US. DEPARTMENT OF STATEInternational Narcotics Control Strategy Report, 2003

Released by the Bureau for International Narcotics and Law Enforcement Affairs, U.S. Department of State - Washington, DC, 1 March 2004

AFGHANISTAN

Part I: Drug and Chemical Control

I. Summary

General political and economic circumstances in Afghanistan have improved since October 2002, but the narcotics situation remains serious, despite positive actions by both the government and international donors. Dangerous security conditions make implementing counternarcotics (CN) programs difficult and present a substantial obstacle to both poppy eradication efforts by the central government and to international efforts to provide related assistance. Given the profound destruction brought about by more than 20 years of conflict, the lack of many viable alternative crops to opium, and the limited enforcement capacity of the central government, poppy cultivation this year approached the highest levels ever registered. Despite the many obstacles, the Transitional Islamic Government of Afghanistan (TISA) has instituted major institutional and policy changes in its governmental machinery that directly benefit its counternarcotics objectives, and has established a sound structural basis to attack the problem. President Karzai has continually spoken out against the drug trade and has issued decrees banning it, an important statement of political will to combat cultivation and trafficking in illicit narcotics. International CN activities, following the overthrow of the Taliban and the installation of an interim government, remain under a multilateral mandate, with the United Kingdom as lead nation. The international community was hard at work at year’s end planning with Afghan officials how best to attack Afghanistan's drug problem in a more aggressive manner, including more widespread eradication. Afghanistan is a party to the 1988 UN Drug Convention.

International and U.S. surveys indicate that in 2003 Afghanistan again produced three-quarters of the world's illicit opium. To a lesser extent, the country remains a significant location for the production and transit of all forms of unrefined (opium), refined (heroin) and semi-refined (morphine base) opiate products. While it is a large consumer of precursor chemicals, it is not a significant producer or transshipper of precursors. The drug economy in Afghanistan is deeply embedded, the product of more than a century of Afghan history. At present, criminal financiers and narcotics traffickers in and outside of Afghanistan have taken advantage of the on-going conflict and fragile security situation and have exploited poor farmers in a rural economy decimated by years of war and drought. The process of reconstruction which began in 2002 is accelerating and expanding, and is expected to improve the situation for successful counternarcotics programs in the future. Planning to change the current opium economy of many regions of Afghanistan is now well-launched. Policy Initiatives. The U.S. and the international community, especially the UK as lead nation on CN and the local office of the UN Office on Drugs and Crime (UNODC), have maintained a dialogue with President Karzai and the Afghanistan National Security Council throughout the year on the subject of combating narcotics. The TISA has made significant structural, policy and institutional commitments to combating narcotics in Afghanistan, including the following:

• In March 2003, the TISA’s CND (Counternarcotics Directorate) created the Counter-Narcotics Working Group, an inter-agency body that meets continuously (and publicly every two months) to formulate and coordinate the government’s counternarcotics policy.

• On 19 May 2003, President Karzai signed a comprehensive, in- depth National Drug Control Strategy, in which all appropriate aspects of combating narcotics in Afghanistan are addressed. This National Strategy was created with participation of all elements of the TISA, as well as wide participation by international organizations, non-governmental organizations, and the public.

• On 3 June 2003, President Karzai signed a decree abolishing the former State High Commission for Drug Control and merged its regional offices into CND, taking a major step toward unification of national counternarcotics policy.

• In October 2003, the TISA made a formal request to the United States for assistance in creation of a central government-run, nationwide poppy eradication campaign. This request is under consideration and the TISA has committed to poppy eradication as a key element of its overall counternarcotics campaign.

These structural reforms have laid the foundation for a sound national government CN apparatus, and the addition in January 2004 of a new constitution further strengthened the government's hand. The country’s first national elections since the fall of the Taliban government are planned for 2004, and establishment of a national government legitimized through democratic elections, and an improvement in the security situation, are expected to lead to greater adherence to the national CN strategy. Establishment of rule of law throughout the country, with a functioning police, judiciary, and prison system, will also permit further elements of a CN strategy to be put in place.Law Enforcement Efforts. The most immediate concern of the TISA is to strengthen its national legitimacy by establishing security and rule of law throughout the country. In such an environment, significant drug enforcement work has not been possible outside limited areas. Efforts have rather been focused on planning for the near term future when a serious law enforcement effort will be mounted against illicit growing and trafficking of narcotics.

A new basic draft drug law has been proposed and is being reviewed by TISA officials. This draft law comports with international norms for counternarcotics laws. General training and expansion of the national police has been hampered by lack of donor commitments to the Law Enforcement Trust Fund for Afghanistan, which will support the police, including salaries, until the government of Afghanistan can raise revenue locally to fund this function. In this context, the national police, whose numbers are being augmented through an accelerated training program, have been more occupied with trying to improve the general security situation throughout the country, than with narcotics interdiction and enforcement.

The Ministry of Interior is eager to establish a fully operational, national counternarcotics unit. Germany, which has the lead on police assistance to Afghanistan, has written a plan for a narcotics enforcement unit. The U.S. has agreed to provide initial funding for such a unit and work is continuing on its establishment and deployment in the field. The U.S. is also providing funding for judicial reform and training in judicial and prosecutorial enforcement of counternarcotics laws.

The same limitations that adversely affect interdiction of narcotics and enforcement of the ban on narcotics cultivation and trafficking hamper the interdiction of precursor substances and processing equipment. The TISA has a sophisticated understanding of this issue, but action in this regard is dependent upon establishment of the necessary specialized police units. There are currently no registries or legal requirements for tracking, storing or owning such chemicals.

Corruption. In general, officials at the national level are believed to be free of direct criminal connection to the drug trade. At the provincial and district levels, however, drug-related corruption is believed to be pervasive. This ranges from direct participation in the criminal enterprise, to benefiting financially from taxation or other revenue streams generated by the drug trade. The central government has officially condemned the drug trade, but its incomplete power throughout the national territory gives it limited abilities to control it.

Agreements and Treaties. Afghanistan is a party to the 1961 UN Single Convention, the 1971 UN Convention on Psychotropic Substances and the 1988 UN Drug Convention. The TISA has no extradition or legal assistance arrangements with the U.S. Afghanistan is not a party to any treaties providing for mutual legal assistance between itself and any of its neighbors, the U.S., or any other major CN nation. Afghanistan has signed and ratified the UN Convention against Transnational Organized Crime.

Illicit Cultivation/Production. Afghanistan contains the largest area of illicit opium poppy cultivation in the world. Poppy is grown commercially in 28 of its 32 provinces. With limited national enforcement reach, the TISA has simply not been able to enforce its decree banning opium production; only marginal crop destruction in a few locations has been undertaken. This eradication has had no material effect on the quantity of opium gum produced in Afghanistan. The aftermath of a quarter-century of warfare, multiple changes of government, and an embedded tradition of poppy cultivation have made it very difficult to implement well-designed plans for eradication.

Drug Flow/Transit. Drug cultivation in Afghanistan is facilitated by both domestic and foreign individuals who lend money and/or provide agricultural inputs to poor Afghan farmers, and then buy their crop at previously-set prices, or accept repayment of loans “in kind”, i.e., with deliveries of raw opium. In many provinces there also are opium markets, under effective protection of regional strongmen, where opium is traded freely to the highest bidder and is subject to taxation by those strongmen. An increasingly large portion of Afghanistan's raw opium crop is processed into heroin and morphine base by drug labs inside Afghanistan, reducing its bulk by a factor of 10 to 1, and thereby facilitating its movement to markets in Europe and Asia. Many lab owners also organize trafficking of the opiates to markets in Iran, Pakistan and Central Asia. Local Afghan financing of opium/heroin production and trafficking predominates. In the South, Southeast and Northeast border regions however, Pakistani nationals play a very prominent role in all aspects of the drug trade. Distribution networks are frequently organized along regional and ethnic lines (i.e., Baluch tribesmen on both sides of Afghanistan's border with Iran). Other organized criminal groups are also involved in transportation onwards to Turkey, Russia and the rest of Europe. The trend is towards increasing domestic refining of opiates in border regions of Afghanistan, due to financial and transportation incentives.

Demand Reduction/Domestic Programs. The TISA recognizes that it has a domestic drug use problem, particularly with opium. Its National Strategy includes demand reduction and rehabilitation programs for existing and potential drug abusers. However, in the context of the overall shortage of general medical services, very limited TISA resources are being directed to these programs. The U.S. and the U.K. have taken the lead in funding specific demand reduction and rehabilitation programs. The TISA (the Counter Narcotics Directorate) has been very receptive and cooperative in establishing public outreach campaigns in these areas.

The United Kingdom has been designated as international lead country on CN activities in Afghanistan. However, the U.S. has taken, and continues to take, a very prominent role in CN policy. The U.S. is promoting a tripartite counternarcotics campaign integrating law enforcement, poppy eradication, and alternative economic development as a substitute for poppy cultivation. The U.S. is integrating CN work into our more general law enforcement/police work as well.

The Road Ahead. The key element affecting CN activities in Afghanistan is limited security and stability. While the U.S. continues to push, along with the U.K., for increased CN efforts, all work in this regard must be judged in the context of the need for political and institutional stability, economic reconstruction, and the establishment of basic law and order. In the meantime, poppy cultivation is likely to continue until rural poverty levels can be reduced via provision of alternative livelihoods and increased rural incomes. Sustained assistance to poppy-growing areas, diversification of crops, improved market access, and development of off-farm employment, combined with law enforcement and drug education, are expected gradually to reduce the amount of opium produced in Afghanistan. However, drug processing and trafficking can be expected to continue until security is established and drug law enforcement capabilities can be increased. Political stability and assistance by the donor community over many years will be required to help an Afghan government fully dedicated to countering its drug problem succeed.

Opium	2003	2002	2001	2000	1999	1998	1997	1996	1995	1994
Potential Harvest (ha)	61,000	30,750	1,685	64,510	51,500	41,720	39,150	37,950	38,740	29,180
Eradication (ha)	—	—	—	—	—	—	—	—	—	—
Cultivation (ha)	61,000	30,750	1,685	64,510	51,500	41,720	39,150	37,950	38,740	29,180
Potential Yield1 (mt)	2,865	1,278	74	3,656	2,861	2,340	2,184	2,099	1,250	950

¹Note: Potential production estimates for 1996-1999 have been revised upward from previous INCSRs, reflecting improved methodologies for estimating opium yields. The estimates of land area under poppy cultivation in Afghanistan for those are unchanged and have not been revised.

Part II: Money Laundering and Financial Crimes

Afghanistan

Afghanistan is not a regional financial or banking center. Its financial and credit institutions are rudimentary. Afghanistan does not have anti-money laundering or terrorist financing legislation. Efforts are being made to strengthen police and customs forces, but there are few resources and little expertise to combat financial crimes. While the general security situation has been a substantial obstacle to efforts by the central government to establish and regulate basic financial structures, the more fundamental obstacles are legal, cultural and historical antipathy to modern, Western-style institutions such as commercial banks.

Afghanistan currently does not have commercial banks, and its Central Bank has only been reestablished about a year. The economy is almost exclusively based upon cash transactions. Much of the money laundering in Afghanistan is linked to the trade of narcotics. Afghanistan accounts for the large majority of the world’s opium production and in 2003 its internal production of opium increased. Opium gum itself is often used as a currency. It is used as a storehouse or bank of value in prime production areas. The International Monetary Fund and the World Bank estimate as much as 50 percent of the GNP of Afghanistan is derived directly from narcotics activities. Recycling of money generated from the drug trade is reputed to have fueled a significant real estate boom in Kabul, as well as a sharp increase in capital investment in rural poppy growing areas.

Afghan opium is refined into heroin, often broken into small shipments, and smuggled across porous borders via truck or mule caravan for resale broad. Payment for the narcotics outside the country is generated through a variety of means, including trade based money laundering. Narcotics are sometimes thought of as just another commodity or trade good. There are reports that the going rate for a kilo of heroin in certain areas is a color television set. A barter system has developed whereby narcotics in Afghanistan and neighboring Pakistan are exchanged for foodstuffs, vegetable oils, electronics, and other goods. Many of these trade goods are smuggled into Afghanistan from neighboring countries or enter through the Afghan Transit Trade without payment of customs duties or tariffs. Invoice fraud, corruption, indigenous smuggling networks, and legitimate commerce are all intertwined. Hawala and informal currency exchanges networks take the place of banks. Commodities are often used to provide countervaluation in trade-based hawala transactions.

There is clear evidence throughout Afghanistan that large amounts of cash generated from narcotics activities are available to and used by organizations and factions opposed to the coalition and GOA. Many of the areas of the country where Taliban and extremist influence and activities are highest (Hilmand and Nangahar, for example) coincide exactly with extensive narcotics activities in the same areas.

Afghanistan is a party to the 1988 UN Drug Convention. Afghanistan is a party to both the UN Convention against Transnational Organized Crime and the UN Convention for the Suppression of the Financing of Terrorism.

Much work is required to develop and modernize Afghanistan’s infrastructure, financial framework, judiciary, and civil service including its police and customs service. An effective first step in constructing an anti-money laundering program would be to enact anti-money laundering and antiterrorist finance legislation that complies with international standards. Italy, as the lead coalition partner on law reform, has not concentrated on financial crime because of the more immediate need for basic criminal procedure laws and because there is no financial system to regulate. The narcotics trade and money laundering are inextricably linked in Afghanistan. The proceeds of narcotics have permeated into all levels of the economy. In order to combat money laundering and terrorist financing, Afghanistan must successfully combat narcotics trafficking.