A Bank Teeters


A Bank Teeters, a Nation Trembles

The biggest private bank in Afghanistan is teetering on the edge of collapse. If you’ve been following the news, you know this. But in case you haven’t been following it closely, here’s some background. 

The trouble started on August 30 when the chief officers of Kabul Bank suddenly and dramatically resigned. The country’s central bank moved in and took over its operations. Despite official denials, everyone knew the officers didn’t resign but were ousted.  

As a rough comparison, imagine if the U.S. Federal Reserve suddenly took over Chase Manhattan, J.P. Morgan, and Bank of America. No, actually, that’s not dramatic enough. Kabul Bank was bigger in Afghanistan than those three banks put together are in the United States. You see, the salaries of almost all of the country’s government officials, military, police, and teachers were (are?) paid through Kabul Bank.  

As soon as the government announced the takeover, depositors rushed to get their money. Within two days, they had drained a third of the bank’s cash reserves, whereupon the government hollered: “Stop! No more payouts! Stop!” 

Move Along, Nothing to See 

After this came the obligatory official reassurances. Only a temporary measure. Nothing to worry about. The bank was solvent. All deposits fully guaranteed. Everybody should go home, take two aspirins, and call back in a year.  

But the three-day Eid holiday was coming up just then—one of the country’s two biggest annual holidays, the one that marks the end of Ramadan. It’s akin to the Christmas season in America. Everyone who had money coming—all those government officials, teachers, policemen, and whatnot—wanted to get paid before the big weekend. They gathered at the bank to demand their money and began to look a little mob-like. The police came in to do crowd control—which, of course, made the crowd harder to control.  

How on earth did it come to this?  

The Bush Doctrine

The answer goes back to those heady days, just after the American military drove the Taliban out of the capital. At that point, the Bush Administration made a fateful decision: to privatize the reconstruction of the country.  

Basically, this meant entrepreneurs were invited to rush in and set up businesses providing essential goods and services, with the assurance that they would be able to make big money, doing so. Rules were set down, dividing legal from illegal, which provided a fence. No one could operate outside the fence, but anyone could do anything within the fence, and let the best man win. This is basically the free-market capitalist idea of how to solve a society’s problems. In privatizing the reconstruction of Afghanistan, the Bush Administration was only being true to its neo-conservative principles.  

I don’t say this critically. There might be something to this idea. If people can get rich doing important and useful things, they might indeed do useful and important things. In fact, the prospect of getting rich might get the best minds and hardest workers flocking in to attack the toughest problems. Might.  

The Deadwood Syndrome

The trouble is: what’s legal is not necessarily what’s fair or ethical. The trouble is also that some acts might cross the line into illegal, but whether they did is a matter of opinion until somebody sues somebody and a case is brought to court. Since, in a chaotic country like Afghanistan, that might never happen, the most swashbuckling entrepreneurs will inevitably decide that operating at the borders of the rules or just beyond them is worth the risk.  Thus, in the free-for-all system the Bush Administration established and encouraged, even those who were technically playing by the rules were in a dog-eat-dog environment like the Wild West town of Deadwood. And in that environment, whenever any two business competitors were equally matched in skills, smarts, and capital, the winner was going to be the one with the least scruples and the greatest readiness to operate on the line between legal and illegal. Privatizing the reconstruction of Afghanistan attracted pirates, cowboys, and swashbucklers, amongst whom the meanest, toughest, shoot-from-the-hip survivors rose to the top—how could they not?  

Kabul Bank was founded by guys like that. Lots of enterprises in Afghanistan were founded by people like that. Once the bank got going, it attracted more guys like that. The chairman and founder of the bank was Sherkhan Farnood, an expert international poker player. In Taliban days, he lived (as best I can tell) in New York, but flew all over the world to play in big poker tournaments, where he won at least $600,000. Farnood claims he was born to the poorest family in Afghanistan in 1961 but was able to make a million dollars and found a bank by working hard.  

The CEO of the bank was another formidable fellow, Khalilullah Frozi, a former gem trader (Afghanistan is rich in emeralds and other precious stones, but these come from war-torn areas, so “gem trader” means more Indiana Jones than some old bald guy with a loupe.)  Back in the days when the Communists ruled Afghanistan, Frozi spent time in Soviet bloc countries, and like Farnood, he speaks fluent Russian. Between them, these two guys owned 56% of a bank that had taken in deposits of about $1.3 billion.  

A Trailblazing Institution

And the bank broke a lot of ground. It was a pioneering institution. It set up ATMs in Kabul and some other cities. It opened provincial branches. Its top officers also invested in real estate in Kabul and helped set up a new private airline.  

The bank also supported Karzai’s presidential campaign to the tune of millions. I’m not saying there was any quid pro quo. I’m just saying. Karzai’s brother Mahmoud came to own a share in the bank—about 9%. This is the same Mahmoud who founded the Helmand Restaurant in San Francisco nearly twenty years ago; it’s a great place, and won rave reviews in Gourmet Magazine. I met Mahmoud and his wife back when the restaurant first opened and have a picture of them somewhere in my files. They were a gracious, good-looking, well-spoken couple. Before that, Mahmoud worked as a busboy in San Francisco restaurants and in that period he sent ninety dollars a month to Hamid Karzai to help him get his (university) education in India. Recently, with a loan from Kabul Bank, Mahmoud did a quick buy-and-sell of a villa in Dubai and earned about $800,000 on the turnaround.  

Another shareholder in the bank was Haseen Fahim. His brother was General Fahim, once a top aide to the legendary Ahmad Shah Massoud. In that brief period from 1992-1996 when the Mujahideen guerillas occupied Kabul—one can hardly call what those guerillas set up a government—General Fahim ran the intelligence service. After the fall of the Taliban, he became one of the country’s vice-presidents, a job title that has routinely gone to people with too much military clout to keep out of the government lest they make trouble as outsiders.  


The general’s brother Haseen got involved in the bank around 2004. It was he who loaned Mahmoud Karzai the money to buy in.  Haseen has taken out at least $92 million in loans from the bank and used some of it to speculate in real estate in Dubai. But he used a lot of it to set up or invest in businesses that got lucrative contracts from the U.S. military and the C.I.A.—because that’s where the real money was during the boom years.  

Farnood and Frozi were ousted after they began struggling with each other for control of the bank. Their struggle spelled instability and the bank’s mysterious web of investments and its complex ties to the political gang made U. S. officials nervous. The whole thing had a smell to it. The pressure was building for Karzai to take a stand against “corruption” and this pressure eventually forced Karzai’s government to move on the bank.  

But Karzai is in a sticky position. Given his family’s ties to the bank, anything he does to shore it up is corruption. Anything he doesn’t do to save the bank is disaster. It all adds up to one lesson: the clamor about corruption in Afghanistan is simplistic. The corruption in Afghanistan is hard to distinguish from business-as-usual; and given the policies put in place in 2002, business-as-usual is nearly impossible to disentangle from the project of restoring Afghanistan and protecting American interests there.

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