financing

22

However, the Afghan Attorney General’s office has not cooperated fully in prosecuting individuals 

suspected of financial crimes, which has limited FinTRACA’s effectiveness. According to DAB officials, 

FinTRACA has received more than 1.8 million Large Cash Transaction Reports, over 600 Suspicious 

Transaction Reports, and between 10,000 to 13,000 currency declaration reports from passengers 

leaving Afghanistan via Kabul International Airport.23

 22 The Hajj is a religious pilgrimage that Muslims take to Mecca, Saudi Arabia. 

 FinTRACA officials reported that they forwarded 

21 leads to Afghan law enforcement organizations, including the Ministry of Interior, the Major Crimes 

Task Force, and the Afghan Attorney General’s office. However, according to these officials, the 

Attorney General’s office pursued only 4 of the 21 leads to prosecution. Treasury officials indicated that 

23 Large Cash Transaction Reports and Suspicious Transaction Reports are two types of reports that financial institutions file 

with FinTRACA. Large Cash Transaction Reports are filed when customers conduct transactions of more than 1 million Afghanis 

(about $22,000). Suspicious Transaction Reports are filed when customers engage in unusual or suspicious transactions that 

could be related to illicit or terrorist activity. 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 12

they were not satisfied with the level of prosecutions and were concerned that some cases were 

dropped without a full explanation.

In May 2011, Treasury officials informed us that Afghan President Hamid Karzai had postponed allowing 

Treasury advisors to work at DAB while negotiations related to the International Monetary Fund’s aid to 

Afghanistan were underway. Subsequently, he decided that U.S. government advisors were no longer 

welcome at DAB. According to U.S. Embassy officials, they have no plans to re-engage with DAB. 

Furthermore, Treasury officials described the working conditions at DAB as “hostile.”

DHS has made some progress in implementing its Bulk Cash Flow Action Plan to strengthen visibility over 

currency flows through the Afghan economy, but limited Afghan cooperation has prevented DHS from 

achieving its intended results. In November 2009 and February 2010, DHS officials conducted 

two operations to identify the inbound and outbound flow of currency in the passenger declaration and 

inspection process at Kabul International Airport. As a result of concerns about the lack of controls over 

the significant flow of currency through the airport, DHS developed the Bulk Cash Flow Action Plan with 

assistance from Afghan ministries that conduct operations at the airport. DHS’s responsibilities under 

the Bulk Cash Flow Action Plan include supporting the Afghan government to improve airport operations 

to strengthen controls over passengers entering and leaving the airport with illicit items (including bulk 

cash), and conducting a series of training sessions for Afghan law enforcement officials. DHS has 

successfully implemented a number of changes to airport operations, including establishing a secured 

customs area where passengers can declare bulk currency, introducing the use of a serialized customs 

form to record passenger cash declarations, and posting signs informing outbound passengers of the 

requirement to declare their currency to Afghan customs personnel.

Limited Afghan Cooperation Hinders DHS’s Efforts to Strengthen Controls over Currency Flows at Kabul 

International Airport

24

DHS has also implemented programs to train Afghan border and customs personnel. For instance, DHS 

spent about $100,000 to conduct four 1-week training sessions for 84 Afghan law enforcement, security,

and customs officials on bulk cash smuggling. The training was held at the Major Crimes Task Force and 

at the Kabul International Airport. According to DHS officials, as a result of this training, Afghan Border 

Police personnel along with other Afghan officials interdicted approximately $100,000 in counterfeit

U.S. currency during passenger processing of an inbound international flight. Additionally, DHS officials 

reported that they worked with other donor nations and organizations to create the Afghan National 

Customs Academy, which trains Afghan customs personnel in methods to detect illicit movements of 

goods, people, and funds. 

 

However, the Afghan government has not fully supported DHS efforts to institute additional controls at 

the airport. In July 2010, DHS awarded a contract to install two custom-built bulk currency counters for 

the airport customs areas, as well as in EFT-capable banks.

25

 24 Additionally, DHS has implemented other customs controls at the airport that are not directly related to the detection of bulk 

cash, such as sharing risk management techniques to enhance Afghan customs personnel’s ability to detect smuggling, 

conducting an inventory of all x-ray scanners used at border crossings, and improving security in the airport’s cargo areas.

 According to DHS officials, once the 

machines were delivered, the installation was delayed by seven months because U.S. and Afghan 

officials disagreed on where to install the counters. According to DHS officials, the machines were

installed in early April 2011. At that time, Afghan customs officials were using the machines to count 

declared cash, but not to record serial numbers or report financial data to FinTRACA. According to DHS 

officials, many of the airport workers felt uncomfortable using the machines and needed time to gain 

25 The contract, worth about $117,000, was awarded to the Intelligent Currency & Validation Network.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 13

familiarity with the machines’ basic function of counting cash. DHS hopes to begin using the machines 

to record serial numbers once FinTRACA moves into its new facility.26

DHS efforts to strengthen controls at the airport have been hampered in other ways. For example, 

passengers designated by the Afghan government as VIPs bypass the main security and customs 

screenings used by all other passengers and instead use a separate facility to enter the secured area of 

the airport. While VIPs are required to declare their currency, Afghan officials reportedly have no plans 

to scan their cash through electronic currency counters. Although the Afghan Customs Department 

drafted a proposal to subject VIP passengers to the same screening as general passengers, Afghan 

Customs Department officials raised objections as to which Afghan ministry would be responsible for 

administering the proposal and asked DHS to mediate a solution. However, DHS officials stated that a 

solution could not be reached, and the proposal was ultimately withdrawn. DHS officials reported that 

they are not allowed to visit the VIP facility to observe how passengers are screened and when we 

visited the airport, we were also not permitted to access the VIP area. Furthermore, ATFC officials

informed us that, although a new VIP area was constructed to ensure better oversight, VIPs are 

continuing to use the old facility. 

 

Finally, while DHS successfully worked with Afghan officials to install signs at the airport informing 

passengers of the requirement to declare cash totaling one million Afghanis or more than (roughly 

$22,000 or equivalent in other currencies) prior to leaving Afghanistan through the airport, DHS officials 

told us that it took 8 months for Afghan officials to agree on where to place the signs and what exactly 

they should say. DHS officials also noted that they were unable to get approval to place the signs at the 

entrance to the airport, before passengers pass through customs. As a result, passengers are not 

informed of the requirement to declare their currency until it is too late. According to DHS officials, 

Afghan airport officials told them that the signs could not be placed at the airport entrance because that 

space is reserved for advertisements.

LACK OF VISIBILITY OVER U.S. CASH ENTERING THE AFGHAN ECONOMY LEAVES THESE FUNDS 

VULNERABLE TO FRAUD OR DIVERSION TO INSURGENTS

U.S. agencies have taken steps to strengthen their oversight of U.S. funds, but the United States still has

limited visibility over how these funds flow through the Afghan economy, leaving these funds vulnerable 

to fraud or diversion to insurgents. U.S. strategies for Afghanistan reconstruction require that 

U.S. agencies improve contracting and other payment practices to prevent the use of U.S. funds for illicit 

purposes. U.S. agencies have increased their reliance on electronic payments, strengthened some 

controls over funds at Kabul International Airport, and started developing infrastructure to make

payments through mobile phones. However, we identified three vulnerabilities that could allow U.S. 

funds to be diverted for improper uses. First, U.S. agencies do not record the serial numbers of cash 

disbursed to contractors and other recipients of U.S. funds. Second, commercial banks do not record 

the serial numbers of EFT payments made by U.S. agencies to contractors and other recipients when 

they are monetized. Third, U.S. contracting regulations neither prohibit prime contractors from using 

unlicensed hawalas to pay subcontractors nor require prime contractors to use EFT-capable banks to 

make payments. Therefore, the United States is unable to record information on these funds when they 

enter Afghanistan’s economy and the Afghan and U.S. governments are unable to track them as they 

move from person to person. This information would be useful for law enforcement purposes. 

 26 As stated earlier in this report, DOD is helping to renovate FinTRACA’s facility, and FinTRACA and DHS officials have agreed to 

postpone installing an internet connection at the airport until FinTRACA has moved to the new facility. 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 14

U.S. Strategies Require That Agencies Strengthen Oversight over Funds Disbursed into the 

Afghan Economy

Several U.S. reconstruction strategies require that U.S. agencies strengthen their oversight over the 

funds provided to contractors and other entities. For instance, the Integrated Financial Operations 

Commander’s Handbook27 states that DOD should improve its visibility over the recipients of U.S. funds 

and more effectively track funds as they move from person to person. Specifically, contracting agencies

are to collect and share data on the recipients of U.S. contracts with U.S. and Afghan law enforcement 

and military personnel. Moreover, U.S. agencies are supposed to improve the quality of their existing 

data on the flow of funds through the Afghan economy to more effectively ensure that these funds are 

not being used for illicit purposes. Additionally, USAID acquisition regulations require that USAID 

agreement officers obtain certifications from non-governmental organizations that the organization 

does not support terrorism.

28 Furthermore, according to this policy, recipients of USAID awards are to 

take reasonable assurances that USAID’s funds are not used to provide material support or resources to 

individuals or entities that engage in terrorist activity. U.S. agencies are also to improve their 

contracting activities by (1) ensuring that contracted funds are not used to empower insurgents; 

(2) improving visibility over the use of subcontractors; and (3) integrating contracting activity into 

intelligence, plans, and operations. According to the Civilian-Military Campaign Plan for Support to 

Afghanistan, U.S. agencies and the Afghan government are to improve identification of and action 

against criminal patronage networks and improve contracting to reduce the leakage of U.S. funds to the 

illicit market. To achieve these objectives, U.S. agencies are to make payments electronically where 

possible. For instance, DOD’s Financial Management Handbook encourages DOD to make payments 

electronically where possible and to pay in local currency when using cash.

29 Additionally, a July 2010

USFOR-A policy states that DOD should make payments electronically to the maximum extent possible.30

U.S. Agencies Have Taken Steps to Improve Oversight over Funds Entering the Afghan 

Economy

U.S. agencies have taken steps to strengthen their oversight over funds that enter the Afghan economy. 

Most significantly, the U.S. government has reduced the amount of payments made in cash by relying on 

electronic payments made through EFTs and mobile phones. According to State and TFBSO officials, EFT 

payments allow enhanced oversight, for instance by providing increased opportunities to detect 

overpayments. DOD’s TFBSO reported that, as of March 2011, the task force had successfully recovered 

more than $7 million in EFT overpayments that U.S. agencies made to contractors in Afghanistan. Had 

these payments been made in cash, it is possible that recovering these funds would have been more 

difficult, if not impossible. 

We found that the U.S. Army’s use of cash to pay contractors has decreased from about 8.7 percent 

(almost $21 million) of total U.S. Army payments made to contractors in Afghanistan in January 2010 to 

5.9 percent (about $19 million) in January 2011. Total U.S. Army payments during this period were 

 27U.S. Joint Forces Command: Integrated Financial Operations Commander’s Handbook: A Joint Force Guide to Financial 

Operations (Joint Warfighting Center, Suffolk, Virginia: November 2, 2010). 28 USAID Acquisition & Assistance Policy Directive: Certification Regarding Terrorist Financing Implementing E.O. 13224 (AAPD04-14): September 24, 2004. 29 U.S. Army Field Manual No. 1-06 (supersedes FM 14-100). Financial Management Operations. Washington, D.C.: September 

2006.

30 U.S. Forces-Afghanistan Fragmentary Order 10-208. Implements E-Commerce and Reduction of Cash in the Combined Joint 

Operational Area-Afghanistan. July 2010.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 15

about $3.5 billion, and cash payments were almost $235 million.31

Figure 3: Percentage of U.S. Army Finance Offices’ Payments Made in Cash in Afghanistan

 Figure 3 depicts the percentage of

payments made in cash by the U.S. Army Finance Office in Afghanistan.

Source: SIGAR analysis of Defense Finance and Accounting Service data.

Note: Data include cash payments made in U.S. dollars and dollar value of cash payments made in Afghanis. Includes data on 

payments made to support DOD’s military mission in Afghanistan, as well as payments made to implement Afghan 

reconstruction projects. 

State’s use of cash payments has also decreased, and most of State’s payments – over $185 million (or 

more than 98 percent) – were made through EFTs from January 2010 through March 2011. Cash 

payments made by State ranged from less than one percent to nearly three percent of its total 

payments (see figure 4). 

 31 This figure includes payments made to implement reconstruction projects in Afghanistan, as well as to support the U.S. 

military mission in Afghanistan. It does not include salary and benefits payments made to DOD employees or aid provided to 

support the salaries of Afghan National Security Forces personnel.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 16

Figure 4: Percentage of State’s Payments Made in Cash in Afghanistan

Source: SIGAR analysis of State’s Office of Acquisitions Quality Management data.

Note: Data include cash payments made in U.S. dollars and dollar value of cash payments made in other currencies, including 

Afghanis. Includes data on payments made to support State’s civilian in Afghanistan, as well as payments made to implement 

Afghan reconstruction projects. 

USAID has also taken a number of steps to increase controls over its funds entering the Afghan 

economy. For instance, USAID officials reported that they use only EFTs to make payments to 

contractors, implementing partners, and other recipients in Afghanistan. From October 2009 through 

October 2010, USAID reported more than $1.2 billion in payments made against contracts, grants, or 

cooperative agreements in Afghanistan. USAID is also supporting the development of the capability to 

transfer funds, repay project loans, and distribute employee salaries through mobile phones as part of 

the FAIDA program.32

In addition to decreasing cash payments, the U.S. government has taken steps to strengthen controls 

over cash leaving Kabul International Airport, as previously discussed in this report. Specifically, while 

DHS’s Bulk Cash Flow Action Plan and Operation FinTRAX are designed to help build the Afghan 

government’s capacity to monitor currency flows, they are also intended to help the U.S. government 

gain visibility over its funds. 

 This program builds on a DOD pilot program to support the salaries of Afghan 

National Police personnel to include other Afghan government employees by making payments 

electronically. Finally, in April 2011, a USAID-led task force, which included the ATFC, reiterated 

previous reports that found that U.S. funds may have been redirected to the Taliban or other insurgent 

groups. The task force made a number of recommendations to improve controls over funds in the areas 

of award mechanisms, partner vetting, financial controls, and project oversight. 

U.S. Reconstruction Funds Are Vulnerable Due to Insufficient Controls over U.S. Cash in the 

Afghan Economy

The United States has taken some steps to strengthen oversight over funds entering the Afghan 

economy; however, we identified three weaknesses that potentially leave these funds vulnerable to 

fraud or diversion to insurgents. First, DOD and State both stated that they do not record the serial 

 32 To make mobile phone payments, users first open a mobile money account via an agent, who has a formal bank account 

linked to a commercial bank. The user can use his or her mobile phone to send or receive money to other users electronically. 

The recipient of funds may transfer electronic funds to other users or monetize the funds through an agent. 

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Percentage of Army Payments Made in Cash

Total Cash Trendline
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 17

numbers of cash payments made to contractors when these funds are disbursed. Second, commercial 

banks lack the capacity to record the serial numbers of EFT payments made to contractors and other 

recipients of U.S. funds when they are monetized. Third, U.S. contracting regulations neither prohibit 

prime contractors from using unlicensed hawalas to pay subcontractors nor require the use of EFTs to 

make payments. Figure 5 shows where these weaknesses occur as U.S. funds flow through the Afghan 

economy. 

Figure 5: Vulnerabilities in Flow of U.S. Funds Through the Afghan Economy

DOD, State, and USAID 

payments made to 

contractors and other 

entities

EFT

Electronic 

payment made to 

contractor’s bank

Contractor 

monetizes EFT 

payment

(Vulnerability)

Contractor 

receives 

payment

Direct cash 

payment to 

contractor

(Vulnerability)

Cash

Contractor circulates 

funds through the 

Afghan economy, 

including paying 

subcontractors 

through unlicensed 

hawalas

(Vulnerability)

Salary support payments 

made by USAID, State, 

and the 

U.S. Embassy in Kabul

Da Afghanistan 

Bank

Ministry of 

Finance or 

Interior (for ANSF 

personnel)

EFT payment 

made to civil 

servant’s bank

EFT

Direct cash 

payment made 

to civil servant

(Vulnerability)

Cash

Civil servant 

monetizes EFT 

Payment.

(Vulnerability)

Civil 

Servant 

receives 

payment

Payment circulates 

through economy

Some funds 

leave 

Afghanistan 

through 

airports and 

other border 

crossings

Cash Payment

EFT Payment

Disbursement:

U.S. agencies use EFT or 

cash to make payments to 

contractors and Afghan 

civil servants. EFT 

payments flow through a 

contractor’s commercial 

bank account, while cash 

is paid directly to the 

recipient.

Monetization:

Payments are converted 

into cash at a commercial 

bank.

Key:

Circulation:

Funds are used to pay 

subcontractors or 

circulated through the 

Afghan economy. Some 

funds leave the country to 

pay for imports or to settle 

foreign debts.

Vulnerability

Source: SIGAR analysis of information provided by State, Treasury, DOD, and DHS.

Note: Figure shows payments made through Afghan banks. U.S. agencies, such as DOD, also make payments through U.S. 

banks, but these payments do not directly enter the Afghan economy and are, therefore, not depicted in this figure. As we 

noted previously, USAID does not make cash payments to recipients.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 18

U.S. Army and State’s visibility over the flow of cash payments through the Afghan economy is limited 

because DOD and State officials responsible for making these payments do not record the serial 

numbers of the cash before it is disbursed. Although not specifically required, recording serial numbers 

would allow U.S. and Afghan law enforcement personnel to track the movement of these funds once 

they are paid to contractors and other recipients. According to DHS officials responsible for 

implementing Operation FinTRAX, data on the serial numbers of 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 to trace the source of these funds and determine 

the extent to which they passed through U.S. contractors. Additionally, U.S. and Afghan officials could 

use these data to identify U.S. funds that exit the country through Kabul International Airport by 

matching the serial numbers of currency paid to U.S. contracting agencies with data recorded by bulk 

currency counters at the airport. Without recording the serial numbers of cash prior to disbursement, 

U.S. agencies, such as the ATFC, miss an opportunity to gain greater visibility over these funds.

U.S. Army and State Do Not Record Serial Numbers of Cash Payments

U.S. agencies also lack visibility over EFT payments once they are monetized by contractors because 

Afghan commercial banks do not record the serial numbers of monetized payments. As we note above, 

the majority of the U.S. Army and State’s payments to contractors are made electronically, and USAID 

reported that it only uses EFTs to make all its payments to contractors and implementing partners in 

Afghanistan. However, because Afghanistan’s economy is cash-based, contractors that receive EFT 

payments typically monetize the deposits at commercial banks. This process reduces the oversight over 

the flow of funds because banks do not record the serial numbers of cash disbursed. Without this 

information, U.S. and Afghan law enforcement efforts to track the movement of U.S. funds from person 

to person are made more difficult. 

Absence of Bulk Currency Counters at Afghan Commercial Banks Limits U.S. Visibility over EFT Payments 

When They Are Monetized

To improve oversight over the flow of U.S. funds once they are monetized, DHS developed plans to place 

bulk currency counters at several Afghan commercial banks that manage payments made to recipients 

from U.S. sources. However, DHS officials have been unable to reach agreement with the banks as to 

how many counters would be purchased and where they would be installed. For example, one 

commercial bank wants DHS to install 19 bulk currency counters (one for its headquarters in Kabul and 

18 for its branch locations throughout Afghanistan), but DHS is prepared to install only one machine at 

its headquarters. Installing the bulk currency counters at commercial banks and recording the serial 

number data on the EFT payments monetized by contractors would enhance the capacity of U.S. 

agencies to (1) monitor the flow of these funds through the Afghan economy and (2) more effectively 

identify persons suspected of using these funds for illicit purposes. According to DHS officials, they have

approached USAID for assistance on this issue, but no final agreements have been reached. However, 

USAID officials reported to us that current USAID staff has no knowledge of this request for assistance.

Although U.S. contracting regulations generally emphasize the use of electronic payments to make 

payments to prime contractors, no such regulations exist for prime contractors’ payments to 

subcontractors. We reviewed DOD, State, and USAID contracting regulations, including the Federal 

Acquisition Regulation, and found that they do not require that contractors receiving U.S. funds pay 

subcontractors through either EFT-capable banks or licensed hawalas, which are required to submit 

their financial records to FinTRACA. Contracting officials at DOD’s Defense Finance and Accounting 

U.S. Contracting Regulations Do Not Place Conditions on How Prime Contractors Pay Subcontractors 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 19

Service, State’s Acquisition and Assistance Office, and USAID’s Office of Financial Management staff 

confirmed that no such regulations exist. In June 2011, we discussed these issues with DOD officials 

responsible for setting contracting and financial execution policy. These officials stated that requiring 

the use of electronic payments by prime contractors to pay subcontractors may be difficult to enforce 

and could potentially conflict with some contracting regulations, including principles related to privity of 

contract.

33

We found that some prime contractors use hawalas, including those who are unlicensed, to transfer 

funds to subcontractors. For example, we previously reported about a hawala dealer who was

contracted to transfer $2.8 million in National Solidarity Program funds to program officials in Paktika 

province.

However, other policies require contracting organizations to exercise enhanced oversight 

over subcontractors. For instance, according to USFOR-A contracting policy issued in September 2010, 

contracting organizations are to identify the use of subcontractors in Afghanistan and ensure that prime 

contractors are held responsible for subcontractor performance. Furthermore, according to this policy, 

prime contractors are responsible for providing detailed information on subcontractors. 

34 However, the World Bank reported that once these funds passed through a local hawala, 

they never reached their destination. Through our subsequent analysis, we determined that while the 

contracted hawala dealer was on Treasury’s list of registered providers, a second hawala dealer that was 

used to transfer funds was not. Despite investigations by National Solidarity Program personnel and 

interventions on the part of the Afghan Attorney General’s office, this hawala continues to retain the 

majority of these funds and refuses to deliver them to the intended communities.35

In February 2011, we discussed these issues with USAID officials and recommended that USAID ensure 

that prime contractors receiving USAID funds pay their subcontractors electronically whenever possible. 

Additionally, a task force created by USAID to enhance accountability of USAID funds recommended in 

April 2011 that USAID’s implementing partners make electronic payments to subcontractors where the 

infrastructure exists. USAID Comptroller officials told us that, although they encourage their 

implementing partners to use EFTs to make payments to subcontractors, placing requirements on how 

payments are processed would “handcuff” their implementing partners, particularly those operating in 

remote areas of Afghanistan. We identified licensed hawalas in all but 9 provinces and EFT capable 

banks in all 34 provinces of Afghanistan. Furthermore, all Afghan provinces have at least one licensed 

hawala or EFT-capable bank (see figure 6). 

 Because unlicensed 

hawalas do not report their transactions to FinTRACA, U.S. and Afghan law enforcement personnel 

seeking to trace the source of currency lose oversight over funds when they pass through unlicensed 

hawalas.

 33 According to the Federal Acquisition Regulation, the U.S. government generally has no direct legal relationship with 

subcontractors that are employed by prime contractors unless such a relationship is specified by clause in the contract or 

required by agency contracting policy. See FAR Part 42.201.

34 The National Solidarity Program (NSP) is a community development and local governance program managed by the Afghan 

Ministry of Rural Rehabilitation and Development. It is funded primarily through the Afghanistan Reconstruction Trust Fund, 

(ARTF) which is administered by the World Bank, and largely (almost 35 percent or $528 million) funded by the United States. 

See SIGAR Audit 11-8. Afghanistan’s National Solidarity Program Has Reached Thousands of Afghan Communities, but Faces 

Challenges that Could Limit Outcomes (Washington, D.C.: March 22, 2011). 35 Due to the urgent nature of this incident, we informed the U.S. Ambassador to Afghanistan of this issue in December 2010 

through a separate letter prior to completing our audit of the National Solidarity Program.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 20

Figure 6: Map Indicating Locations of EFT Capable Banks and Licensed Hawalas in Afghanistan

Source: SIGAR analysis of Treasury data.

Note: Map provided by the U.S. National Geospatial Intelligence Agency. Boundaries and place names are not authoritative 

and should not be used for navigation or other related purposes.

CONCLUSION

Since 2002, Congress has appropriated more than $70 billion to implement security and development 

assistance projects in Afghanistan, with some of those funds converted to cash and flowing through the 

Afghan economy. To ensure that the Afghan financial sector can absorb the influx of these funds and to 

develop the government of Afghanistan’s capacity to sustain a viable market economy, U.S. agencies are 

implementing programs to increase DAB’s capacity to regulate commercial banks and other financial 

organizations in Afghanistan. However, the near collapse of Kabul Bank in September 2010 and 

continued uncertainty about the health of Afghanistan’s remaining banks demonstrate the challenges of 

developing effective regulatory capacity that limit systemic financial risks. Additionally, inconsistent 

Afghan cooperation on financial sector issues highlights the challenge of providing assistance in an

environment where the effects of U.S. agency financial sector development efforts may be limited by 

the challenges in the Afghan judicial sector. While U.S. agencies have strengthened their coordination in 

the wake of the Kabul Bank crisis, more can be done to ensure that these initiatives are not duplicating 

efforts or, at a minimum, working at cross purposes. Furthermore, given the amount of U.S. cash that 

flows through the Afghan economy, it is imperative that the U.S. government have robust measures in 

place to ensure that these funds are not used for fraud or diverted to insurgent networks. However, we 

found that agencies have not instituted sufficient controls over U.S. funds, limiting their oversight over 

these funds and potentially the ability of the ATFC to ensure that these funds are not diverted to 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 21

insurgents. As a result, the U.S. risks inadvertently funding activities that directly oppose its 

reconstruction goals for Afghanistan. 

RECOMMENDATIONS

We are making four recommendations to improve interagency coordination on financial sector 

development programs and to strengthen oversight over the flow of U.S. funds through the Afghan 

economy. 

To help leverage available resources and expertise and avoid duplication of agency efforts on financial 

sector issues, the U.S. Ambassador to Afghanistan should instruct the members of the Financial Sector 

Working Group to:

1. Develop an interagency strategy to coordinate efforts to work with Afghan banks to increase 

their EFT, internal processes, and transaction accountability capabilities.

To strengthen oversight over the flow of U.S. funds through the Afghan economy and to support overall 

U.S. reconstruction goals in Afghanistan, the Secretary of State and the Secretary of Defense should 

instruct their contracting and financial authorities to:

2. Institute steps to record the serial numbers of cash disbursed to contractors and provide these

data to U.S. law enforcement officials (including the Afghan Threat Finance Cell), as well as 

FinTRACA or another appropriate Afghan source.

3. Develop a plan to ensure that Afghan banks that provide payments to recipients of U.S. EFT 

payments record the serial numbers of cash paid to these recipients by using bulk currency 

counters and that these data are reported to U.S. law enforcement officials (including the 

Afghan Threat Finance Cell), as well as FinTRACA or another appropriate Afghan source.

4. Insert a standard clause into U.S. contracts, grants, and cooperative agreements with entities

operating in Afghanistan requiring that these contractors pay their subcontractors through 

either an EFT-capable bank or a licensed hawala, where possible. Alternatively, if a 

determination is made that such a clause would not be feasible under existing regulations, 

submit a formal proposal to Congress with legislative language allowing the inclusion of such a 

clause.

COMMENTS

The U.S. Embassy in Kabul, DHS, and USAID provided written comments on a draft of this report. These 

comments are reproduced in appendices II-IV, respectively. We also provided DOD an opportunity to 

comment on a draft of this report, but they did not have any comments. Additionally, USAID, DHS, the 

Afghan Threat Finance Cell, and the U.S. Embassy in Kabul provided technical comments, which we 

incorporated as appropriate. 

Our draft of this report included a recommendation that the members of the Financial Sector Working 

Group include DHS in their planning meetings. Because the U.S. Embassy Kabul, USAID, and DHS 

subsequently did so, we deleted the recommendation. 

In its response, the U.S. Embassy in Kabul generally agreed with our recommendations, but cited some 

difficulties implementing them. For example, in response to our recommendation that U.S. agencies 
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 22

develop an interagency strategy to coordinate efforts to work with Afghan banks to increase their EFT 

internal processes and transaction accountability capabilities, the U.S. Embassy noted that 

accomplishing this task will require consensus among and action by Afghan ministries, the U.S. 

government, and other donors implementing reconstruction and development projects in Afghanistan. 

The U.S. Embassy concurred with our last recommendation, stating that it will add a clause to its 

contracts requiring implementing partners make payments only through EFTs or licensed hawalas. 

DHS commented that it was pleased to note the positive acknowledgment of its role in helping 

implement programs to develop the Afghan government’s capacity to regulate its financial sector and 

strengthen controls over U.S. funds that enter and leave Afghanistan. It also stated that it remains 

committed to continuing its work with interagency partners, such as Treasury, and other relevant 

stakeholders in minimizing terrorist threats in Afghanistan, and in particular the threats posed by bulk 

cash smuggling. 

In its response, USAID stated that, working through the Financial Sector Working Group, the U.S. Mission 

to Afghanistan agrees to seek consensus for, and commitment to contribute to, the development of a 

donor-supported, Afghan government-owned strategy to increase EFT processing capabilities and to 

install bulk currency counters at banks in Afghanistan. However, USAID expressed concern about our 

recommendation that the Secretary of State and Secretary of Defense instruct their contracting and 

financial authorities to insert a standard clause into awards requiring that implementing partners make 

payments through EFT or licensed hawalas. Although this recommendation is not directed to USAID, it

noted that many of its implementing partners lack access to banks that provide EFT services. While the 

use of EFTs or licensed hawalas to make payments may not be practical in all circumstances, we 

determined that all Afghan provinces have at least one licensed hawala or EFT capable bank. In 

addition, our recommendation states that the proposed clause should stipulate that contractors pay 

their subcontractors through either an EFT-capable bank or a licensed hawala, where possible.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 23

APPENDIX I: SCOPE AND METHODOLOGY

This report provides the results of the Office of the Special Inspector General for Afghanistan 

Reconstruction’s review of U.S. assistance provided to develop the financial sector in Afghanistan and of 

U.S. controls over payments made to contractors and other entities in Afghanistan. The objectives of 

this audit were to (1) evaluate the U.S. efforts to improve the capacity of the Afghan government to 

regulate the financial sector and (2) to assess the controls that U.S. agencies use to track U.S. funds as 

they flow through the Afghan economy. Afghanistan’s financial sector includes institutions such as 

commercial banks, hawalas, and the Afghan central bank (Da Afghanistan Bank, or DAB). We limited the 

scope of our second objective to a review of the controls implemented by the Departments of Defense 

(DOD) and State and the U.S. Agency for International Development (USAID) over payments made to 

contractors and other entities because these U.S. agencies have the greatest involvement in 

implementing reconstruction projects in Afghanistan. 

To evaluate U.S. efforts to improve the capacity of the Afghan government to regulate its financial 

sector, we reviewed U.S. and Afghan strategies, plans, and other program documentation relevant to 

the financial sector development programs that U.S. agencies have implemented in Afghanistan. 

• To evaluate the Department of Homeland Security’s (DHS) financial sector development 

programs, we reviewed its Bulk Cash Flow Action Plan, an update to this plan, as well as a DHS 

briefing on financial sector issues. We reviewed contract data related to DHS’s Operation 

FinTRAX, an initiative to place bulk currency scanners at the Kabul International Airport, and met 

with DHS officials in Washington, D.C. and Kabul, Afghanistan. Additionally, we conducted two 

site visits to the Kabul International Airport in February and April 2011. 

• To evaluate Treasury’s efforts to improve the capacity of the Afghan government to regulate its 

financial sector, we reviewed Treasury’s agreements with the Afghan government outlining the 

roles and responsibilities of Treasury’s advisors to be posted at DAB. We interviewed Treasury 

officials in Washington, D.C. and officials affiliated with the Treasury attaché office at the U.S. 

Embassy in Kabul. We also conducted a site visit to DAB in February 2011, where we also 

interviewed Afghan officials responsible for administering DAB programs.

• To evaluate USAID’s efforts to improve the capacity of the Afghan government to regulate its 

financial sector, we reviewed Economic Governance and Growth Initiative (EGGI) contract 

documentation, including the contract and associated modifications issued against the contract, 

the contract work plan, and reports of performance provided by the contractor (Deloitte, LLP). 

SIGAR’s forensic auditing team ran a series of tests on the EGGI contract to identify anomalies, 

which could indicate fraud, waste, or abuse, and we considered the results of those tests in our 

audit. We met with USAID officials responsible for administering the EGGI contract in Kabul and 

with Deloitte personnel responsible for performing work on the contract. Because key 

performance indicators established by USAID included increasing the number of commercial 

banks and use of the commercial banking system, we obtained data from DAB on the growth of 

commercial banks and the assets managed by commercial banks in Afghanistan. 

• To evaluate the efforts of DOD’s Task Force for Business and Stability Operations (TFBSO), we 

reviewed program documentation on its initiatives to develop the financial sector in 

Afghanistan. We met with a TFBSO official in Washington, D.C. to identify the program’s efforts 

to improve the capacity of the Afghan financial sector. We also reviewed data provided by 

TFBSO on the contracts reviewed by the EFT Assistance Center.
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In addition to our agency-specific assessments, we reviewed U.S. government efforts to strengthen 

coordination on financial sector issues. To accomplish this review, we analyzed U.S. strategies for 

reconstruction in Afghanistan and leading practice standards for interagency collaboration. We 

reviewed the minutes of the interagency Financial Sector Working Group and observed a meeting of this 

group. We also interviewed Financial Sector Working Group officials, including officials with Treasury 

and USAID, and met with World Bank officials who participate in working group meetings. 

To assess the internal controls that U.S. agencies use to track U.S. funds as they flow through the Afghan 

economy, we reviewed relevant U.S. strategies, including the Integrated Financial Operations 

Commander’s Handbook,

36 the Civilian-Military Master Campaign Plan for Support to Afghanistan,37 and 

DOD’s Counterinsurgency Field Operations Manual.

38 In addition, we reviewed a Fragmentary Order 

issued by U.S. Forces-Afghanistan39

To verify the reliability of computer-processed data provided by DFAS and USAID on payments made in 

Afghanistan by type (cash, EFT, or other media), we checked the data for missing or outlier values, 

confirmed individual and summary values with DFAS, USAID, and DHS officials, and traced a sample of 

summary-level records to their sources. Because we did not find any significant errors in these data, we 

determined that they were sufficiently reliable for the purposes of this report.

to strengthen oversight over U.S. funds and reduce the use of U.S. 

dollars in Afghanistan. We also identified the extent to which U.S. agencies make payments in 

Afghanistan in cash or electronic payments by collecting and analyzing data on disbursements made by 

DOD, State, and USAID from January 2010 through January 2011. DOD’s Defense Finance and 

Accounting Service reported that it uses the Deployable Disbursing System Repository Initiative to 

manage this information. State’s Office of Acquisitions Management previously reported that they use 

the Global Financial management system to record and store data on disbursements made in 

Afghanistan. USAID reported that it uses Phoenix Viewer to record and store data on disbursements 

made in Afghanistan. 

As part of our efforts to assess the controls that U.S. agencies have in place to track U.S. cash as it moves 

through the Afghan economy, we also interviewed program officials at State’s Special Representative for

Afghanistan and Pakistan, the DHS and Treasury attaché offices in Kabul, and DOD’s Task Force on 

Business and Stability Operations. In addition, to identify the procedures used to record disbursements, 

we interviewed program officials with the Defense Finance and Accounting Service, the USAID 

Comptroller, and State’s Office of Acquisitions and Assistance. 

Finally, to obtain information on the use of hawalas in Afghanistan, we received data from Treasury on 

the names of licensed hawalas in English and in Dari. To verify that these data were accurate, we traced 

a sample of the English records to their equivalent Dari records and did not find significant differences in 

the records. We also used geolocation data provided by USAID to place the location of these hawalas 

throughout Afghanistan and plotted these data on maps provided by the National Geospatial 

Intelligence Agency. 

 36 U.S. Joint Forces Command: Integrated Financial Operations Commander’s Handbook: A Joint Force Guide to Financial 

Operations (Joint Warfighting Center, Suffolk, Virginia: November 2, 2010). 37 U.S. Embassy in Kabul/U.S. Forces-Afghanistan: United States Government Integrated Civilian-Military Campaign Plan for 

Support to Afghanistan (Kabul, Afghanistan: February, 2011). 38 U.S. Army Field Manual No. 3-24/U.S. Marine Corps Warfighting Publication No. 3-33.5. Counterinsurgency (Washington, D.C:

December 2006). 39 U.S. Forces-Afghanistan Fragmentary Order 10-208. Implements E-Commerce and Reduction of Cash in the Combined Joint 

Operational Area-Afghanistan. July 10, 2010.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 25

We conducted our work in Washington, D.C. and Kabul, Afghanistan, from October 2010 to July 2011 in 

accordance with generally accepted government auditing standards. These standards require that we 

plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe the evidence obtained provides 

a reasonable basis for our findings and conclusions based on our audit objectives. The audit was 

conducted by the Office of the Special Inspector General for Afghanistan Reconstruction under the 

authority of the Inspector General Reform Act of 2008, and Public Law No. 110-181, as amended.
SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 26

APPENDIX II: COMMENTS FROM THE U.S. EMBASSY KABUL
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APPENDIX III: COMMENTS FROM THE DEPARTMENT OF HOMELAND SECURITY
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APPENDIX IV: COMMENTS FROM THE U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT
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SIGAR Audit-11-13 Anti-Corruption/Financial Sector Assistance Page 35

(This report was conducted under the audit project code SIGAR-036A).
SIGAR’s Mission The mission of the Special Inspector General for 

Afghanistan Reconstruction (SIGAR) is to enhance 

oversight of programs for the reconstruction of 

Afghanistan by conducting independent and objective 

audits, inspections, and investigations on the use of 

taxpayer dollars and related funds. SIGAR works to 

provide accurate and balanced information, evaluations, 

analysis, and recommendations to help the U.S. Congress, 

U.S. agencies, and other decision-makers to make 

informed oversight, policy, and funding decisions to:

• improve effectiveness of the overall reconstruction 

strategy and its component programs;

• improve management and accountability over funds 

administered by U.S. and Afghan agencies and their 

contractors;

• improve contracting and contract management 

processes;

• prevent fraud, waste, and abuse; and

• advance U.S. interests in reconstructing 

Afghanistan.

Obtaining Copies of SIGAR 

Reports and Testimonies

To obtain copies of SIGAR documents at no cost, go to 

SIGAR’s Web site (www.sigar.mil). SIGAR posts all 

released reports, testimonies, and correspondence on its 

Web site.

To Report Fraud, Waste, and 

Abuse in Afghanistan 

Reconstruction Programs

To help prevent fraud, waste, and abuse by reporting 

allegations of fraud, waste, abuse, mismanagement, and 

reprisal contact SIGAR’s hotline:

• Web: www.sigar.mil/fraud

• Email: hotline@sigar.mil

• Phone Afghanistan: +93 (0) 700-10-7300

• Phone DSN Afghanistan 318-237-2575

• Phone International: +1-866-329-8893

• Phone DSN International: 312-664-0378

• U.S. fax: +1-703-604-0983

Public Affairs Public Affairs Officer

• Phone: 703-602-8742 

• Email: PublicAffairs@sigar.mil

• Mail: SIGAR Public Affairs

400 Army Navy Drive

Arlington, VA 22202