With the United States supplying the main military contingent of the now 12-year-long NATO deployment in Afghanistan, the Afghan opium and heroin trafficking economy has expanded 40 times according to estimates.
Afghanistan is already the source for 80-90 percent of global opium production and poppy cultivation, which will likely continue to increase ahead of and after the 2014 ISAF withdrawal and U.S. drawdown.

Russia is one of the single largest markets for Afghan heroin. There are about 30,000 heroin-related deaths in Russia every year, and most of the heroin comes from Afghanistan.Consequently, Russia faces some of the gravest health, socio-economic, and law enforcement challenges from Afghan narcotrafficking.

Afghan narcotrafficking is one of the leading sources of illicit drug-related criminal profits. It is closely related to and spurs other types of transnational crime and money laundering at the regional and global levels, affecting both Russian and U.S. interests.

The UNODC estimates that 92 percent of the opiates produced in Afghanistan are trafficked out of Afghanistan; the rest is consumed domestically or seized at the border. It is the trafficking and distribution that generates the largest profits along the lengthy narcotics chain. The estimated annual value of the global market in Afghan opiates in 2008-2009 was around 60 billion USD. The profits accrued by transnational traffickers and organized crime groups that control distribution in the main consuming states are, on average, 20-25 times higher than the income that stays in Afghanistan.

Laundering of drug money is one of the most transnationalized forms of narcotics-related activity, and the money flow may take a different trail than the drug flow. The laundering of proceeds from Afghan opiates takes place on a different scale, both in and outside producing, transit, and consumer countries.

While the largest profits in the opiate trade are made in consumer countries, hubs for laundering these profits include states that are not producers, major transit countries, or consumer countries. States that are regional financial centers like the UAE are thus also drawn in to Afghan narcotrafficking.

One of the main hurdles in combating the drug-related money laundering is the complexity of drug-related financial transactions. This makes it difficult to distinguish between the proceeds of narcotics trafficking from those of other serious crimes. Additionally, in less developed and developing countries in particular, money-laundering activity extends beyond banks and traditional financial institutions to other non-financial businesses and professions and alternative money and value transfer systems. This is well illustrated in Afghanistan, as well as its neighboring states.

Up to 90 percent of financial transactions in Afghanistan run through the “hawala” system, including foreign exchange transactions, remittances, funds transfers, and micro- and trade-finance. While the “hawala” system and formal financial sector are distinct, “hawaladars” often keep accounts at banks and use wire transfer services to settle their balances with “hawaladars” abroad.

There are three main methods of transmitting narcotics-related money for laundering purposes: in cash using couriers, by sending cash through alternative remittance bankers (“hawala”), or via banks and other financial institutions. Money laundering in and out of Afghanistan is primarily cash-based. Drug profits inside the country may be reinvested in sections of the licit economy, such as real estate, goods or expensive vehicles.
A large illicit economy has a tendency to distort the commercial economy.

Drug profits tend to inflate the currency value; traffickers use narcotics-related profits to import luxury and other goods, which they then sell on the domestic market. The biggest risk is that trade-based money laundering (mispricing of licit goods to move drug profits) makes it hard for legal businesses to compete. A risk for Afghanistan is that its economy could become completely dependent on the illicit economy.

One way to help identify the main destinations and financial hubs for laundering narcotrafficking profits—as well as corruption of aid monies—is to examine the limited data on the money inflows and outflows to and from Afghanistan. Afghanistan’s financial intelligence unit (Financial Reports and Analysis Centre, or Fin TRACA) reports that the United States, Canada, and Turkey send more than they receive, which logically reflects the flows of economic and security aid and remittances into Afghanistan. In contrast, the UAE, Pakistan, China, the UK, and India receive more funds from Afghanistan than they send (while Switzerland and Turkmenistan do not send anything, but still receive some money transfers).

Such dynamics can hardly be explained by trade or economic relationships alone. Importantly, the picture gleaned from data on formal money flows is incomplete. It does not include Iran, which has well-developed financial relations with Afghanistan that are mostly outside the legal framework, or the Central Asian states.

Both trafficking and money laundering have corrupted governments at all levels—which then leads to second order effects on governance, security, and the economy. The links between narcotrafficking, corruption, and dysfunctional governance are endemic and extend beyond Afghanistan, contributing to insecurity and bad governance in regions of strategic importance to Russia and the United States.

The links between narcotrafficking and organized armed violence, and related transnational criminal and militant/terrorist networks, pose new types of security threats at the regional and global levels.
Afghan Narcotrafficking A Joint Threat Assessment

Source:
Frank-cs