Print Version: Letter from Kabul: The Great Afghan Bank Heist

In the spring of 2009, as the reлlection campaign of President Hamid Karzai was gathering momentum, a group of prominent Afghan businessmen met for breakfast at the presidential palace to see the candidate. Among them was Khalil Ferozi, the chief executive officer of Kabul Bank, a fast and freewheeling financial institution that had brought together some of the most colorful and politically well-connected Afghans in the country, including one of President Karzai’s own brothers. Ferozi, a banking novice, had a history that seemed lifted from a Saturday-afternoon adventure movie. In the late nineteen-nineties, working for the legendary anti-Taliban commander Ahmed Shah Massoud, Ferozi sold emeralds mined in the crags of the Panjshir Valley and used the hard currency to pay an obscure Russian company to print truckloads of Afghan currency. In this way, he helped underwrite Massoud’s movement. According to a Massoud associate, the commander became enraged when he discovered that Ferozi was helping to print currency for the Taliban as well. Before Ferozi could be hauled in—“Tie his hands, tie his legs, and bring him to me,” Massoud reportedly said—Massoud was killed, on September 9, 2001, by Al Qaeda assassins. Ferozi, who failed to respond to questions about the incident, went on to become Kabul’s most improbable banker and C.E.O. With a body like an oil drum, and a retinue of gunmen around him, he prowls the streets of Kabul looking less like a banker than like a footballer lost in a war zone.

Sherkhan Farnood and Khalilullah Ferozi of Kabul Bank

Kabul Bank Chairman Sherkhan Farnood, left, and CEO Khalilullah Ferozi listen during a news conference in Kabul. According to New Yorker, in the late nineteen-nineties, working for the legendary anti-Taliban commander Ahmed Shah Massoud, Ferozi sold emeralds mined in the crags of the Panjshir Valley and used the hard currency to pay an obscure Russian company to print truckloads of Afghan currency. In this way, he helped underwrite Massoud’s movement. Farnood used tens of millions of dollars in depositors’ money to buy more than a dozen luxury villas on or near Palm Jumeira, a luxury enclave in Dubai that is situated on an artificial island. Mahmoud Karzai, the President’s brother, was allowed to live in one of the villas, as was Ahmed Zia Massoud, the former Vice-President. (Photo: AHMAD MASOOD / Reuters)

“We’d like to contribute to the campaign,” Ferozi told President Karzai at the breakfast in 2009. “What can we do?” The President pointed Ferozi in the direction his finance minister and campaign treasurer, Omar Zakhilwal.

Two days later, Zakhilwal told me recently, two men identifying themselves as Kabul Bank employees appeared bearing a briefcase containing two hundred thousand dollars in cash. “Two guys, one case,” he said. Zakhilwal said he took the briefcase and passed it right away to his colleagues at Karzai’s campaign headquarters. Zakhilwal said he kept no record of the contribution, and no record of it could be found among reports filed at the Independent Election Commission, either.

“You will never ever find a record of a gift from them of any value, not even a dollar,” Zakhilwal said, in the course of denying any wrongdoing.

Now American officials say that Zakhilwal was one of dozens of Afghan leaders and businessmen who, collectively, accepted tens of millions of dollars in gifts and bribes—some sources say as much as a hundred million dollars—from executives at Kabul Bank. The scandal is perhaps the most far-reaching in the nine years since Karzai took power.

Poring over stacks of documents, investigators at the American Embassy in Kabul have pinpointed dozens of instances in which Kabul Bank executives may have bribed Afghan officials, including a successful bid to hold the contract to process the salaries that the government pays its employees each month—approximately seventy-five million dollars. Access to the salaries would give bank officials an opportunity to earn millions of dollars in interest in the course of a single year. One Afghan official estimated that the contract was worth approximately ten million dollars in annual interest payments.

American officials say that Kabul Bank’s largesse included members of parliament and almost anyone whose silence would allow bank executives to embark on a spree of buying, lending, and looting. In addition, some former and current Afghan officials say, Kabul Bank became an unofficial arm of the Karzai government, bribing parliamentarians in order to secure votes for its legislative agenda.

The American-Afghan joint investigation began last summer, just before the near-collapse of Kabul Bank, previously one of the most successful institutions in post-2001 Afghanistan. A group of American investigators from various agencies, including the military, the F.B.I., the Drug Enforcement Administration, and the Treasury Department, known as the Threat Finance Cell, work together with the Afghan government’s Sensitive Investigation Unit at the American Embassy. The Threat Finance Cell quickly realized that the institution was hugely overextended and headed for disaster.

The bank, under the guidance of its top executives, Ferozi and Sherkhan Farnood, a world-class poker player, had begun to founder, in part owing to the collapse of the property market in Dubai, in the United Arab Emirates, where Farnood had bought more than a dozen luxury villas. The Central Bank of Afghanistan, at the urging of the Americans, stepped in and replaced Ferozi and Farnood.

The evidence, according to American officials close to the inquiry, appears to implicate dozens of Afghan officials and businessmen, many of them, like Zakhilwal, among Karzai’s closest advisers, with regulatory responsibilities over the Afghan financial system. Among the others are Afghans regarded by American officials as among the most capable in Karzai’s government: Farouk Wardak, the Minister of Education; Yunus Qanooni, the speaker of the Afghan parliament; and Haneef Atmar, the former Minister of the Interior. An Afghan official with knowledge of the investigation said that Atmar appeared at one point to be receiving three million dollars a month. As Minister of the Interior, Atmar presided over the pay of thousands of policemen, whose salaries were deposited into Kabul Bank each month. Noorullah Delawari, a former governor of the Central Bank, was said by the Afghan official to have received a hundred and eighty thousand dollars, a claim Delawari unequivocally denied. The Central Bank is charged with insuring that Afghan banks adhere to financial regulations.

“Just straight bribes,” a senior NATO officer said of the payments to Afghan officials.

Atmar, Wardak, and Qanooni told me they never received any gifts from the bank. (Qanooni said he accepted money from executives at Kabul Bank in the form of donations for his parliamentary campaign, but he said he could not recall how much.) In an e-mail, Atmar laid the blame for the allegations on a dispute within the bank. “I have NOT borrowed or received any type of funds from the Kabul Bank under any name for any purpose,” he wrote.

Officials say that the bribery and influence-peddling was sometimes florid and spectacular, with some of it unfolding in Dubai, the Vegas-like sheikhdom where many high Afghan officials maintain luxurious second homes. Farnood, Kabul Bank’s chairman, used tens of millions of dollars in depositors’ money to buy more than a dozen luxury villas on or near Palm Jumeira, a luxury enclave in Dubai that is situated on an artificial island. Mahmoud Karzai, the President’s brother, was allowed to live in one of the villas, as was Ahmed Zia Massoud, the former Vice-President. (When I visited Massoud’s house in Dubai last summer, a blue Rolls-Royce was parked out front. Nobody was home.) “Girls, money, cars,” one Afghan official with knowledge of the investigation said. “Whatever the human weakness.”

At least some of Kabul Bank’s payments to high-ranking local officials appear to have been intended to prevent anyone from examining the bank’s practices too closely. An Afghan political leader, once a senior member of Karzai’s government, told me that Ferozi had bragged to him that much of Karzai’s government was on Kabul Bank’s payroll: “Ferozi said to me, ‘None of the ministers have the guts to speak against us. They are ours.’ ”

Investigators say that they are now trying to determine the extent of illegality committed under Afghan law, which requires candidates to report their campaign contributions, and which prohibits bribery. (Afghan law does not place limits on personal contributions to political campaigns, nor have election officials made public the records of such contributions.) At the moment, given that Karzai has not indicted a single senior official of his own government, U.S. officials are skeptical that he will act without overt American pressure.

American officials are trying to determine whether some of the Afghans caught up in the Kabul Bank affair could be prosecuted by the United States or by other Western countries, or whether any of the officials have citizenship in Western countries. “If this were America, fifty people would have been arrested by now,” an American official told me.

The larger fear, at least among some American officials, is that the Obama Administration will decide to do nothing. Secretary of State Hillary Clinton was briefed on the investigation in January. But the findings are considered so sensitive that almost no one—generals, diplomats, the investigators themselves—is willing to talk about it publicly. After months of sparring with the Karzai administration, the Obama Administration, in its public rhetoric, appears to be relegating the issue of corruption to a lower tier of concern, despite the widespread belief that the corruption in Karzai’s government degrades its reputation and helps fuel recruitment for the Taliban insurgency. “We have to work with these people,” the senior NATO officer told me.

The tens of millions of dollars that have, according to investigators, been doled out by Kabul Bank to Afghan officials are part of at least seven hundred million dollars determined to be missing from the bank. Those losses far exceed the three hundred million dollars that officials said they discovered shortly after the Central Bank’s takeover, last August. Officials said that the seven hundred million dollars includes failed loans and loans to apparently fictitious corporations. “The money is gone,” a Western official told me, speaking on condition of anonymity. “They can’t find it.”

The troubles at Kabul Bank stand as a parable for the sometimes malign effect that the influx of billions of foreign dollars has had on this impoverished country since 2001. While the Western money spent has done a great deal to create a modern economy, much of it has been captured by a tiny minority of well-connected Afghan businessmen and politicians, and much of it illegitimately. The loss of seven hundred million dollars or more at Kabul Bank represents a significant percentage of Afghanistan’s gross domestic product, which stands at only about twelve billion dollars.

The intersection of politics and business in Kabul is increasingly dominated by criminal networks and their patrons in the Afghan government. One of Kabul Bank’s sixteen shareholders is the President’s brother Mahmoud Karzai, who is under investigation by federal prosecutors in the United States for failing to report income. Another shareholder is Haseen Fahim, the brother of Mohammed Fahim, who is Karzai’s Vice-President. For the White House, those kinds of official connections make something like the Kabul Bank scandal difficult to confront and impossible to ignore. In Kabul, Western officials and military officers sound increasingly like senior officials in Washington. “I’m really hoping that something positive comes out of this,” the senior NATO officer said. Then, after a pause, he added, “Maybe it’s just too big. Maybe it’s too big to turn away from.”

Nine years into the American-led war, it’s no longer enough to say that corruption permeates the Afghan state. Corruption, by and large, is the Afghan state. On many days, it appears to exist for no other purpose than to enrich itself. Graft infests nearly every interaction between the Afghan state and its citizens, from the police officers who demand afghani notes to let cars pass through checkpoints to the members of Karzai’s government who were given land in the once empty quarter of Sherpur, now a neighborhood of grandiose splendor, where homes sell for hundreds of thousands of dollars. Bribes feed bribes: if an Afghan aspires to be a district police officer, he must often pay a significant amount, around fifty thousand dollars, to his boss, who is often the provincial police chief. He needs to earn back the money; hence the shakedown of ordinary Afghans. In this way, the Afghan government does not so much serve the people as it preys on them. Last year, Transparency International ranked Afghanistan the hundred-and-seventy-sixth most corrupt country out of a hundred and seventy-eight, surpassed only by Somalia and Myanmar. “It’s a vertically integrated criminal enterprise,” one American official told me.

The war in Afghanistan no longer appears to be a simple conflict with the U.S. and the Afghan government on one side and the Taliban insurgents on the other. When it comes to money—and particularly American money—allies and enemies often seem interchangeable. When American diplomats set up the Threat Finance Cell, in 2008, they charged it with severing the links between insurgents and their financing, much of which is believed to have come from drugs. Instead, they found that the lines that connected the Taliban and the drug smugglers often ran through the Afghan government. When American investigators started examining a particular Islamic charity across the border in Pakistan for giving money to insurgents, they discovered that its director also maintained close ties to Afghan leaders.

At Kabul Bank, according to a Western official familiar with the investigation, records show that Ruhullah, the head of a private security company and an ally of Ahmed Wali Karzai, the President’s half brother, transferred money into accounts believed to be controlled by the Taliban. (Ruhullah did not respond to repeated requests for an interview.) Ahmed Wali Karzai himself, the head of the provincial council in Kandahar, has long been suspected of siphoning profits from the drug trade. Ahmed Wali Karzai has steadfastly denied such links. “People think it’s the Taliban versus the Afghan government, but, I’m telling you, the Afghans just don’t see it that way,” an American investigator told me last year. “The Afghans look at this war very differently than we do.”

Despite the deep skepticism that the Karzai government has prompted in Washington, the corruption appears to have got worse. One of the reasons is the war itself. President Obama’s deadline for beginning his withdrawal of American forces later this year confirmed for many Afghans that time is running out. “Right now, this country is all about raping and pillaging as much as you can, because there is no faith in the future,” an Afghan businessman told me.The businessman, who spoke on condition of anonymity, told of a recent dinner with a number of Afghan officials: “I said to them, ‘Look at the Taliban. They believe in their cause, and that sustains them. You people have no cause. You don’t believe in anything.’ And these guys just sat there in their chairs. They agreed with me.”The allegations against many appear to confirm wider suspicions that the vast army of private gunmen here, many hired to escort supply convoys headed for NATO military bases, often accomplish their work by bribing the Taliban to hold their fire. These bribes are believed by officials here and in Washington to be one of the main sources of the Taliban’s income. One Western diplomat told me that bribes paid to Taliban commanders by the private security contractors, along with the other ways the Taliban extort Western money, are themselves enough to finance a robust insurgency. “It costs NATO a hundred and forty thousand dollars to keep a soldier in the field for a year, and a Taliban fighter a fraction of that,” he said. “If just ten per cent of that money gets to the Taliban—through bribes or extortion or whatever—that’s enough to keep five Taliban fighters in the field.” (The U.S. military, acting on evidence compiled by reporters and congressional investigators, recently banned a company and several of its subsidiaries from doing business with the United States, at least in some cases because of suspicions of links to insurgents.)

U.S. commanders say with near-unanimity that corruption drives ordinary Afghans into the arms of the Taliban. For months, officials in the Obama Administration pressed Karzai to indict, or least get rid of, some of the corrupt people around him. “We have had long conversations about this with President Karzai,” Richard Holbrooke, the President’s special envoy, told me in Kabul not long before he died, in December. “They’re completely useless.”

And now, it seems, the Americans have given up hope that Karzai will take action against any officials around him. American investigators have been ordered not to speak to reporters. Almost without exception, senior American diplomats will not discuss Kabul Bank, the investigation into Mahmoud Karzai, or any other investigation of senior Afghan officials. As a consequence, Afghans repelled by the pervasive illegality have learned to keep quiet, too. When they agree to talk, it’s almost always in secret.

These days, what little the Americans say publicly about corruption usually concerns relatively minor matters—the graft that unfolds in local precincts, where, the new theory goes, ordinary Afghans most feel the impact. Not coincidentally, such corruption does not typically involve the officials around Karzai. “Our hope is that the Afghans will realize the danger of not taking action,” the senior NATO officer told me. “But it’s up to them.”

One former minister in Karzai’s government recalled a recent conversation with Karl Eikenberry, the U.S. Ambassador: “He was asking me, ‘Do the Afghans really mind about corruption, do they really?’ ” the former minister said. “When I heard this question, just by the Ambassador asking, it was disgusting.”

These days, Fazel Ahmed Faqiryar sits inside his Kabul apartment and doesn’t open the door. Until August, Faqiryar, a stout, energetic man of seventy-two, was the deputy attorney general. He was fired, for, in his own words, insisting on pursuing investigations of officials surrounding Karzai. “The law in this country is only for the poor,” he told me just after his dismissal. (Afghan officials protested that he was due to retire.)

Faqiryar’s former boss, Attorney General Mohammed Ishaq Aloko, has since opened a criminal investigation into Faqiryar, which apparently involves Faqiryar’s alleged libelling of Karzai’s ministers by accusing them of corrupt activities. Faqiryar’s former colleagues say the investigation is meant to insure that he keeps his mouth shut.

Faqiryar lives in a three-story town house in Karte Char, one of Kabul’s most expensive neighborhoods, and, when I visited him recently, Faqiryar, normally a hospitable man, refused to answer his door. On another occasion, after three knocks, he finally spoke. But the door stayed shut.

“I have a lot of things to say, but I am not allowed to say them,” Faqiryar said from behind the door. “This government is so corrupt, and it is run by a small number of individuals who are very powerful. They don’t like intruders, and don’t want people putting their noses in their business. These people are very evil.”

“What’s the use of talking?” Faqiryar said. “The moment I decided to fight corruption, I knew I would run into problems. Not only me, but every single patriotic Afghan who has tried to fight corruption has been pressured and, in the worst cases, has been fired and accused of something. You can’t find a single honest person fighting corruption who is still in his job.”

The last time I saw Faqiryar, he had invited me inside and fed me tea and cookies.

“I’m really sorry for not opening the door,” he said, and I heard him shuffle away.

Faqiryar had pushed for the prosecution of Mohammed Zia Salehi, a Presidential aide who was caught on a wiretap demanding a bribe—a Toyota for his son—in exchange for scuttling an investigation into New Ansari, a bank of the type known as a hawala, which allows people in an impoverished country to move money in and out of the country without any electronic record.

Early last year, American officials encouraged their Afghan protйgйs to find a test case for Karzai: a powerful senior official whose indictment would signal that the President was finally serious about cleaning up his government. Faqiryar took the Americans at their word. When Afghan investigators raided New Ansari’s offices last January, the financial statements they found told much of the story of modern Afghanistan. New Ansari was moving money for government officials, Taliban leaders, and drug dealers, American investigators said. Its couriers were carrying millions of dollars in cash out of Kabul International Airport to Dubai, part of the flow of American money out of Afghanistan that investigators say totalled as much as $2.5 billion in 2009—an amount equal to one-fifth of the G.D.P. What’s more, New Ansari appeared to be intimately connected to a supposedly legitimate financial institution, Afghan United Bank, run by an Afghan named Hajji Rafi Azimi. An American investigator looking at New Ansari’s books told me, “It’s a gold mine.”

Afghan and American investigators had compiled six CDs of secretly recorded conversations. In the decisive discussion, Azimi beseeched Salehi to scuttle the investigation into New Ansari. (In an interview last year, Azimi denied that he was connected to New Ansari or that he had made the call to Salehi.)

Salehi, like so many of those who occupy high positions in Karzai’s government, appears to harbor no ideology other than his own survival. During Afghanistan’s civil war, he served as a Russian translator for Abdul Rashid Dostum, the thuggish Uzbek warlord. In Karzai’s administration, he often carries money to other Afghans being paid for political favors and sometimes meeting with the Taliban, according to American and Afghan sources. According to an American official, he has also been a paid informant of the Central Intelligence Agency.

Once American officials played some of the wiretaps for one of Karzai’s advisers, Karzai approved Salehi’s arrest. Aloko, the attorney general, allowed the Afghan agents to move in. But Karzai’s resolve quickly crumbled. According to a Western official with knowledge of the investigation, Salehi telephoned Karzai from his jail cell. “He told Karzai, ‘If I spend one night in jail, I’ll bring the whole thing down,’ ” the Western official recalled.

Salehi was released a few hours later. Karzai sent a car from the palace to pick him up. After Karzai publicly complained about the heavy-handed tactics of the American-backed investigators, the case against Salehi was dropped, on the ground that Afghan law prohibits wiretap evidence in corruption cases. (In fact, other Afghan lawyers say that the law clearly allows wiretap evidence in such cases.)

Just as when Faqiryar was fired, no one in the U.S. Embassy, or in Washington, said a thing publicly after the case against Salehi was dropped. “I’m handcuffed,” an Embassy official told me recently. He held his arms out and pushed his wrists together. “I’d love to help you, but I can’t.”

In the months since the Salehi arrest, much of the anti-corruption machinery inside the Afghan government has been dismantled. First, Karzai and Aloko banned a team of American and British attorneys from mentoring Afghan prosecutors, demanding that they renegotiate what they are allowed to do. The two top prosecutors who were overseeing the Salehi case were demoted.

Most dramatically, at least for the prosecutors involved, representatives of Karzai told British officials that they were no longer to pay the Afghan prosecutors so-called “top-up salaries”—pay incentives, funded by the British government, that often boosted typical salaries from about sixty dollars a month to about six hundred. “I’m so disappointed,” one of the prosecutors told me. “I didn’t expect this after all our hard work. We tried so hard to follow the law. I’m disgusted with the international community. Look at the condition you have left us in.”

The crusade against the crusaders continued. According to the Western official, Aloko has prohibited anti-corruption prosecutors from working with the Major Crimes Task Force, a group of investigators responsible for unearthing much of the evidence of corruption in Karzai’s government. (According to a former Afghan official and an American official, the chief of the Major Crimes Task Force, Nazar Mohammed Nikzad, has sought permission to leave Afghanistan for the United States.) Aloko also added several layers of permission that prosecutors must secure in order to carry out searches, open investigations, and prepare indictments.

Not a single senior member of Karzai’s government has been arrested, and most of the investigations have stalled. The anti-corruption prosecutor who met with me detailed a half-dozen instances where Aloko, understood to be acting under Karzai’s orders, had thwarted investigations into suspected wrongdoing. Among the investigations that have been blocked are those of Azimi, the bank executive who allegedly bought the car for Salehi, and Ghulam Qawis Abubaker, the former governor of Kapisa Province, for allegedly colluding with the Taliban and extorting money from contractors. (Both have denied the allegations.)

“Aloko said, ‘Don’t work on this,’ ” the anti-corruption prosecutor recalled of one of the investigations. “This man is very well-liked by Karzai.”

A senior NATO official confirmed the prosecutor’s account of the changes that took place inside the attorney general’s office. The official added another case that is going nowhere: that of Ali Shah Paktiawal, the police chief of Nangarhar Province, in eastern Afghanistan. Paktiawal is suspected of running a kidnapping ring when he was in an earlier post. (He hasn’t responded to requests for comment.)

The most common Western analysis of Karzai is that, while he tolerates corruption around him, he is not corrupt himself. It is said that he tolerates the corruption around him because he believes that he has no choice: however much ordinary Afghans loathe their leaders for stealing money, it is these very leaders who deliver the votes that keep Karzai in office. “These guys are Karzai’s real constituency,” the Western official said.

The man who kept the secrets of the Kabul Bank is its flamboyant former chairman, Sherkhan Farnood. Working out of Russia in the nineteen-nineties, when Afghanistan was mired in civil war, Farnood started a hawala bank called Shaheen Exchange, then moved it to Dubai, before founding Kabul Bank. In 2008, at the height of Kabul Bank’s renown, he went to London to compete in the World Series of Poker. Nowadays, though, Farnood isn’t saying much publicly. His passport has been revoked—as has Ferozi’s—and he is living in the guesthouse adjacent to Kabul Bank’s headquarters, in downtown Kabul. “If I say one thing, the President will send me straight to Pul-e-Charkhi!” Farnood told me recently at his office. “Do you know what Pul-e-Charkhi is? It’s a jail.”

Mahmoud Karzai, one of the main shareholders in Kabul Bank, a prominent businessman, and the brother of the President, knows almost as much. He lives in a two-story house in Karte Char; houses in this dollar-flooded city can sell for more than a million dollars. But, even in this expensive neighborhood, the absence of government services is palpable. The day I visited, Mahmoud’s street was strewn with garbage.

Inside, Karzai was seated on a couch, bantering with a dozen Afghans. This is the way that all powerful men in this country spend their days: fielding requests for money (for funerals, for weddings), adjudicating disputes. Mahmoud was speaking Pashto, then Dari, then Pashto again.

The furniture in the house was drab, vinyl, veneer. The walls were mostly empty. Mahmoud’s other home is a multimillion-dollar villa on Palm Jumeira, in Dubai. He’s since left the one that Farnood provided. Like other йlite Afghans with connections to the state, Mahmoud shuttles constantly between Kabul and Dubai. “That’s the key to understanding the Afghan leaders,” a Western official told me. “If you are willing to put up with squalor and danger in Kabul, you can live like a king in Dubai.”

Mahmoud’s manner is open and unassuming; his English is fluid. He comes off as a convivial restaurant owner, which he happens to be. (He has a place in Cambridge, Massachusetts, Helmand, which serves fine Afghan cuisine.) Mahmoud has an American passport, which may prove to be a liability; federal prosecutors in New York are trying to determine whether he evaded paying taxes by failing to report substantial hidden income.

For an hour, over black tea and almonds, Mahmoud chatted amiably about his entanglement with Kabul Bank. As the talk turned to criminal investigations and financial irregularities, he asked none of his visitors to leave; the Afghans stared blankly, seemingly unable to understand the conversation taking place in English. “I’m not worried, I’m not worried at all,” he said of the federal investigation into his finances. “The only thing I’m worried about is how much money it’s going to cost me—how much money I’m going to pay the lawyers. But me? I know myself. I’m clean.”

Mahmoud insisted that he was entirely blameless. The story, he said, goes like this: in 2007, he was offered shares worth about seven and a half per cent of the bank and the six million dollars he would need to buy them. (Farnood, the bank’s chairman, lent him the cash.) Mahmoud said he figured that Kabul Bank’s people needed his business acumen. “It’s nothing to do with politics—that hurt the bank,” Mahmoud said. “I felt I could make a contribution. If they had consulted me, we could have made a fortune.”

Only a few days earlier, the senior NATO officer in Kabul had suggested to me that Kabul Bank’s officials offered positions to Afghans like Mahmoud and Haseen Fahim in order to get closer to power. “Why does Kabul Bank want Mahmoud Karzai as a shareholder?” the officer said. “So it can develop political protection for its illicit practices.”

Mahmoud told me that his relationship with Kabul Bank was hardly worth it, considering the trouble that it has caused him. With three million dollars of additional loans from Kabul Bank, he financed a Toyota dealership in Kabul and started a cement company. He said he’s already paid back the principal on the loans. “I’m done,” he said.

Mahmoud’s argument is that Sherkhan Farnood was a dictator. He claims that neither he nor any other of the bank’s shareholders, except Farnood and Ferozi, had any say in how Kabul Bank lent or invested its money, he claims. “The management is at fault because it did illegal things single-handedly while avoiding everybody else,” Mahmoud said. “It never had a shareholders’ meeting. It always refused when we asked.” He added, “We never knew Kabul Bank was in trouble, O.K.?”

Mahmoud’s tale may be self-serving, but it’s nearly identical to that of two of the three big players in the drama: Haseen Fahim, a shareholder who is the brother of the Vice-President; and Ferozi, the C.E.O. All three men now place the blame for the bank’s failure squarely on Farnood. “We never had any idea what was going on,” Ferozi told me.

Still, Mahmoud’s tale was full of contradictions. Though he had enjoyed living in the villa in Dubai, he said, he warned Farnood against buying luxury properties there, because the market was heading for a crash. “I told him to sell,” he said, adding, “This was as friends, you know, playing tennis.” He then described his relationship with Farnood as “antagonistic.”

Even as he insisted that he had been ignorant of what Farnood was doing at Kabul Bank, Mahmoud told me that he had tried to warn everyone—the Americans, the Central Bank—that the bank’s executives were acting improperly. “I told them something fishy was going on in the bank,” Mahmoud said of American investigators at the Embassy. “Things didn’t look right. They were taking money. They were not doing the right businesses.”

The other problem is this: American officials say that Kabul Bank appears to have made a number of large loans to Afghans close to Mahmoud, possibly even to bodyguards or laborers. The officials suspect that the money actually went straight to Mahmoud. In our interview, Mahmoud denied this.

The more pressing political question, of course, is not what Mahmoud knew but what President Hamid Karzai knew—and what he did or didn’t do, and how he might have benefitted. To answer this question, I went to the Serena, the fanciest hotel in Kabul, to meet Ferozi, the C.E.O. of Kabul Bank. According to Ferozi, Kabul Bank gave the Karzai campaign four million dollars, meaning that the two hundred thousand dollars in the briefcase described by Zakhilwal was just the beginning. (Zakhilwal said that the bank gave no more than four hundred thousand.)

As with so many other things in Afghanistan, the official record is nearly worthless. Records filed by the Karzai campaign indicate that it spent only two million dollars, and officials at the Afghan Independent Election Commission said they could not retrieve records of individual contributions.

According to several current and former Afghan officials, during the 2009 campaign Kabul Bank and Karzai’s reлlection machine became nearly interchangeable. Afghans who served in Karzai’s government say the more likely contribution from Kabul Bank was between eight and fourteen million dollars—and that it kept on doling out money even after the election, which Karzai finally won, in November, 2009. At the time, election monitors declared that about a million ballots cast for Karzai were fraudulent.

In January, 2010, only two months after Karzai’s victory, lawmakers in the Afghan parliament rejected seventeen of twenty-four ministers whom Karzai had nominated for his cabinet. Parliamentarians complained that Karzai’s nominees included too many hacks. “I think, unfortunately, that the criteria were either ethnicity or bribery or money,” Fawzia Kufi, a parliamentarian, told the Associated Press at the time. Two weeks later, Karzai submitted a new slate of seventeen nominees—some the same as before, some different. This time, the parliament approved seven and rejected ten. Karzai didn’t try again after that; he merely designated ten of the nominees “acting ministers.” According to several current and former Afghan officials, parliamentarians suspected of being against Karzai’s nominees were paid by people at Kabul Bank to support the President’s nominees. “They were bringing the parliamentarians to that guesthouse,” a former senior official said. “They were paying people.”

“With Mahmoud at the bank,” the former official went on, “it was seen as an extension of the Karzai family. ” (Fahim, Ferozi, and Mahmoud Karzai all say that they were unaware of any payments to Afghan members of parliament or to any other Afghan officials.)

According to other Afghans, President Karzai became aware of the bank’s problems long before it collapsed—and chose to do nothing. (President Karzai’s office did not respond to requests for comment regarding Kabul Bank and the general issue of corruption.) In the months before the bank’s troubles became public, a Kabul Bank shareholder told me, President Karzai called Mahmoud repeatedly to implore him to “tell Farnood to bring the money back to Afghanistan.” In his interview with me, Mahmoud acknowledged that President Karzai complained to him about the bank’s troubles, but he claimed that he never asked him to do anything. “He was upset about it because he didn’t know who was doing it,” Mahmoud said of the President.

In March of last year, just before Kabul Bank’s problems became acute, Karzai got a warning. Amrullah Saleh, then the head of the national intelligence service, went to Karzai to warn him that Kabul Bank was on the brink of collapse. Karzai listened to Saleh, then summoned Abdul Qadir Fitrat, the head of the Central Bank, to the palace. Fitrat assured the President that the bank’s finances were sound; in fact, they had been certified by an independent auditor, A. F. Ferguson, an affiliate of PricewaterhouseCoopers, only a few months before.

As for Mahmoud, he is waiting nervously for word on the federal investigation into his finances and on the inquiry into Kabul Bank. Speaking of Farnood, he said, “I hope he goes to jail for the rest of his life. He ruined everyone.”

In February, 2008, Joe Biden, then a senator, arrived with two colleagues at the presidential palace for a dinner with Karzai. Biden got right to the point, people with knowledge of the meeting said, pressing Karzai to address the hideous level of corruption in his government. In a fashion later described as bordering on the surreal, Karzai denied that graft was a serious issue in Afghanistan and changed the subject. Biden persisted. Karzai offered Biden plates of lamb and rice; Biden pressed about corruption. Finally, Biden threw his napkin on the table and stood up. “This dinner is over,” he said, and he walked out of the room.

Earlier this month, Vice-President Biden returned to Kabul. But, according to Afghans with knowledge of the visit, this time the two leaders got along splendidly. The two men had talked on the phone before Biden’s arrival to smooth the way. Biden thanked Karzai for his efforts. Their meeting, originally scheduled to be brief, went on for more than an hour, officials at the American Embassy said.

When the meeting ended, Biden and Karzai stood before a group of American and Afghan reporters. They took no questions. Instead, Biden read a prepared statement making clear what America intended to do in Afghanistan and, more important, not do. He turned and faced President Karzai.

“Let me say it plainly, Mr. President, it is not our intention to govern or to nation-build,” Biden said.

Dexter Filkins joined The New Yorker in 2011. A veteran foreign correspondent for the New York Times, he won the George Polk Award in 2004 for his reporting in Falluja and was part of a Times team that won a Pulitzer Prize in 2009 for work in Afghanistan and Pakistan. He is the author of “The Forever War,” which won the 2008 National Book Critics Circle Award for nonfiction. This is his first piece for The New Yorker.

The New Yorker, January 31, 2011

Letter from Kabul: The Great Afghan Bank Heist

The evidence, according to American officials close to the inquiry, appears to implicate dozens of Afghan officials and businessmen, many of them, like Zakhilwal, among Karzai’s closest advisers, with regulatory responsibilities over the Afghan financial system