The USAID contractors tasked with helping the Central Bank oversee the banking sector had failed to raise any warnings about Kabul Bank. Since 2003, USAID had been paying to build capacity at the Central Bank. It had awarded a four-year, $79 million contract to BearingPoint for the work in 2005, followed by a five-year deal for $92 million with Deloitte in August 2009, after Deloitte purchased BearingPoint’s public services business. Many of the same advisers stayed on. In that period, there were “several opportunities to learn about fraudulent activities at Kabul Bank,” a USAID inspector general’s report would later conclude. But despite the exorbitant contracts, nobody looked very closely. Some BearingPoint advisers had received death threats, and the company banned its staff from visiting the banks they were hired to inspect. The USAID banking staff fell into turf war squabbles with the Treasury attaché’s office—the same type of backstabbing so common whenever different slices of the American government attempted to work together in Afghanistan. The Deloitte advisers and the Treasury team rarely cooperated, or even spoke. The woman who ran USAID’s Economic Growth and Governance initiative in Kabul wouldn’t let Stuart Jones, the Treasury attaché, talk to her staff at the Central Bank. When he finally arranged a meeting, she made sure it took place on the USAID side of the embassy compound, marking her territory.
One Treasury Department official who looked at Kabul Bank’s balance sheet in the spring of 2010 immediately noticed fewer than 1 percent nonperforming loans among the more than $1 billion issued, whereas it was common for banks in the developing world to have problems with as much as 10 or 15 percent of their loans. The official had worked in bank compliance for decades. Even the best banks made loans that did not get paid back on time. The official recalled thinking, “This can’t be true.” But when he raised his concerns, the adviser responded, “We don’t work for the U.S. We work for Deloitte.”
“I knew right then there was a major problem in the loan portfolio, and those guys never spoke to me again about that kind of issue,” the official said. “That was a bellwether right there.”
Even some of Mahmood Karzai’s business partners were starting to get worried about the Kabul Bank’s health. That’s where the proceeds from their gated city in Kandahar were being held. Abdullah Nadi, the developer living in Virginia who’d been one of the original Aino Mena partners, wrote an e-mail to Mahmood urging him to move their money elsewhere.
“Kabul Bank as the largest bank in Afghanistan with over 4000 employees and branches in 34 provinces has many enemies,” Mahmood wrote back. “IMF and the [Central Bank] are watching and monitoring Kabul Bank closely because it hold over 600M USD in deposits from Afghans, all report indicates that the Kabul Bank is doing good.”
Mahmood told Nadi he could trust such respected international institutions.
“We shall not,” he concluded, “believe unofficial sources and rummers [sic].”
—
On August 5, 2010, Abdul Qadir Fitrat was attending a U.S. Department of Defense–sponsored conference at Grosvenor House, a complex of two glistening forty-five-story towers that rose seven hundred feet above the Dubai Marina and were striped with colored lights that shimmered at night on the slack water. The purpose of the conference was to discuss establishing a consortium of Afghan banks that would cooperate on mobile banking and whose ATMs would be linked. After lunch on the second day, Fitrat departed to the Dubai Mall to show his young son its indoor aquarium.
They were on a shuttle bus back to his hotel when his cell phone rang. It was Mike Pisa, the U.S. embassy’s new acting Treasury attaché, and he sounded worried.
“Mr. Fitrat, we have received news that Kabul Bank’s shareholders have split into two groups,” Fitrat recalled Pisa saying.
Pisa explained what the embassy knew about the crisis at Kabul Bank. Money was leaving the country. The shareholders were at one another’s throats. The bank’s assets were dissolving. Its collapse appeared imminent.
The embassy had learned this information largely from the work of Kirk Meyer and his team at the Afghan Threat Finance Cell. During his investigations into the New Ansari hawala business, his attempts to understand why millions of dollars in cash were leaving on daily airline flights to Dubai, and the work to arrest the palace aide Mohammed Zia Salehi, Meyer had become well known among Afghanistan’s business elite. He would meet businessmen for dinners in their gaudy Kabul homes, with their cedar-paneled living rooms and basement liquor cabinets, or in Dubai high-rises, and he picked up much of the gossip about new deals and shattered alliances. In his conversations, he’d heard increasingly troubling things about the hawala called Shaheen Exchange and its partner business, Kabul Bank. Part of what he learned came from a parallel interest of Meyer’s: President Karzai’s brother, Mahmood.
Since Mahmood held U.S. citizenship, he was subject to American financial laws and was thus an easier target for arrest and prosecution than the average corrupt Afghan businessman. Mahmood had come to the attention of Meyer’s team in part because Haji Mohammad Jan, one of their targets at New Ansari, was a part owner of Aino Mena. But going after Mahmood was particularly dangerous, given the political sensitivities. If President Karzai had threatened sending in Afghan troops to free one of his mid-level aides, the prospect of how he would respond to the arrest of his brother was daunting.
As part of the investigation, Meyer and his team wanted to conduct a covert operation against Mahmood and catch him in the act of committing a financial crime. For such a prominent and politically connected figure, it was necessary to run the decision through a high-level interagency review. The group in charge was known as a Special Activities Review Committee, or SARC, and consisted of representatives from the Department of Justice, the State Department, Treasury, and others. The rough plan was to send an undercover agent posing as a businessman looking to start a venture in Afghanistan. The man’s invented company would have a website documenting its fake credentials. Mahmood would eventually, the investigators hoped, ask for a bribe from that person as they worked out the deal. And then he would be caught. One day in July 2010, Calestino was in Charlottesville, Virginia, attending a threat finance conference, when his cell phone rang. Kirk Meyer was calling from Kabul.
“Eikenberry just signed the SARC,” Meyer told him.
After the Obama administration authorized the investigation into Mahmood, Meyer’s team gathered information that was shared with federal prosecutors in the U.S. Attorney’s Office for the Southern District of New York, who were also on the case. They began looking into a range of allegations against Mahmood, including tax evasion, racketeering, and extortion, as part of a possible indictment.
Close to midnight one evening, after it began appearing in the newspapers that Mahmood could face a grand jury indictment, Kirk Meyer’s cell phone rang. He was in his embassy apartment, standing next to his bed, as he held the phone to his ear.
“This is Mahmood,” the caller said.
“Okay,” Meyer replied warily.
“Kirk, is there anything you really want?” Mahmood asked.
“No,” Meyer replied.
“Okay,” Mahmood said, and hung up.
What Kirk Meyer really wanted was information about Mahmood’s business life, a record that was long and somewhat checkered. As an entrepreneur, both in the United States and in Afghanistan, Mahmood had some successes, such as the Kandahar gated community, but other projects had failed or become embroiled in scandal. Often the reality wouldn’t live up to his outsized visions. Some of his restaurants in the States flourished but others encountered various legal problems over the years from customers, suppliers, and employees. He had been sued for unpaid invoices by a company that washed the linens at one of his restaurants and for a few thousands dollars’ worth of unpaid soda bills at another. A real estate company had sued him for breach of contract over an agreement to sell two of his Baltimore properties that went sour. At least two women who’d fallen in his parking lots and injured themselves had sued hi
m. His restaurant in San Francisco, on a street with a view down to the Golden Gate Bridge, had to close in 2007 after a boulder crashed through the kitchen during a landslide on Telegraph Hill.
In 2000, Mahmood got into a legal dispute with one of his dishwashers, Juan Carlos Yeh Gutierrez, who worked at Helmand Restaurant in San Francisco, which Mahmood had opened in 1989. Gutierrez and other employees regularly worked seven days a week without receiving overtime pay. Mahmood contended that there was an understanding that Gutierrez’s salary of $350 per week included overtime, but the California labor commissioner’s office disagreed. Mahmood did not record the hours worked by Gutierrez or other employees, paid them in cash, and required them to put in seven-day weeks regularly for more than a year, in violation of state law. Mahmood, who was ordered to pay Gutierrez $25,000, argued that Gutierrez had threatened potential witnesses in the case, but the labor commissioner’s office found that this claim was “a mere smoke screen to divert attention” from his “failure to pay the plaintiff and other employees full wages earned.”
One of his more serious run-ins with the American legal system came three years later, after Mahmood had opened the Tampico Mexican Grill on North Charles Street in Baltimore, just four blocks north of Qayum’s restaurant the Helmand. The $450,000 needed to open the grill came from Mahmood himself as well as his brother-in-law, Zaki Royan, and Ali A. Tokhi, who had worked with Mahmood in the San Francisco restaurant and would become a manager at Tampico.
One of the bartenders, Robie Allen Thomas, soon began complaining about sexual harassment from Tokhi. She accused him of regularly rubbing up against her, looking down her shirt, calling her stupid, speculating that she must be from “Africa or Haiti” because of her skin color (although she was Native American), and laughing at her, “especially,” she said, “when he sees me about to cry.
“I’ve asked him constantly to not talk to me like dirt or humiliate me,” she wrote.
One night in August 2003, Tokhi followed Thomas out to the parking lot after her shift. In her handwritten account, she said that Tokhi had kept asking to walk her to her car, “pushing me to comply.
“He grabbed me by my right arm and leading me towards some building stair steps,” she wrote. “He pulled me towards him…took his other hand and felt me up. He felt my breast and then ran his hand…down to my crotch area touching me down there.”
Thomas said she was able to extricate herself from Tokhi, rush to her car, and speed off “while he was staring at me through my car window.”
Thomas told the Baltimore City Circuit Court that she had already mentioned Tokhi’s harassment to Mahmood even before the incident in the parking lot, something he would deny. She said Mahmood had never disciplined Tokhi but had, instead, reduced her bartending hours. When Thomas found a lawyer and complained in writing to Mahmood about Tokhi’s attack, Mahmood fired her.
Thomas responded by filing criminal charges against Tokhi, who was convicted of assault. She also sued Mahmood for sex discrimination, retaliation, and civil rights violations.
Mahmood denied to the court that Thomas had complained to him about sexual harassment and said she had been fired for a different reason. Mahmood stated that he and Thomas had worked together on developing the restaurant’s menu and other tasks. “At the beginning I was impressed, but she became quite problematic,” he said. “She was not getting along with people. She was bossing everybody around, and she would not cooperate and she was very demanding and making noise and just the behavior was very bad for our restaurant.” He said he had reduced her hours, and when the harassment issue surfaced, “I just fired her.”
While these allegations were playing out in court—one of the chefs had also sued Mahmood and Tokhi for harassment—Mahmood decided to sell the Tampico Mexican Grill, which was losing money from the start. He created a new limited liability company and used the remaining assets of the Mexican restaurant to open a French restaurant called Limoges Gourmet Bistro in the spring of 2005. That restaurant didn’t fare much better, and less than a year later Mahmood sold it to Sam’s Italian Restaurant for $300,000.
Thomas and her lawyer accused Mahmood of “fraudulent conveyance,” arguing that he had sold the Mexican restaurant to place its assets out of her reach. The court ruled in favor of Mahmood. Thomas also lost the battery and discrimination arguments, but she prevailed on her civil rights claim, and in December 2007 a judge ordered Mahmood to pay $14,500.
The Tampico Mexican Grill was open for just eighteen months and was, in Mahmood’s words, “a complete disaster.”
The American restaurants became a sideline to Mahmood’s primary focus on building his businesses in Afghanistan. After Aino Mena, he swung his attention to an aging state-run cement factory in the hills of northern Baghlan Province. Mahmood believed the Soviet-era relic, known as the Ghori Cement Factory, could be overhauled to serve Afghanistan’s wartime economy. With the United States pumping more money each year into building roads, schools, clinics, and military bases, Mahmood expected that demand for construction materials would soar. Ghori was the country’s only functional cement plant, and as shabby as it was, it was set amid rich deposits of limestone and clay—ingredients needed to make concrete—and near four coal mines that kept the kilns burning. A paved highway led to Mazar-e-Sharif, the largest city in the north. Mahmood felt the payoff could be huge. “The cement plant was government-run on the Soviet model. It wasn’t producing any cement. It was a robbery, just like other government-owned projects. It was a filthy dump, with no sewage,” Mahmood recalled. “I really had an idea of how to bring the country forward.”
Mahmood’s plans were characteristically outsized. He envisioned spending hundreds of millions of dollars to renovate the existing plant, finish a second portion started and abandoned by the Soviets, and build a third plant from scratch that alone would be capable of producing four thousand tons per day, or twenty-five times the current output. The company would also renovate the four neighboring coal mines and build two new power plants to run everything. On the campus for the employees there would be clinics and kindergartens and parks. Mahmood recruited many of the country’s most prominent and politically connected businessmen, including several with U.S. citizenship, to partner on the Afghan Investment Company venture. The initial arrangement was to have fifty businessmen invest $500,000 to reach the $25 million Mahmood felt was needed to begin. Sherkhan Farnood and Khalil Ferozi, who ran Kabul Bank, were involved, as was Haseen Fahim, the vice president’s brother. Mahmood, along with several others, took loans from Kabul Bank to finance their shares, rather than putting up their own money.
Mahmood pestered the Ministry of Mines and Petroleum and the U.S. embassy to help push through his project. He “clearly has great expectations for the AIC,” the embassy wrote back to Washington in early 2006. He had even talked about “possible plans for the company to go public in the future.”
But he was having trouble executing the sale. These types of insider deals—a state-run plant being sold to the president’s brother—didn’t look particularly ethical, and the minister of mines, Mir Mohammed Sediq, was against it. The U.S. embassy also found the negotiations “worrisome,” writing that “other investors without his family connections would likely not be as successful. This bodes poorly for the future.”
Not long after this, however, the situation was resolved in Mahmood’s favor. In March 2006, President Karzai fired the minister of mines, and the deputy, Mohammad Ibrahim Adel, was appointed to take his place. Adel moved forward on the sale of the Ghori Cement Plant. While there was a bidding process, the other companies believed that the minister put up unrealistic obstacles. In the final days of bidding, Adel informed them that they needed to present $25 million in cash as a guaranty. One of the bidders, Nasir Khisrow Parsi, told me he complained to the minister about the last-minute requirement. “In a country like Afghanistan, a person cannot carry even $100,000 from one place to another,” he said. But Mahmood’s business partners d
idn’t have a problem cobbling together $25 million: they had Kabul Bank. Ministry staff members watched as gunmen entered the ministry carrying a cardboard box filled with cash and placed it on the minister’s desk. One deputy minister worried that the gunmen were Taliban coming to kill the minister.
Mahmood’s company won the right to rehabilitate and expand the factory. But in the end, it wouldn’t turn out as he’d hoped. The costs were too high for many of the renovations. Demand was filled by cheaper cement from Pakistan. The output at the Ghori Cement Factory remained as anemic as ever. The AIC partners started moving their money out of the cement plant and into Dubai real estate. “They didn’t even pay the salaries,” Abdul Ghafar Dawi, one of the AIC investors, told me. “When I saw that everybody was moving his money to Dubai, I resigned.”
Credit 8.3
Workers stack bags of cement at Mahmood Karzai’s Ghori Cement Factory, in northern Afghanistan.
When I asked Adel, the minister, about the bidding, he mildly defended the process but acknowledged that he had since changed his procedures. “It was unusual,” he said. “It was our first bidding.”
—
If it succeeded at anything, Mahood’s cement factory showed the value of Kabul Bank. For a small group of Afghan entrepreneurs, it was like having a pool of free money to start the businesses of their choosing. Such a business, in a country with so much to rebuild, was enticing. Mahmood owned a small share of the bank. But he wanted more. The fact that his relationship with the bank’s chairman, Sherkhan Farnood, continued to deteriorate only increased his appetite. Mahmood disagreed with many of Farnood’s investment choices as well as his authoritarian style. Every few weeks, Mahmood would call Fitrat, the Central Bank governor, to complain about Farnood’s behavior, especially how he made unilateral decisions and never took input from other shareholders. Mahmood didn’t like it that Farnood had opened a luxurious office in Dubai for Pamir Airways, his commercial airline, when Mahmood felt the office should be in Kabul. He felt that a Kabul Bank call center should also be relocated. Farnood ignored some of Mahmood’s proposals, such as starting an insurance company and establishing a pension fund for employees. “Most of the time Mahmood said, ‘Farnood is very stupid. He doesn’t know how to do business,’ ” Fitrat recalled. Farnood had also been spending more time outside of Kabul, leaving his chief executive, Khalil Ferozi, in charge. The real issues ran deeper: the shareholders wanted control of a vastly lucrative bank to finance any number of business ventures. Ferozi and Mahmood, along with the vice president’s brother, had discussed taking over the bank.
A Kingdom of Their Own Page 23
