* Western countries won’t back Kabul bid to delay blacklist deadline
* Govt wrangling over draft law drawn up by central bank
* Blacklist would cut banks off from financial institutions
KABUL, May 26 (Reuters) - Western countries have told Afghanistan its banks will be put on an international blacklist if it does not pass an anti-money laundering law within the next few weeks, the central bank governor told Reuters on Monday.
The Financial Action Task Force (FATF), an international body that sets standards on how countries combat money laundering, is due to decide at its meeting on June 22 on whether to blacklist Afghanistan.
That would cut Afghan banks off from most international financial institutions, causing a potentially devastating impact on the country’s already weak economy.
Afghan banks were dealt another blow last week when Chinese banks halted dollar transactions with most Afghan banks without warning, making it difficult for businesses to pay for imports.
“We will wait and see what the parliament will come up with,” central bank governor Noorullah Delawari told Reuters.
He said he had hoped Western countries would support Afghanistan’s bid to have the blacklist deadline delayed by the regulator because the country’s presidential elections are underway.
This was ruled out by Western ambassadors on Sunday at an emergency meeting with the country’s top security advisor, the governor said.
Western officials say Afghanistan has had plenty of time to meet the deadline and decisions by the regulator cannot be delayed for legal reasons.
“I strongly encouraged the government to work closely together with parliament in the national interest of avoiding a financial crisis,” EU ambassador Franz-Michael Mellbin told Reuters after the meeting, declining to comment on specific details.
“It can be - and should be done.”
FATF has previously told Afghanistan to pass laws meeting global standards against money laundering and terrorist financing or face the blacklist at its June meeting.
The central bank has drafted a law but it has been held up by discussions in cabinet for months, leading to some key provisions being removed from the draft. As a result, in its current form even if it is passed, it will not save Afghanistan from the blacklist, the central bank and Western diplomats say.
It is unclear why some provisions were removed. Diplomats and analysts say it is possible that certain provisions were removed by Afghan officials worried about being targeted by international money-laundering laws.
Afghan banks have been struggling since FATF put Afghanistan on a dark grey list early this year. They say the move has affected their ability to process transactions such as families sending money to students’ abroad.
Chinese banks were being used as a gateway by Afghan banks to process dollar transactions with other parts of the world. (Reporting by Jessica Donati; Editing by Susan Fenton)