This information is derived from the State Department's Office of Investment Affairs Investment Climate Statement. Any questions on the ICS can be directed to EB-ICS-DL@state.gov
Last Published: 11/2/2016

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts
Foreign firms involved in commercial disputes in Afghanistan report lengthy processes and opaque procedures.

The legal system of Afghanistan consists of Islamic, statutory and customary rules. The supreme law of the land is the Constitution. The judiciary system is composed of the Supreme Court, the Courts of Appeal and the Primary Courts. Since 2002, NGOs have been working to strengthen the rule of law in Afghanistan by identifying peaceful means for dispute resolutions, developing partnerships between state and community actors in the hopes of improving access to justice. Despite these efforts, as much as 80 percent of legal disputes are still resolved outside the formal justice system by community based tribal leaders. Contract law in Afghanistan is set out in the Afghanistan Commercial Code 1955 and the Afghanistan Civil Code 1977. Under these codes, parties are generally free to: a) enter into and perform a contract on any commercial subject matter provided that subject matter or performance is not contrary to law, public policy, or sharia; and b) agree to have the law of a foreign state govern their contract.

Bankruptcy
Provisions in the Banking Law provide special procedures for bank insolvency. Afghanistan’s general Law of Insolvency and Bankruptcy, however, is outdated and ineffective. The Department of Commerce Commercial Law Development Program (CLDP) is providing technical assistance to the Ministry of Commerce and Industry as it works with stakeholders and other government entities on drafting replacement insolvency legislation.

Investment Disputes
The Embassy is aware of two disputes between the Government of Afghanistan and foreign investors. In one case a company alleges that equipment was unlawfully removed from a Customs facility, while in the other the investor and government have differed over whether the company has tax-exempt status.

International Arbitration
Since 2005, Afghan law has expressly recognized alternative dispute resolution provisions. In 2014 the Afghanistan Centre for Dispute Resolution (ACDR), whose decisions are non-binding, was established with support from USAID and CLDP. The ACDR offers mediation, expert witness services, and award calculation services in a limited number of cases referred by the commercial courts and plans to expand its services to include arbitration. The ACDR is at a nascent stage of operation and the Embassy is continuing to hear views as to its operations and effectiveness.

ICSID Convention and New York Convention
In 2005 Afghanistan became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Under the New York Convention, Afghanistan has agreed to (a) recognize and enforce awards made in another contracted state, and (b) apply the convention to commercial disputes. Under the PIL and the Commercial Arbitration Law of 2007 (Arbitration Law), (a) parties can agree to have foreign law govern their contract and agree to have their disputes resolved through arbitration or other mechanisms inside or outside of Afghanistan, and (b) Afghan courts must enforce any resulting award or agreement.

Afghanistan has been a member state to the International Centre for Settlement of Investment Disputes (ICSID convention) since 1966.

Duration of Dispute Resolution – Local Courts
According to credible contacts, civil cases in the commercial court system can sometimes take more than 18 months for parties to obtain resolutions. Cases are frequently resolved more quickly through an informal system or, in some cases, pursuant to negotiations facilitated by formal justice system actors or private lawyers. Because there is often limited access to the formal legal system in rural areas, local elders and shuras (consultative gatherings, usually of men selected by the community) are often the primary means of settling both criminal matters and civil disputes, and they are known to levy unsanctioned punishments. Some estimates suggest that 80 percent of all disputes are resolved by shuras/jirgas.

Investors should be aware that the 2014 Human Rights Report noted that arbitrary arrests occur in most provinces and that there have been a number of cases in which the Attorney General’s office, with the complicity of some police officials, imposed or threatened to impose criminal penalties on persons who may only be indirectly connected to a contractual dispute between a foreign company and an Afghan person or entity.

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Afghanistan Economic Development and Investment Dispute Resolution