About the Repor

The collapse of Kabul Bank in 2010 struck a blow at 

Afghanistan’s banking system. From its inception, the National 

Unity Government made the resolution of the Kabul Bank crisis 

the centerpiece of its fight against corruption. This report 

updates the government’s progress in recovering stolen assets, 

charging individuals, and addressing the regulatory deficits 

that enabled the fraud, then provides recommendations for 

strengthening the regulatory and judicial climate in which 

banking operates.

About the Autho

Grant McLeod is principal consultant at Global Development 

Advisors LLC, where he mainly focuses on governance, 

anticorruption, and the justice sector in Afghanistan. 

Formerly he was the senior policy and legal adviser for the 

Independent Joint Anti-Corruption Monitoring and Evaluation 

Committee, which monitors and evaluates anticorruption 

efforts in Afghanistan.

2301 Constitution Ave., NW • Washington, DC 20037 • 202.457.1700 • fax 202.429.6063

Special Report 398 December 2

© 2016 by the United States Institute of Peace. 

All rights reserved.

Conten

Introduction 2

The Path to Fraud 3

Criminal Justice 3

Recovery of the Missing Money 5

Political Complications 8 

Banking and Financial Oversight 10

Recommendations for Remedial Action 11

Conclusion 13

Grant McLeod

Responding to Corruption 

and the Kabul Bank Collapse

Summary

• The September 2010 collapse of Kabul Bank as a result of fraud and embezzlement involving the political elite continues to resonate strongly in Afghanistan, epitomizing the 

proposition that impunity exists for powerful people.

• The symbolic importance of Kabul Bank was recognized by President Ashraf Ghani, who 

made it a cornerstone of his anticorruption campaign. But inadequate investigations, questionable legal proceedings, political expediency, obstruction, intimidation, and regulatory 

weaknesses are still apparent.

• Criminal court procedures were done hastily to satisfy President Ghani’s interest in demonstrating tangible progress before the London Conference of international donors and 

Afghan government officials in December 2014. Political constraints and capacity issues at 

the Attorney General’s Office have also resulted in the absence of any further meaningful 

investigations into beneficiaries and participants.

• The Ghani government has focused on recovering stolen assets while paying less attention 

to the criminal and punitive elements of the case. Although efforts to recover the hundreds 

of millions of dollars missing from Kabul Bank continue, there has been limited success 

since the National Unity Government came to power in September 2014. Powerful people 

are refusing to make timely repayments, and formal requests for legal assistance from other 

countries have failed to progress sufficiently because of the government’s failure to address 

technical deficiencies in the documents of request.

• Progress has been made in the regulatory reforms needed to secure the financial sector, 

but implementation continues to be problematic, and oversight of some money laundering channels is weak. The Afghan government should focus on strengthening oversight of 

money service providers and the reporting and investigation of large cash transfers and 

suspicious transactions. 

UNITED STATES INSTITUTE OF PEACE www.usip.org

SPECIAL REPORT
2 USIP.ORG • SPECIAL REPORT 398

Introduction

In September 2010, Kabul Bank, a systemic bank critically important to Afghanistan’s economic viability, collapsed after losing a large amount to theft and fraudulent lending, and 

was placed into conservatorship.1 The crisis severely stressed the Afghan financial system. 

At the time of its collapse, the bank held the savings of nearly one million Afghans, totaling 

more than $1.3 billion.2 The realization that depositors’ money had been stolen led to a run 

on the bank, resulting in $500 million being withdrawn within just a few days.3 Complete 

failure was averted only when the Afghan government stepped in to provide $825 million 

from the central bank’s reserves to cover deposits. 

The aftermath of the Kabul Bank scandal revealed a complex fraud and money laundering operation headed by the bank’s administrators, including its founder and chairman, 

Sherkhan Farnood, and his head of security turned chief executive officer, Khalilullah Ferozi. 

The fraud was perpetrated by the bank’s maintaining two sets of accounting systems, one 

the real one and the other to satisfy regulators, and creating loan files in the names of 

fake companies. In addition, millions of dollars’ worth of falsified asset purchases were 

set up to embezzle funds. Other money was laundered by paying for oil and gas products 

from outside the country or by paying inflated prices for goods and services. Much of the 

money was laundered to Dubai through the Shaheen Exchange, which was owned and operated by Farnood.4 

Six years later the Kabul Bank crisis continues to symbolize the pervasive corruption 

and impunity that have threatened the legitimacy of the Afghan government. The crisis has 

shaken confidence in the banking system5 and trust in justice. The involvement of powerful 

people, among them the brother of the former president Hamid Karzai and the brother of 

the former first vice president, immediately drew accusations of corruption and nepotism 

that have never been adequately answered. The response to the Kabul Bank crisis under 

the Karzai administration was colored by false promises, deceptive actions, illegal orders, 

and dubious criminal proceedings. The recovery effort, though it made significant progress, 

underperformed because of inability to compel repayment from some of the largest and 

most powerful debtors. 

The inauguration of President Ashraf Ghani, a former senior official at the World Bank, 

and the installation of the National Unity Government (NUG) in September 2014 brought 

hope that the perpetrators and beneficiaries of the Kabul Bank fraud would finally be 

brought to justice. The NUG labeled action on the fraud a “top signaling priority” and 

indicated that it would be a “bellwether of [the NUG’s] credibility on fighting corruption.”6

President Ghani wasted no time moving forward. Two days after he was sworn into office he 

issued a presidential decree aimed at comprehensively dealing with all remaining aspects of 

the case. The decree directed the Supreme Court to resolve the case and ordered the Attorney General’s Office (AGO) to detain and prosecute all suspects and to pursue requests from 

foreign countries to trace and recover funds that had been transferred abroad. The Kabul 

Bank receivership, responsible for managing the bad assets of Kabul Bank, was ordered by 

President Ghani to summon debtors, and the Ministry of Finance was directed to pursue the 

privatization of the state-run New Kabul Bank which contained the “good assets” remaining 

from Kabul Bank.7

President Ghani’s decree on cleaning up Kabul Bank and subsequent actions had the 

intended effect of buying credibility in the short run. The December 4, 2014, London Conference communiqué called his actions “decisive” and an “important immediate step on corruption,”8 and President Ghani proudly stated that his actions “broke the aura of impunity” 

surrounding Kabul Bank.9

The views expressed in this report do not necessarily 

reflect the views of the United States Institute of Peace, 

which does not advocate specific policy positions.

To request permission to photocopy or reprint materials, 

email: permissions@usip.org.

About the Institu

The United States Institute of Peace is an independent, 

nonpartisan institution established and funded by Congress. 

Its goals are to help prevent and resolve violent conflicts, 

promote postconflict peacebuilding, and increase conflict 

management tools, capacity, and intellectual capital 

worldwide. The Institute does this by empowering others 

with knowledge, skills, and resources, as well as by its direct 

involvement in conflict zones around the globe.

Board of Di

Stephen J. Hadley (Chair), Principal, RiceHadleyGates, LLC, 

Washington, DC • George E. Moose (Vice Chair), Adjunct 

Professor of Practice, The George Washington University, Washington, DC • Judy Ansley, Former Assistant to the President and 

Deputy National Security Advisor under George W. Bush, Washington, DC • Eric Edelman, Hertog Distinguished Practitioner 

in Residence, Johns Hopkins School of Advanced International 

Studies, Washington, DC • Joseph Eldridge, University Chaplain 

and Senior Adjunct Professorial Lecturer, School of International 

Service, American University, Washington, DC • Kerry Kennedy, 

President, Robert F. Kennedy Center for Justice and Human 

Rights, Washington, DC • Ikram U. Khan, President, Quality Care 

Consultants, LLC., Las Vegas, NV • Stephen D. Krasner, Graham 

H. Stuart Professor of International Relations at Stanford 

University, Palo Alto, CA • John A. Lancaster, Former Executive 

Director, International Council on Independent Living, Potsdam, 

NY • Jeremy A. Rabkin, Professor of Law, George Mason 

University, Fairfax, VA • J. Robinson West, Chairman, PFC 

Energy, Washington, DC • Nancy Zirkin, Executive Vice 

President, Leadership Conference on Civil and 

Human Rights, Washington, DC 

Members Ex Offi

John Kerry, Secretary of State • Ashton Carter, Secretary of 

Defense • Gregg F. Martin, Major General, U.S. Army; President, 

National Defense University • Nancy Lindborg, President, 

United States Institute of Peace (nonvoting)
USIP.ORG • SPECIAL REPORT 398 3

But on closer inspection, it is apparent that most of the progress toward accountability 

for the Kabul Bank collapse under the NUG has been illusory. Despite the appearance of 

early and decisive action, the Kabul Bank case has proceeded much as it did under the 

Karzai administration. Criminal proceedings have been superficial, and many politically connected actors who appeared to be involved have not been investigated. Sincere efforts to 

recover funds continue to be impeded by intimidation of those attempting to do their jobs. 

Structural reform has been stymied by a lack of institutional capacity and donor support. 

Altogether, the challenges facing the resolution of Kabul Bank continue to epitomize the 

serious challenges that face Afghanistan, such as nepotism, a weak rule of law, an ineffective judicial system, and low regulatory capacity. 

The Path to Fraud

When Kabul Bank was first established in 2004 its founder, Sherkhan Farnood, initially held 

tight control of its lending portfolio while delegating the technology and deposit products to 

professionals. From mid-2008 Farnood relinquished operational control to Ferozi and started 

concentrating on various other business endeavors, including Pamir Airlines, real estate transactions in Dubai, importing oil from Uzbekistan, and acquiring building materials from China.10

Under Ferozi’s tenure, Kabul Bank increasingly spread money around to powerful and influential 

people in Afghanistan. Hundreds of thousands of dollars went to President Karzai’s reelection 

campaign in 2009,11 and other donations reportedly were provided to Karzai’s chief campaign 

fundraiser, the former minister of finance Omar Zakhilwal.12 The bank’s fraudulent activities 

were fueled by the deposit funds of everyday Afghans, many of whom had government salary 

accounts at the bank. The bank’s administrators had also devised a scheme offering weekly 

prize draws to depositors, which generated large additional deposits.13

Farnood began to lose control of the bank as a result of his focus on other activities and 

his absence from Kabul. In 2009, Ferozi reportedly attempted to remove Farnood with the 

support of Mahmood Karzai and Qasim Fahim, brothers of Afghanistan’s former president and 

first vice president, respectively, who were both Kabul Bank shareholders.14 When Farnood 

realized that he would not be able to retain control of the bank, he sought to expose the 

illegal activities of the bank by requesting an interview with the Washington Post and made 

an appearance at the U.S. embassy, which set in motion the events that led to the detection of the fraud.15 Kabul Bank was put into conservatorship at the end of August 2010 and 

into receivership in April 2011, resulting in the assignment of bad assets to the Kabul Bank 

receivership and the establishment of New Kabul Bank which was created as the state-run 

successor to Kabul Bank to carry on banking operations with the assets that were not associated with fraud. A forensic audit conducted at this time provided details regarding the 

mechanics and beneficiaries of the fraud, which read like a who’s who of the Afghan elite.16

Criminal Justice: Prosecutions without Challenging the Elite 

Criminal Proceedings under Karzai

The criminal investigation and prosecution of those involved in the Kabul Bank fraud under 

the Karzai administration was widely criticized. Although the main perpetrators, Farnood 

and Ferozi, were eventually prosecuted and sentenced, the failure to investigate politically 

connected people and other powerful individuals among Afghanistan’s elite added to the 

perception of impunity. 

The challenges facing the 

resolution of Kabul Bank 

continue to epitomize the 

serious challenges that face 

Afghanistan, such as nepotism, 

a weak rule of law, an 

ineffective judicial system, and 

low regulatory capacity.
4 USIP.ORG • SPECIAL REPORT 398

Those who were charged fall into three categories, none of which include the beneficiaries of the fraudulent loans other than Farnood and Ferozi. In the first category are the main 

perpetrators, Farnood and Ferozi, whose charges included embezzlement, money laundering, 

and forgery. In the second category are Kabul Bank employees, who were charged as accomplices and with a variety of other offenses, including forgery. The third category includes Da 

Afghanistan Bank (DAB, Afghanistan’s central bank) and Financial Transactions and Reports 

Analysis Center of Afghanistan (FINTRACA) officials, who were charged with using their official authority to impede the implementation of the law. The former DAB governor, deputy 

governor, and the Kabul Bank conservator were additionally charged with embezzlement.17

The Kabul Bank Special Tribunal issued its judgment in March 2013 after a number of 

extrajudicial meetings and a short trial. Despite the charges of embezzlement and money 

laundering, the tribunal convicted Farnood and Ferozi only of breach of trust and sentenced 

them to five years in prison, with an order to repay the amounts stolen. Kabul Bank and 

central bank officials were convicted under Section 130 of the 2004 constitution, a provision that allows a court to apply Hanafi jurisprudence, and sentenced to four years and two 

years in prison, respectively. The Kabul Bank conservator was sentenced to three years for 

breach of trust, and the DAB governor and deputy governor were convicted of using their 

official authority to impede the implementation of the law and sentenced to two years and 

one year, respectively.18

The special tribunal judgment was criticized for its procedural and substantive deficiencies. There were no witnesses, the sentences were disproportionate—in some cases very 

light and in others overly heavy—and, most important, the tribunal neglected to register 

convictions for money laundering, which would have enabled Afghan authorities to pursue 

millions of dollars being held in offshore accounts.19 One of the defendants attributed the 

leniency of his sentence to his relations with one of the judges and within the AGO.20

Criminal Proceedings under Ghani

On October 12, 2014, eleven days after Ghani’s Kabul Bank presidential decree, the AGO 

transferred thirty-one files to the Appeals Court.21 A panel of five judges held two hearings 

on November 10–11, lasting four or five hours each day.22 After the second day the judges 

deliberated for less than an hour and returned with six handwritten pages of judgment, 

raising questions as to whether the judgment may have been written before the hearings 

took place.23 There were no witnesses other than the international forensic auditor, who 

was hastily called to testify.24

Ultimately, the Appeals Court returned a conviction against Farnood and Ferozi for money 

laundering and embezzlement, sentencing them to ten years’ imprisonment. Farnood was 

ordered to repay $334.3 million and fined $237.4 million, while Ferozi was ordered to repay 

$196.6 million and fined $137.2 million. The court showed some compassion for the Kabul 

Bank and DAB officials, who were convicted of intentionally abstaining from their duty to 

report the crimes; Kabul Bank officials received one-year prison sentences and DAB officials 

received six months. The former head of FINTRACA was convicted of the same charge and 

was fined Afs 24,000 (approximately $360 USD), while the head of the Financial Supervision 

Department of the central bank, who was responsible for regulatory oversight of Kabul Bank, 

was found not guilty of any wrongdoing, despite his employees being found culpable. Those 

who were accused but had fled the country, including the former governor of DAB and some 

employees of Kabul Bank, did not have convictions registered because of their absence.25

The court ordered the AGO to identify, locate, and freeze the assets of people who had 

“looted” Kabul Bank, including Mahmood Karzai, Qasim Fahim, and Abdul Ghafar Dawi, who 

is the husband of a powerful former member of parliament and current ambassador to Nor-
USIP.ORG • SPECIAL REPORT 398 5

way, until their liabilities were cleared. The court also ordered the AGO to investigate 227 

individuals identified by Farnood as beneficiaries of Kabul Bank loans.26

The Kabul Bank case was sent to the Supreme Court on November 26, 2014. Because of the 

symbolic importance attached to the case by President Ghani, there was a push to have the 

Supreme Court issue its final judgment before the London Conference in December 2014.27 The 

Supreme Court completed its judgment within five days of receiving the case28 and announced 

its decision on December 4, 2014, the same day on which the London Conference took place.29

The Supreme Court’s decision confirmed the conviction and sentences against Farnood 

and Ferozi but reduced the sentences against Kabul Bank and DAB officials on compassionate grounds from one year to six months and from six months to three months, respectively. 

The court affirmed the Court of Appeals order freezing the assets of the “looters” of Kabul 

Bank and the investigation of the 227 beneficiaries identified by Farnood,30 representing 

nearly $250 million owed.31 The list includes the former first vice presidents Marshal Fahim 

and Younus Qanooni, current first vice president Abdul Rasheed Dostum, former president 

Karzai’s nephew Yama Karzai, former minister of finance Omar Zakhilwal, former minister of 

foreign affairs Zalmai Rasool, First Deputy Governor of DAB Khan Afzal Hadawal, the grandson of Afghanistan’s last shah, Prince Mustafa Zahir, and the former head of the Independent 

Commission for Overseeing Implementation of the Constitution Gul Rahman Qazi.32

After the final judgment of the Supreme Court the relevant government agencies undertook an effort to address the list of 227 beneficiaries, but the discussions devolved into 

officials attempting to arbitrarily remove various names from the list without considering 

whether the individuals owed the amount or not, according to officials who participated in 

the process.33 Subsequently, sixty-two people whose names were on the list acknowledged 

and repaid their debt, representing over $20 million owed. This group included former minister Rasool, Prince Mustafa Zahir, and the former head of the Independent Commission for 

Overseeing Implementation of the Constitution Gul Rahman Qazi.34 Another twenty-four 

people on the list, owing in total $12,597.398, were referred to the AGO for investigation, 

including Yama Karzai and former first vice president Qanooni.35 The AGO did not undertake 

a serious investigation of these or any others on the list, having done nothing more than 

send letters of inquiry to some.36

Recovery of the Missing Money

Reserve Repayments: Paying Back the Central Bank

In September 2010, Kabul Bank depositors rushed to get their money out of the bank when 

it became public knowledge that there was massive fraud. Kabul Bank was insolvent at the 

time and had a loan to deposit ratio of 70 percent, which meant that more than $900 million of its deposits were committed to mostly fraudulent loans.37 The Afghan government 

stepped in with a lender of last resort facility totaling $825 million to secure deposits and 

avoid a larger crisis. The facility was funded from Afghanistan’s central bank reserves with 

repayment terms agreed to between the Ministry of Finance and DAB, according to a promissory note executed by both parties. According to the agreement, repayment was to take 

place over eight years, ending in 2019.38

More than half of the money borrowed from the reserve has been repaid since 2010, 

with DAB reporting $388 million outstanding as of October 20, 2016.39 The amount repaid 

comprised $205.2 million from cash recoveries40 and the rest from the Afghan government’s 

budget. Repayments from both sources have fallen considerably under the Ghani adminis-
6 USIP.ORG • SPECIAL REPORT 398

tration, which has seen only $30 million recovered since Ghani took office,41 while budget 

repayments were reduced to none in 2015 and only $11.4 million in 2016, compared to $66.7 

million in 2014 before Ghani took office.42 The Ghani government has recommitted itself to 

eliminating the lender of last resort balance by the end of 2019.43 The 2017 budget currently 

under review in the National Assembly includes approximately $145 million for repayment, 

which is close to the amount necessary over the next three years to meet the goal of paying 

it off by 2019.44

Current Recoveries

The Supreme Court endorsed the final liabilities of Kabul Bank debtors in a February 2015 

directive.45 The final assessment had Farnood with $418.2 million in liabilities, Ferozi $259.2 

million, Mahmood Karzai $17.4 million, Qasim Fahim $46.7 million, and Abdul Ghaffar Dawi 

$37.8 million, along with other, smaller debtors. Normal customers, those who had received 

legal loans but had not repaid them, were assessed $52.7 million, and Kabul Bank employees 

who had received advance salaries were assessed $1.5 million.46

As of early November 2016, the Kabul Bank receivership reported recovering $447 million, 

an amount that included cash recoveries of $205.2 million and a number of other monetary 

items, among them $50 million in assets that had been transferred to the Afghan government but were not yet paid for, $32.5 million in loans that debtors had provided collateral for 

but that had not been repaid, $98.2 million representing loan interest that was waived under 

President Karzai, $14.1 million in loan interest waived under the current government, and 

$47 million of Dubai real estate that is currently tied up in litigation.47 The assets transferred 

to the government included an oil storage complex, vehicles, apartments in Gulbahar Center 

and Esteqlal Township in Kabul, and assets from Pamir Airlines.48 However, the government 

had not budgeted any amount for the public entities that had purchased these assets to pay 

for them.49 According to a July 2016 report from the International Monetary Fund (IMF), the 

Afghan government has committed to including an allocation for purchasing these assets 

in the 2017 budget.50

The Incentive Procedure

President Ghani reportedly entered office believing that a lot more could be done to recover 

the stolen assets of Kabul Bank.51 He therefore established the Committee on Accelerating 

Recovery of Kabul Bank Assets, which began work in early 2015.52 The committee consists 

of relevant government agencies, including the receivership, the Financial Disputes Resolution Commission, the AGO, DAB, and New Kabul Bank. The focus of the committee first was 

on enforcing the Supreme Court’s decision. However, this was viewed as difficult because of 

the powerful people involved and because many assets were not held in the names of the 

debtors. The president approved an incentive procedure in March 2015 to overcome these 

challenges.53 Under this procedure, debtors who acknowledged their debts and made regular payments would be assessed a reduced rate of interest. Debtors were required to make 

an advance payment of 20 percent of their total debt and to repay the total outstanding 

amount in one to five years. Debtors who did not agree to pay off their debt would have 

their assets seized according to a court order.54

The incentive procedure did motivate several debtors to come forward and sign repayment agreements. Currently, there are thirty-five agreements signed, representing $46.6 

million to be repaid and $9.2 million of forgiven interest. Of the $46.6 million, $14.1 million has been repaid and $32.5 million subject to repayment according to an agreed-upon 

repayment schedule.55 Mahmood Karzai reportedly paid all the outstanding amount of 

his assessed liabilities at once, except for a $585,000 loan that he claimed to have paid 
USIP.ORG • SPECIAL REPORT 398 7

already.56 Karzai filed a case in the Commercial Court to challenge the amount outstanding, 

but as of November 2016 the court had not yet issued a judgment.57

Most of the thirty-five agreements are with relatively small debtors, including seventeen 

Kabul Bank employees who received salary advances and collectively still owe $186,226. 

Six agreements are with larger debtors who owe more than $1 million, such as the brother 

of former first vice president Fahim, who still owes $3.4 million; Gulbahar Habibi, a wellestablished businessman in Afghanistan, who owes $16.3 million; and Mohammad Zahir 

Tahir, who owes $7.7 million.58 Of the people who signed agreements, many have not paid 

according to their agreed-upon schedule, including several of the major debtors.59 There 

are suspicions that high-ranking officials at the Kabul Bank receivership are facilitating the 

delays in repayment without proper justification, and there are reports that the collateral, 

such as deeds to property, have disappeared from some debtor’s files.60

On June 22, 2015, after the expiration of the three-month incentive period, President 

Ghani set a one-week deadline for debtors to settle their accounts, after which they would 

be referred to the AGO for prosecution.61 Of those who did not sign an agreement, fourteen 

were major debtors, who collectively owed $626.9 million; forty were small borrowers, owing 

$21 million; and sixty-four were advance salary recipients, owing just over $400,000.62 

The fourteen major debtors were mostly shareholders of the bank who had previously 

acknowledged their debts in legally binding agreements signed in late 2010. In addition to 

Farnood and Ferozi, the list included the largest other net debtor, Abdul Ghafar Dawi, who 

had assessed liabilities of $34.8 million; Khalid Noor, the son of Balkh governor Atta Noor, 

who owes $4.5 million; and Mahmood Karzai, for his disputed amount of $585,000.63 None 

of the fourteen other than Mahmood Karzai have made any substantial payments. The cases 

were referred to the AGO, who then reportedly issued arrest warrants, to be executed by the 

Ministry of Interior. However, most of the persons are outside the country, and the Ministry 

of Interior has not moved to arrest those still in Afghanistan, such as Dawi.64

International Recovery of Funds 

Between 2007 and 2011, at least $873 million of licit and illicit funds were sent from Kabul 

Bank to recipients in twenty-eight countries for the benefit of related persons, including 

bank management personnel, shareholders, and their close relatives. The largest of the 

recipient countries were the United Arab Emirates (UAE) ($410.1 million), Latvia ($130.7 

million), and China ($117.9 million), where Farnood reportedly owned a money exchange. The 

transfers included $53.2 million for related-party bank accounts; $334 million for Shaheen 

Exchange bank accounts; $204.6 million for purchase of oil and gas products and services 

from Turkmenistan and Kazakhstan; $65.7 million for Pamir Airlines expenses; $99 million 

for general trading, construction materials, tobacco, and other oil- and gas-related transfers 

by related parties; and $116.4 million sent to China by the Shaheen Exchange. The largest 

transfer to China, $93 million, went to Xinjiang Qitai Xilu Company Limited, which appears 

to be related to a holding company owned by Farnood.65

The recovery of funds held outside Afghanistan relies on the cooperation of other jurisdictions if the debtors refuse to cooperate. The Afghan Ministry of Justice must make a 

formal request for mutual legal assistance to the foreign country, which is to be delivered 

through diplomatic channels. Prior to the NUG coming to power, Afghanistan had requested 

assistance from a number of countries, including the United Kingdom, Germany, the UAE, 

and Switzerland.66 However, the requests suffered from technical deficiencies and were 

not executed.67 In addition, they were not based on a final order of the Afghan courts for 

convictions related to money laundering, which is a prerequisite. 

Between 2007 and 2011, at 

least $873 million of licit and 

illicit funds were sent from 

Kabul Bank to recipients in 

twenty-eight countries for the 

benefit of related persons, 

including bank management 

personnel, shareholders, and 

their close relatives.
8 USIP.ORG • SPECIAL REPORT 398

After the Supreme Court’s decision of December 2014, Afghan government officials sent 

a list of the debtors to embassies around the world, requesting that they identify and freeze 

these individuals’ assets.68 However, these requests were also deficient. For example, the 

Afghan embassy in Abu Dhabi received a letter in August 2015, but the request listed only 

names and bank accounts, without any context to satisfy the mutual legal assistance agreement between the two countries.69 It was not until August 2016 that a compliant mutual 

legal assistance request was submitted to the UAE; however, the UAE advised that it could 

not read the copy, and the original documents were resubmitted on September 25, 2016. As 

of November 2016, there had been no update regarding the UAE’s execution of the request.70

The United States received a technically deficient request in May 2015 and went so far as 

to identify the remedial steps that were required, but no additional request was received.71

President Ghani decided to pursue international recoveries outside the established international legal framework for requesting legal assistance. In February 2016 the president 

announced that he had sought the cooperation of the Special Inspector General for Afghanistan Reconstruction (SIGAR) for international recoveries,72 indicating that SIGAR would have 

full access to banking and financial records73 and ordering Afghan entities to provide such 

documents to SIGAR.74

Political Complications: Resolving the Kabul Bank under Ghani

Investigation of Kabul Bank Beneficiaries: An Impossible Task

Shortly after President Ghani reopened the Kabul Bank case, the AGO announced that it 

had arrested seven people, issued warrants for twenty-one others, and claimed that it was 

“chasing” others through Interpol.75 The AGO also claimed to have frozen the assets of 

Mahmood Karzai, Fahim, and Dawi following the verdict of the Court of Appeals.76 Despite 

the appearance of action, however, little was achieved. The people arrested represented the 

low-hanging fruit of Kabul Bank and DAB employees.77 The “chasing” of people through 

Interpol amounted to adding the former governor of DAB—and favorite scapegoat—to the 

Interpol list.78 In addition, a letter was sent to UAE officials requesting that they arrest 

eight low-level individuals that Afghan authorities believed were in Dubai, but this was 

rejected by the UAE because such requests need to be submitted through Interpol, which 

was not done by Afghan authorities.79 In a similar vein, the attempt to freeze and seize 

assets amounted to writing letters to a number of government entities without sufficient 

detail on the individuals or the assets, with the result being that no assets were frozen, 

despite public claims to the contrary.80

One of the themes common to both the Karzai and Ghani administrations is the lack of 

further criminal investigation into a number of suspected individuals, particularly Mahmood 

Karzai, Qasim Fahim, and the 227 beneficiaries whom the court had ordered to be investigated.81 Whether guilty or not, high-profile individuals have been immune from investigation because of political sensitivities.

Challenges Facing the Receivership: The Perils of Doing Your Job

The Kabul Bank receivership faces many of the same challenges that it did under the Karzai 

administration, with officials continuing to receive threats and pressure from some of the 

large debtors.82 As one official stated, “You can only go so far, but cannot push. If there are 

no recoveries, there is no problem.”83
USIP.ORG • SPECIAL REPORT 398 9

These threats have already had very real consequences. For example, Dawi was reportedly threatening to undermine the Kabul Bank receivership after coming under pressure to 

repay his $34.8 million liability. Dawi reportedly had his wife, an influential former member 

of parliament, reach the president with allegations that the receiver and deputy receiver 

were threatening to add another $5 million to Dawi’s liabilities if he did not pay $200,000 in 

bribes.84 The president authorized the National Directorate of Security to conduct a sting 

operation, which was executed by an official who was reportedly a former employee of Dawi’s 

at Aria Television.85 The deputy receiver claims that he was induced to meet Dawi to collect 

collateral for a repayment agreement that Dawi was negotiating. At this meeting, $100,000 

in marked bills was provided to the deputy, and he was arrested for taking bribes.86

The deputy identified the receiver as an accomplice in the initial interrogation but later 

retracted his statement, claiming that he had been physically coerced into making it.87 The 

receiver and his deputy denied all allegations, pointing out that it would have been impossible for them to alter the court’s determination of Dawi’s liability even if they had wanted 

to.88 During the investigation the AGO sought evidence from Dawi, but nothing more than 

a statement was provided.89 Despite the lack of evidence, the Primary Court convicted the 

receiver and the deputy in August 2015 of receiving bribes and sentenced them each to two 

years and four months of imprisonment and a fine of $50,000. The Supreme Court made a 

final judgment on December 8, 2015, and increased the punishment to five years’ imprisonment and a $50,000 fine.90 Ultimately, the former receiver was released in October 2016 

when the president issued a decree that reduced the sentences of a number of prisoners, to 

mark Eid al-Adha.91

The (Not So) Smart City Fiasco

Shortly after the incentive procedure was approved, the legal adviser to President Ghani 

and the chairman of the Financial Disputes Resolution Commission visited Bagram prison 

to speak to Ferozi and Farnood at the president’s direction.92 Farnood reportedly indicated 

that he “would not repay a penny” of the amount he owed.93 Meanwhile, Ferozi agreed to 

repay on the condition that he be allowed to access his property. He argued that it would 

be impossible for the government to identify his assets because they were hidden in the 

names of other people.94 Initially the government was not willing to agree, but in July 

2015 Ferozi’s family petitioned the president to transfer him from Bagram to Pul-e-Charkhi 

Prison in Kabul. The request was based on Ferozi’s health condition and the lack of medical facilities in the Bagram area.95 On July 25, 2015, a directive from the president stated 

that a decision to transfer Ferozi would be taken after he had established a timetable for 

repayment and made a first payment. He further directed that immediate measures would 

be taken to release Ferozi if guarantees were given to ensure that the amount he owed was 

paid back.96 This directive was issued despite the legal requirement that the AGO or the head 

of the prison, based on the recommendation of the doctor-in-charge, order the transfer of 

ill prisoners to medical centers outside the prison.97

Subsequently Ferozi prepared a plan for the repayment of his debts and provided collateral in the form of 58,000 precious stones.98 The repayment plan included revenues from Gas 

Group, in which Ferozi was a shareholder, and identified several properties that he owned 

under different names in Kabul and Mazar-e-Sharif.99 Afghanistan’s business licensing agency 

was requested to cooperate with respect to the renewal of Gas Group’s trade license,100 and 

the president’s former legal adviser requested that the minister of finance require government entities to make contracts with Gas Group for their winter needs.101

Ferozi negotiated a deal with the Nabizada Wardak Construction Company102 to build 

a township on his land, with 50 percent of the profits to be used to pay off Kabul Bank 
10 USIP.ORG • SPECIAL REPORT 398

debts.103 Ferozi and the construction company petitioned the president to obtain permission to build the township, and the president’s legal adviser sent letters to the Ministry of 

Urban Development, with copies to the AGO, stating that “it is hoped that in accordance 

with relevant rules and regulations [you] cooperate and give permission.” The same letter 

instructed the AGO to take necessary measures to unfreeze the land according to the regulations.104 The president’s legal adviser wrote to the National Directorate of Security seeking 

cooperation in allowing Ferozi to serve his sentence while in the directorate’s custody in 

Kabul because he had met the president’s preconditions.105

On November 4, 2015, Ferozi and high-level government officials presided over a stonelaying ceremony for the development of 8,800 homes in Kabul, otherwise known as Smart 

City.106 The Smart City deal demonstrated the government’s focus on recoveries. The sentiment among government officials was that it was better to secure cooperation and have the 

money returned than never to recover the money.107 However, public outrage soon emerged 

as photographs and a video of Ferozi surrounded by a number of high-ranking government 

officials at a press conference strikingly depicted the impunity and nepotism associated 

with Kabul Bank.

President Ghani claimed he was not aware of the Smart City deal and nullified the agreement shortly after the public’s negative response.108 The president suspended his legal 

adviser and directed a review of the circumstances leading to the project. The review found 

that the agreement was made in a good faith effort to recover funds and laid much of the 

blame on the president’s former legal adviser and the AGO for allowing activities contrary 

to the law.109 Although the review was silent on Ghani’s knowledge of the agreement, the 

former legal adviser attested to the president’s participation in committee meetings and 

specific instances in which he had provided progress reports to the president and had sought 

direction on the handling of Ferozi.110

Banking and Financial Oversight: Privatization of New Kabul Bank

After Kabul Bank was put into receivership in 2011, it was required to separate its assets 

into bad and good assets, with the latter moved to New Kabul Bank. New Kabul Bank is fully 

owned by the Afghan government, and its disposition has been one of the major outstanding issues related to the Kabul Bank crisis. As of this writing the government is engaged in 

its third attempt to privatize the bank. It was originally put up for sale in September 2013, 

but the resulting bids were rejected by the Council of Ministers as too low. Subsequently 

a successful bidder was identified, but the bid was not approved before the NUG came to 

power. After the Ghani administration took office, the Ministry of Finance announced plans 

to combine New Kabul Bank with the other two government-owned banks,111 but it backed 

off when the IMF asked them to reconsider.112

The latest sale of New Kabul Bank was initiated on October 28, 2015.113 There were two 

qualified tenders, one from an Afghan company called the Joint Stock Company and the 

second from the Muslim Commercial Bank of Pakistan.114 It was announced that the Joint 

Stock Company was the successful bidder with an offer of $31 million for the bank.115 The 

Ministry of Finance has completed the bidding process and handed the file off to DAB for its 

due diligence assessment. If DAB approves, the offer will go to the Council of Ministers.116

New Kabul Bank will be transferred with a clean balance sheet, with net assets equaling 

net liabilities. This means that it must transfer any outstanding bad assets to the receivership, and the government must cover all outstanding losses. New Kabul Bank’s 2015 financial 

statements indicate that the bad assets to be transferred to the receivership amounted to 

$41.4 million and the bank’s accumulated loss stood at $50.4 million.117 Recently, Afghan 
USIP.ORG • SPECIAL REPORT 398 11

authorities committed to recapitalizing New Kabul Bank by the end of 2016.118 To this end, 

$106 million was budgeted in the midterm budget review to cover past accumulated losses, 

reconcile accounts with receivership, and inject $15 million for the shares of New Kabul 

Bank, which had never been paid for.119

New Kabul Bank currently has seventy-nine branches, deposits of approximately $298 

million, and a net income of $20.5 million, mostly from fees and commissions because of 

a moratorium on lending.120 Since October 2014, New Kabul Bank has taken a number of 

actions to reduce its operational losses. These steps have included the renegotiation of rent 

at branches down from $9 million to $5.9 million to reflect lower market rates and the renegotiation of insurance payments from $952,000 to $195,000 because of the lack of a lending 

portfolio. In addition, approximately 130 underperforming staff members were removed, 

international training was reduced, and three branches were closed.121 These efforts have 

resulted in a significant reduction in the bank’s operating expenses from $25.7 million to 

$21 million and its operating losses from $4.2 million to $525,000.122 In September 2016, 

New Kabul Bank posted a profit of $334,663 for the year, likely marking the first time in its 

history that it is profitable.123

Recommendations for Remedial Action

Several regulatory and operational issues in the banking and financial sector bear remediation. The following steps suggest actions that can be taken.

Improve Banking Sector Health

Although the primary responsibility for the Kabul Bank fraud lies with the perpetrators, 

there were a number of opportunities to detect it sooner. A former internal audit official at 

the bank blamed the lack of capacity at oversight agencies such as the Financial Supervision Department of DAB and FINTRACA as one of the main reasons why the bank collapsed. 

In addition, FINTRACA reportedly failed to pursue large cash transfers or to question why 

imported goods were routed through the Shaheen Exchange instead of through the corresponding banks.124

The NUG has made several commitments to strengthen financial sector oversight and antimoney laundering efforts, including implementation of anti-money laundering laws, improving 

supervisory capacity, approving a new banking law and regulations, and implementing the 

IMF’s Staff-Monitored Program and Financial Action Task Force (FATF) recommendations.125

The IMF became involved in Afghanistan in 2002 to, in part, provide technical assistance to strengthen the central bank. Its first Extended Credit Facility (ECF) program ran 

from 2006 to 2010 and focused on macroeconomic stability. The second ECF program 

was approved in November 2011 and was heavily focused on safeguarding the financial sector, strengthening the banking law and central bank supervision, and seeking 

resolution of outstanding Kabul Bank issues.126 The second program was not successfully implemented,127 however, and many of the reforms contemplated did not progress 

significantly, thereby leaving the financial sector at risk. 

The inauguration of the Ghani administration presented an opportunity to complete the 

reforms necessary to secure the financial sector. In May 2015 the IMF approved a Staff-Monitored Program as an incremental program to establish credibility and build a track record 

for a future ECF program.128 In May 2016 the IMF concluded that the program had been successfully implemented, “taking into account” the “challenging circumstances” that Afghan 

officials faced.129 The IMF also highlighted positively the 71 percent liquidity ratio and 28 

In September 2016, New 

Kabul Bank posted a profit of 

$334,663 for the year, likely 

marking the first time in its 

history that it is profitable.
12 USIP.ORG • SPECIAL REPORT 398

percent capitalization rate of Afghan banks.130 However, New Kabul Bank’s liquidity ratio 

fell to 59 percent at the end of 2015, and the Afghan government had not capitalized it.131

Despite the apparent success, implementation challenges exist, and the financial sector 

is “fragile,” according to a May 2016 IMF review.132 According to the IMF, seven of Afghanistan’s commercial banks are weak, and two important banks are in hazardous condition.133 

In addition, nonperforming loans in the banking sector increased to 12.3 percent in 2015 

from 7.8 percent in 2014.134

Implement an Anti-Money Laundering Regime

The FATF has consistently raised concerns about the strength of Afghanistan’s anti-money 

laundering regime.135 Afghanistan has had an action plan for FATF compliance in place since 

2011, but Afghanistan was noted as a jurisdiction not making sufficient progress and was at 

risk of being moved to the list of countries that required countermeasures.136 In response, a 

new anti-money laundering law was hastily enacted in late June 2014 to avoid the country 

being put on the blacklist.137 In February 2016 the FATF recognized that Afghanistan had 

taken steps toward improving its anti-money laundering regime but still had strategic deficiencies. The FATF called on Afghanistan to implement its legal framework and to implement 

effective controls for cross-border cash transactions.138

Regulate and Educate Money Service Providers

More than nine hundred money service providers are operating in Afghanistan.139 Money 

service providers are the principal mechanisms for engaging in financial activity. It is estimated that 90 percent of financial transactions run through them, with unregulated money 

service providers accounting for “a substantial portion of the illicit proceeds being moved in 

the financial system.”140 Money service providers must be licensed, must be owned by fit and 

proper persons,141 must meet operational requirements, and must take measures to prevent 

money laundering. Although the DAB may conduct inspections and revoke licenses, so far 

it has focused only on registration, and examinations have been limited to a review of the 

qualifications of key personnel.142

The education of money service providers is an important area of deficit. These individuals are required to submit suspicious transaction reports to FINTRACA, but many do not 

fulfill their reporting requirements. According to an Afghan official in the DAB Financial 

Supervision Department, money service providers have demonstrated little knowledge of 

their regulatory obligations and have difficulty complying with regulations.143

Improve Reporting of Large Cash Transfers and Suspicious Transactions

The large cash transfer and suspicious transaction reporting regime is meant to ensure that 

transactions are appropriately flagged, reviewed, and investigated. This is the front line in 

the fight against money laundering. Although banks are consistently reporting large cash 

transfers, there is vulnerability in the lack of suspicious transactions being reported.144 A 

further vulnerability appears in the verification process, which requires dissemination of 

suspicious transaction reports to the appropriate authorities for investigation if validated by 

FINTRACA; the authorities are then supposed to investigate and report back to FINTRACA, 

but this is not happening consistently. There is a sense that all participants in the system, 

including government agencies, money service providers, banks, and oversight agencies, 

require additional training and technical support.145

Another vulnerability in the large cash and suspicious transaction system is the reporting at national borders. A revised regulation governing the reporting of currency and other 
USIP.ORG • SPECIAL REPORT 398 13

valuable instruments at borders, broadly in line with FATF requirements, came into force in 

February 2016,146 but implementation is incomplete. Currently reports are only being made 

from the international airports of Kabul, Mazar, and Kandahar, though there are plans to 

bring Herat and land borders on-line in the future, based on the readiness of the Afghan 

Customs Department. Reporting is currently being done in hard copy while an electronic 

customs system is being designed.147 The reporting gap is compounded by the absence of 

reporting from the “Very Very Important Person” procedure at Kabul airport, which would 

include high-ranking officials.148

Improve Regulatory Capacity and Oversight

The Financial Supervision Department of DAB continues to implement its five-year strategic 

plan and reportedly is committed to making the transition to risk-based bank supervision. 

The department has stepped up supervision efforts, with full scope examinations happening annually and special-scope examinations being conducted as required. The Supervision 

Department reportedly has taken enforcement action against weak and vulnerable banks, 

with corrective action being monitored by the Special Supervision section to ensure compliance.149 Although the Financial Supervision Department has increased its organizational 

structure, turnover remains high, and there is a need for specific technical training.150 For 

its part, although FINTRACA has analysts and representatives spread across the country, its 

analytical capacity is low because many staff members do not have technical backgrounds 

and the system is not computerized.151

Overall, there has been little support for financial oversight since the Kabul Bank crisis 

and the removal of international advisers from DAB in 2010.152 The World Bank had a Financial Sector Strengthening Project that included a component for capacity building that was 

not implemented.153 The program was restructured to implement a capacity development 

plan, review the banking regulation framework, and implement action plans for commercial 

banks.154 More recently, Afghan authorities and the IMF have agreed on an ECF program to 

help address financial sector vulnerabilities and governance gaps.155 On July 20, 2016, the 

IMF approved a three-year $44.9 million ECF arrangement. The program sets out a structural 

reform agenda that focuses on institution building, fiscal and financial reforms, and measures to combat corruption.156 Meeting the structural benchmarks focusing on fiscal and 

financial reform have been included as a SMART deliverable under the Self-Reliance through 

Mutual Accountability Framework agreed to at the Brussels Conference on Afghanistan in 

October 2016.157

Conclusion

Despite the enthusiasm and the hope that the NUG would handle the Kabul Bank case differently from how it had been handled in the past, this has proved not to be the case. The number of high-ranking Afghan officials and power brokers who benefited from the fraud is so 

large that fully pursuing all potential cases could threaten significant parts of Afghanistan’s 

governing class. The beneficiaries include vice presidents, ministers, provincial governors, 

senior central bank regulators, and other powerful people. The political will necessary to 

seriously review the involvement of these individuals is unlikely to emerge, and even where 

the political will does exist, there is a lack of capacity to execute. The expectation that 

Afghanistan, with all its political and capacity challenges, could complete complex criminal 

investigations and prosecutions that involve hundreds of millions of dollars laundered to 

numerous countries in the framework of a complex fraud is unrealistic.
14 USIP.ORG • SPECIAL REPORT 398

Nonetheless, there is room for meaningful action to resolve some of the lingering issues 

related to Kabul Bank. The international recovery effort offers some promise, if the government takes the relatively simple but essential steps necessary to pursue legal assistance 

requests. In addition, the implementation of a new IMF ECF program should address the 

most pressing issues related to weaknesses in the financial sector and financial sector 

oversight. The technical assistance offered under the IMF program, in addition to the World 

Bank’s program, should help build the missing capacity needed to secure the financial sector. There is also hope that USAID’s mission to Afghanistan’s five-year Afghanistan Financial 

Sector Development program, announced in August 2016, can also address some of the 

underlying issues. Enhanced oversight of the financial sector and the plugging of porous 

money laundering channels would contribute significantly to fulfilling the NUG’s commitments, benefiting Afghans well into the future.

Notes

1. Kabul Bank Conservatorship, “Report and Recommendations” (internal document, 2011).

2. Kroll, “Final Audit Report for Kabul Bank, Book 2: Reporting” (March 14, 2012).

3. Kabul Bank Conservatorship, “Report and Recommendations.” 

4. Kroll, “Final Audit Report for Kabul Bank, Book 3: Irregularities and Exceptions” (March 14, 2012).

5. Asian Development Bank, Asian Development Outlook 2015: Financing Asia’s Future Growth (Manila: Asian 

Development Bank, 2015), 168, www.adb.org/sites/default/files/publication/154508/ado-2015.pdf.

6. Government of the Islamic Republic of Afghanistan, “Afghanistan’s Road to Self-Reliance: The First Mile Progress 

Report” (Kabul, September 5, 2015), 8, http://mof.gov.af/Content/files/SOM%20main%20paper%20with%20

annexs%20final%203%20sep2015(1).pdf.

7. Presidential decree, October 1, 2014. 

8. “Afghanistan and International Community: Commitments to Reforms and Renewed Partnership,” London 

Conference on Afghanistan Communique, December 4, 2014, www.gov.uk/government/uploads/system

/uploads/attachment_data/file/383205/The-London-Conference-on-Afghanistan-Communique.pdf.

9. His Excellency Ashraf Ghani, “Closing Remarks Delivered by President Ghani at the London Conference on 

Afghanistan, London 2014” (December 4, 2014), http://president.gov.af/en/news/president-ghanis-closing

-remarks-at-the-london-conference-on-afghanistan-2014.

10. Personal correspondence, former Kabul Bank Internal Audit Department official, April 16, 2016.

11. Kabul Bank, “Advance Payment Account Statements” (internal document, 2009).

12. Personal correspondence, former Kabul Bank Internal Audit Department official, April 16, 2016.

13. Kroll, “Final Audit Report for Kabul Bank: Book 1, Governance and Regulation” (March 14, 2012).

14. Personal interview, former senior Kabul Bank official, April 4, 2016 (interview 30 in author’s collection). 

15. Personal correspondence, former Kabul Bank Internal Audit Department official, April 16, 2016.

16. Kroll, “Final Audit Report for Kabul Bank,” 5 vols. (March 14, 2012).

17. Attorney General’s Office, “Kabul Bank Indictment” (Kabul, 2012). 

18. Judgment of the Special Tribunal in the Kabul Bank Case (March 5, 2013).

19. International Joint Anti-Corruption Monitoring and Evaluation Committee, “Kabul Bank Special Tribunal 

Judgment Falls Short and Will Not Facilitate the Recovery of Stolen Money,” news release (Kabul, March 5, 2013), 

www.mec.af/files/MEC_News_Release_Kabul_Bank_Tribunal_Judgment.pdf.

20. Personal interview, Kabul Bank defendant, April 4, 2016 (interview 29). 

21. Shakeela Ibrahimkhail, “Legal Officials Demand Kabul Bank Suspects Return,” Tolo News, October 14, 2014. 

22. Personal interview, senior Presidential Palace official, April 4, 2016 (interview 13); and personal interview, 

participant in the proceedings, April 11, 2016 (interview 21).

23. Personal interview, defendant in the proceedings, April 4, 2016 (interview 29).

24. Personal interview, participant in the proceedings, April 11, 2016 (interview 21).

25. Appeals Court decision (November 16, 2014).

26. Ibid.

27. Personal interview, senior Presidential Palace official, April 4, 2016 (interview 13); and letter to President Ghani 

from his former legal adviser regarding the Smart City events, April 17, 2016. 

28. Supreme Court Order 1563, Final Judgment on Kabul Bank Crisis Case, Public Security Division, Supreme Court of 

Afghanistan (Kabul, 10/9/1393 [November 18, 2014]).

29. Mohammad Halim Karimi, “Kabul Bank Case Verdict Being Enforced: AG,” Pajhwok News, December 6, 2014, 

www.pajhwok.com/en/2015/03/10/kabul-bank-case-verdict-being-enforced-ag; and personal interview, senior 

Presidential Palace official, April 4, 2016 (interview 13).

30. Supreme Court Order 1563, “Final Judgment on Kabul Bank Crisis Case.”
USIP.ORG • SPECIAL REPORT 398 15

31. List of 227 debtors presented by Sherkhan Farnood: Repaid, referred to law enforcement and outstanding, Kabul 

Bank receivership. 

32. Ibid.; and personal interview, former Kabul Bank employee responsible for remittances, November 28, 2016 

(interview 32).

33. Personal interview, Kabul Bank receivership officials, November 8, 2016 (interview 12).

34. List of 227 debtors presented by Sherkhan Farnood.

35. Ibid.

36. Personal interview, Kabul Bank receivership officials, November 8, 2016 (interview 12); and personal interview, 

AGO officials, November 14, 2016 (interview 31).

37. Kabul Bank Conservator, “Report and Recommendations.” 

38. “Promissory Note and Agreement between the Ministry of Finance and DAB Regarding Procedures for Payment for 

Guarantees of Deposits of Kabul Bank” (Kabul, April 10, 2011).

39. DAB, “Pro forma Balance Sheet as at October 20, 2016,” http://dab.gov.af/Content/Media/Documents

/ProformaofBalancesheetforthemonthofMizanEnglish-13951211201613225371553325325.pdf. 

40. Kabul Bank receivership, “Kabul Bank’s Assets Recovery Breakdown with Percentage” (Kabul, 2016). 

41. Ibid.

42. Islamic Republic of Afghanistan, Ministry of Finance, National Budget Document: 1394 Fiscal Year (Kabul, 

[2015]), http://www.budgetmof.gov.af/images/stories/DGB/BPRD/National%20Budget/1394/1394%20

National%20Budget_English%20Version.pdf; and Islamic Republic of Afghanistan, Ministry of Finance, National 

Budget Document: 1395 Fiscal Year (Kabul, [2016]), www.budgetmof.gov.af/images/stories/DGB/BPRD

/National%20Budget/1395%20Budget/National%20Budget%201395_%20English%20Version%20.pdf.

43. International Monetary Fund (IMF), Request for a Three-Year Arrangement under the Extended Credit Facility—

Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Afghanistan, IMF 

Country Report 16/252 (Washington, DC: IMF, July 27, 2016), 16, www.imf.org/external/pubs/ft/scr/2016

/cr16252.pdf.

44. Islamic Republic of Afghanistan, Ministry of Finance, “1396 Budget Sent to Parliament” (Kabul, 2016).

45. Former senior Presidential Palace official, “Kabul Bank Audit Process Report” (2016). 

46. Kabul Bank receivership, “Summary of Outstanding Borrowings Including Allocation of Corporate Loans” (Kabul, 

2015). 

47. Personal interview, Kabul Bank receivership officials, April 4, 2016 (interview 12).

48. Kabul Bank receivership, “Properties Sold to Government Institutions” (Kabul, 2016). 

49. Personal interview, Kabul Bank receivership officials, April 4, 2016 (interview 12). It should be noted that a public 

liability has been created as a result of these assets being transferred to government entities, whereas these 

liabilities would not have arisen had the assets been sold to private bidders. 

50. IMF, Request for a Three-Year Arrangement under the Extended Credit Facility, 16. 

51. Personal interview, Financial Disputes Resolution Commission official, April 3, 2016 (interview 5).

52. “Report on the Implementation of Presidential Decree 1696” (compiled at the direction of the president and 

unpublished, November 19, 2015) (Smart City Report). 

53. Ibid.

54. Government of the Islamic Republic of Afghanistan, “Guideline on Persuasion and Acceleration of Kabul Bank’s 

Debt Settlement” (Kabul, 2015).

55. Kabul Bank receivership, “List of Debtors Who Signed Agreements” (Kabul, 2016).

56. Personal interview, Kabul Bank receivership officials, April 4, 2016 (interview 12); personal interview, senior 

Presidential Palace official, April 4, 2016 (interview 13); and former senior Presidential Palace official, “Kabul 

Bank Audit Process Report.”

57. Personal correspondence, Kabul Bank receivership, May 16, 2016; and personal interview, Kabul Bank receivership 

officials, November 8, 2016 (interview 12).

58. Kabul Bank receivership, “List of Debtors Who Signed Agreements” (Kabul, November 2016).

59. Personal correspondence, Kabul Bank receivership officials, May 16, 2016.

60. Personal interview, Kabul Bank receivership officials, November 8, 2016 (interview 12).

61. “President Ghani Chairs Kabul Bank Clearance Committee Meeting,” press release (Kabul: Office of the President, 

June 22, 2015), http://president.gov.af/en/news/president-ghani-chairs-kabul-bank-clearance-committee

-meeting.

62. Personal correspondence, Kabul Bank receivership official, April 9, 2016.

63. Kabul Bank receivership, “List of Remaining Debtors Introduced to the AGO” (Kabul, 2016). 

64. Personal correspondence, Kabul Bank receivership officials, May 16, 2016.

65. Kroll, “Asset Tracing Report—Kabul Bank” (November 22, 2012). 

66. Islamic Republic of Afghanistan, Ministry of Foreign Affairs, Law and Treaties Department, “Letter Regarding the 

Status of Mutual Legal Assistance Requests” (Kabul, February 2014). 

67. Personal correspondence, German government legal authorities, April 15, 2016.

68. Personal interview, Ministry of Foreign Affairs official, April 9, 2016 (interview 19).

69. Personal interview, official from the Afghan embassy to the UAE, April 12, 2016 (interview 22). 

70. Letter 920 from the Afghan Embassy in the UAE to the UAE Ministry of Foreign Affairs, August 4, 2016; and 

Letter 1209 from the Afghan Embassy in the UAE to the UAE Ministry of Foreign Affairs, September 25, 2016. 
16 USIP.ORG • SPECIAL REPORT 398

71. SIGAR, “Quarterly Report to Congress” (January 30, 2016), 146, www.sigar.mil/pdf/quarterlyreports/2016

-01-30qr.pdf.

72. “President Ghani, CE Abdullah Meet SIGAR Director,” Kabul Times, February 24, 2016, http://thekabultimes.gov

.af/index.php/newsnational/9869-president-ghani-ce-abdullah-meet-sigar-director.html.

73. John F. Sopko, “Prepared Remarks for John F. Sopko, SIGAR for the University of Pittsburgh Graduate School of 

Public and International Affairs, Pittsburgh, Pennsylvania,” March 30, 2016, www.sigar.mil/newsroom/ReadFile

.aspx?SSR=7&SubSSR=29&File=speeches/16/SIGAR_Pitt_Speech.html.

74. His Excellency Ashraf Ghani, “Presidential Decree 2736, Providing Required Documents to SIGAR Regarding 

Detecting and Retrieving Kabul Bank Assets from Foreign Countries” (Kabul, 1394/3/29 [June 6, 2015].

75. “7 People Arrested Since Reopening of Kabul Bank Scandal Case,” Khaama Press, October 11, 2014, www.khaama

.com/7-people-arrested-since-reopening-of-kabul-bank-scandal-case-6831.

76. “AGO Freezes Assets of Mahmood Karzai and Haseen Fahim,” Khaama Press, November 25, 2014, www.khaama

.com/ago-freezes-assets-of-mahmood-karzai-and-haseen-fahim-8795.

77. “7 People Arrested Since Reopening of Kabul Bank Scandal Case.”

78. Personal interview, AGO officials, April 3, 2016 (interview 31). 

79. Letter from Afghan Embassy to the UAE Ministry of Foreign Affairs regarding the arrest of eight Kabul Bank 

officials, September 27, 2016. 

80. Personal interview, officials from the Independent Joint Anti-Corruption Monitoring and Evaluation Committee, 

April 3, 2016; and personal interview, senior Presidential Palace official, April 4, 2016 (interview 13). 

81. Letter from Mahmood Karzai, March 24, 2013. 

82. Personal interview, Kabul Bank receivership officials, April 4, 2016, and November 8, 2016 (interview 12).

83. Personal interview, former Kabul Bank receivership official, November 2, 2016 (interview 34). 

84. AGO, “Inquiry Letter to Dawi” 24/3/1394 [June 1, 2015] (document 1); AGO, “Inquiry Letter to Dawi,” 2/4/1394 

[June 10, 2015] (document 2); and personal interview, former Kabul Bank receivership official, November 2, 

2016 (interview 34). 

85. Personal interview, former Kabul Bank receivership official, November 2, 2016 (interview 34).

86. Deputy receiver, “Response to the AGO Inquiry Letter,” 8/4/1394 [June 16, 2015] (document 5).

87. Order of the Public Security Division, Supreme Court (Kabul, 16/9/1394 [date].

88. AGO, “Inquiry Letter to Dawi” (document 2); and Kabul Bank receiver, “Response to an AGO inquiry letter,” 

13/4/1394 [date] (document 4).

89. AGO, “Inquiry Letter to Dawi,” (document 2).

90. Order of the Public Security Division, Supreme Court (Kabul, 16/9/1394 [November 24, 2015]).

91. Personal interview, former Kabul Bank receivership official, November 2, 2016 (interview 33). 

92. Personal interview, senior Presidential Palace official, April 4, 2016 (interview 13); personal interview, Financial 

Disputes Resolution Commission official, April 3, 2016 (interview 5); and former senior Presidential Palace official, 

“Kabul Bank Audit Process Report.” 

93. Ibid.

94. Ibid. 

95. Ferozi family petition to the President for the transfer of Ferozi from Bagram Prison (n.d.). 

96. Order from the Administrative Office of the President (Kabul, July 2015). 

97. Government of the Islamic Republic of Afghanistan Official Gazette, Law on Structure and Authority of the 

Attorney General’s Office, October 7, 2013, article 15, and Law on Prisons and Detention Centers, article 27 

(Kabul).

98. Smart City Report; and former senior Presidential Palace official, “Kabul Bank Audit Process Report.” 

99. Personal interview, senior Presidential Palace official, April 4, 2016 (interview 13).

100. Letter to President Ghani from his former legal adviser regarding the Smart City Events, April 17, 2016; and former 

senior Presidential Palace official, “Kabul Bank Audit Process Report.”

101. President’s senior legal adviser, “Letter to the Minister of Finance regarding Gas Group,” 11/8/1394 [October 

20, 2015].

102. Personal interview, senior Presidential Palace official, April 4, 2016 (interview 13).

103. Smart City Report.

104. President’s senior legal adviser, “Letter to the Ministry of Urban Development Affairs.”

105. President’s senior legal adviser, “Letter from the President’s Legal Advisor to NDS 40,” 11/5/1394 [July 20, 2015].

106. Personal interview, Kabul Bank receivership officials, April 4, 2016 (interview 12).

107. Personal interview, senior Presidential Palace official, April 4, 2016 (interview 13).

108. President Ghani, press release (Kabul, November 7, 2015). 

109. Smart City Report.

110. Letter to President Ghani from his former legal adviser regarding the Smart City Events, April 17, 2016. 

111. Zabhiullah Jahanmal, “MOF to incorporate Three State Run Banks,” Tolo News, December 3, 2014.

112. Personal interview, Treasurer’s Office official, Ministry of Finance official, April 3, 2016. 

113. IMF, Islamic Republic of Afghanistan: 2015 Article IV Consultation and First Review under the Staff-Monitored 

Program—Press Release; Staff Report; and Statement by the Executive Direct for the Islamic Republic of Afghanistan

(Washington, DC: IMF, December 1, 2015), 51, www.imf.org/external/pubs/cat/longres.aspx?sk=43425.0. 

114. Treasurer, Ministry of Finance, press conference announcing the bids received for Kabul Bank, April 5, 2016.
USIP.ORG • SPECIAL REPORT 398 17

115. Bloomberg News, “Afghan Firm Offers $31 Million to Buy Defrauded New Kabul Bank,” July 29, 2016.

116. Government of the Islamic Republic of Afghanistan, “Action Plan to Re-Privatize New Kabul Bank” (Kabul, August 

27, 2012); and personal interview, Treasurer’s Office official, Ministry of Finance official, November 2, 2016.

117. New Kabul Bank, “Audited Financial Statements for the Year Ending December 31, 2015” (Kabul, March 31, 2016).

118. IMF, Request for a Three-Year Arrangement under the Extended Credit Facility, 16.

119. Personal interview, Treasurer’s Office official, Ministry of Finance official, November 2, 2016.

120. New Kabul Bank, “Audited Financial Statements for the Year Ending December 31, 2015.”

121. Personal interview, New Kabul Bank official, April 4, 2016 (interview 9); and New Kabul Bank, “Audited Financial 

Statements for the Year Ending December 31, 2015.”

122. New Kabul Bank, “Audited Financial Statements for the Year Ending December 31, 2015.” 

123. New Kabul Bank, “Un-Audited Condensed Interim Financial Statements for the Period Ended as at September 

30, 2016.”

124. Personal correspondence, former Kabul Bank Internal Audit Department official, September 19, 2012. 

125. Government of the Islamic Republic of Afghanistan, “Realizing Self Reliance, Commitments to Reforms and 

Renewed Partnership,” London Conference on Afghanistan (London, December 2014), 16, http://afghanistan-un

.org/wp-content/uploads/2014/12/REALIZING-FINAL-SELF-RELIANCE-25-November-2014.pdf; and Government 

of the Islamic Republic of Afghanistan, “Self-Reliance through Mutual Accountability Framework” (Kabul, 

September 5, 2015), www.mofa.go.jp/mofaj/files/000102254.pdf. FATF is an intergovernmental body to set 

standards and promote effective implementation of measures for combating threats to the integrity of the 

international financial system. FATF has developed a series of recommendations that are recognized as the 

international standard for combating money laundering and the financing of terrorism. FATF monitors the progress 

of its members in implementing necessary measures. See http://www.fatf-gafi.org/about/.

126. IMF, “Program Note: Islamic Republic of Afghanistan Current IMF-Supported Program” (Washington, DC: IMF, 

April 2, 2013), 2.

127. Government of the Islamic Republic of Afghanistan, “Afghanistan’s Road to Self-Reliance: The First Mile Progress 

Report,” 4.

128. IMF, Islamic Republic of Afghanistan: 2015 Article IV Consultation and First Review under the Staff-Monitored 

Program, 2.

129. IMF, Islamic Republic of Afghanistan: Second Review of the Staff-Monitored Program—Press Release; and Staff 

Report (Washington, DC: IMF, May 13, 2016), www.imf.org/external/pubs/ft/scr/2016/cr16120.pdf.

130. Ibid., 5.

131. New Kabul Bank, “Audited Financial Statements for the Year Ending December 31, 2015.”

132. IMF, Islamic Republic of Afghanistan: Second Review of the Staff-Monitored Program, 7.

133. IMF, Islamic Republic of Afghanistan: 2015 Article IV Consultation and First Review under the Staff-Monitored 

Program, 8.

134. Ibid., 5.

135. FATF, Annual Report 2014/2015 (Kabul, 2015), 18, www.fatf-gafi.org/media/fatf/documents/reports/Annual

-report-2014-2015.pdf.

136. Government of the Islamic Republic of Afghanistan, “Afghanistan’s Road to Self-Reliance: The First Mile Progress 

Report,” 4.

137. Ibid.

138. FATF, “Improving Global AML/CFT Compliance: Ongoing Process” (Kabul, February 19, 2016), www.fatf-gafi.org

/publications/high-riskandnon-cooperativejurisdictions/documents/fatf-compliance-february-2016.html.

139. DAB, “Quarterly Financial Sector Statistics, 2nd Quarter 2016,” http://dab.gov.af/Content/Media/Documents/off

siteBankingsectordatafordabwebsite(english)9102016105011272553325325.pdf.

140. U.S. Department of State Bureau, for International Narcotics and Law Enforcement Affairs, International Narcotics 

Control Strategy Report, vol. 2: Money Laundering and Financial Crimes (Washington, DC, March 2015), 58. 

141. “Fit and proper” is defined under Afghanistan’s Banking Law as a person that is honest, trustworthy, and fair, 

and that has integrity and the ability to make sound and effective decisions in his or her personal, financial 

and business activities. The person must possess the skills and experience for conducting the activities of the 

bank and must not have been sentenced to imprisonment, declared bankrupt, or disqualified from conducting 

financial affairs on grounds of personal or professional misconduct (http://dab.gov.af/Content/Media/Documents

/BankingLawofAfghanistanEnglishTranslation6122015122139846553325325.pdf).

142. Personal interview, Financial Supervision Department official, April 6, 2016 (interview 17).

143. Ibid.

144. Personal interview, FINTRACA official, April 4, 2016 (interview 11).

145. Ibid.

146. IMF, Islamic Republic of Afghanistan: Second Review of the Staff-Monitored Program, 9.

147. Personal interview, FINTRACA official, April 4, 2016 (interview 11). 

148. Personal interview, FINTRACA official, April 4, 2016 (interview 8).

149. IMF, Islamic Republic of Afghanistan: 2015 Article IV Consultation and First Review under the Staff-Monitored 

Program, 9; and personal interview, Financial Supervision Department official, April 6, 2016 (interview 17).

150. Personal interview, Financial Supervision Department official, April 6, 2016 (interview 17).

151. Personal interview, FINTRACA official, April 4, 2016 (interview 8).

152. Personal interview, Financial Supervision Department official, April 6, 2016 (interview17).

153. Ibid.
18 USIP.ORG • SPECIAL REPORT 398

154. World Bank, International Development Association, “Project Paper on a Proposed Additional Grant in the Amount 

of SDR 4.4 Million (US$6.7 million equivalent) and Restructuring to the Islamic Republic of Afghanistan for the 

Financial Sector Rapid Response Project,” Report 82358 AF (Washington, DC: IDA, November 4, 2013), www

-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/11/11/000442464_20131111101845

/Rendered/PDF/823580PJPR0P14010Box379866B00OUO090.pdf.

155. IMF, “MF Reaches Staff-Level Agreement with Islamic Republic of Afghanistan on an Arrangement under the 

Extended Credit Facility” (Washington, DC: IMF, July 2, 2016), www.imf.org/external/np/sec/pr/2016/pr16317

.htm.

156. IMF, “IMF Executive Board Approves A US$44.9 million Extended Credit Facility Arrangement to Support the 

Islamic Republic of Afghanistan,” IMF press release 16/348 (Washington, DC: IMF, July 20, 2016), www.imf.org

/en/News/Articles/2016/07/20/22/37/PR16348-Afghanistan-IMF-Executive-Board-Approves-Extended-Credit

-Facility-Arrangement.

157. “Self-Reliance through Mutual Accountability Framework: SMART Deliverables 2017/2018,” Brussels Conference 

on Afghanistan, October 4–5, 2016, http://policymof.gov.af/bca/self-reliance-through-mutual-accountability

-framework-smart-deliverables-20172018/.

Of Related Interest

• Afghan Women and Violent Extremism by Belquis Ahmadi and Sadaf Lakhani (Special Report, 

November 2016)

• Islamist Groups in Afghanistan and the Strategic Choice of Violence by Arian Sharifi (Peace 

Brief, November 2016)

• The Rise and Stall of the Islamic State in Afghanistan by Casey Garret Johnson (Special Report, 

November 2016)

• State Strengthening in Afghanistan edited by Scott Smith and Colin Cookman (Peaceworks, 

May 2016)

• Afghanistan National Defense and Security Forces by Ali A. Jalali (Peaceworks, May 2016)

• What Can Be Done to Revive Afghanistan’s Economy? by William A. Byrd (Special Report, 

February 2016)

ISBN: 978-1-60127-637-7

An online edition of this and related 

reports can be found on our website 

(www.usip.org), together with additional 

information on the subject.

United States 

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