A Kingdom of Their Own

by Joshua Partlow

  Massoud Ghazi was under orders from Central Bank governor Abdul Qadir Fitrat to freeze all operations at Kabul Bank. Ghazi was a shy, bespectacled accountant who had been working as the Central Bank’s chief financial officer. He’d been wary of stepping into the viper’s nest that was Kabul Bank, but Fitrat, who considered him the most careful, trustworthy member of his staff, had urged him to accept. Until that afternoon, Fitrat’s decision to oust the bank’s leadership and have the government take control had been kept a secret.

  Ghazi wanted to keep a low profile himself. He was now dealing with the money of Afghanistan’s most powerful men, and he didn’t want to make mistakes. His first decision was to ask the documents department to issue a bankwide letter to cease all loans immediately. He wrote a second order stating that no shareholders could withdraw any money from their accounts. These were not the types of decisions that could be kept secret, among the country’s gossipy business elite. Before Ghazi left the office that day, word had leaked out about the government takeover. And as soon as it did, the panic began. By the morning of September 1, the world knew that Kabul Bank was in crisis. A crowd of angry customers swarmed the sidewalk outside the bank’s headquarters in the Shar-e-Naw neighborhood of Kabul, desperate to take out their savings before the bank collapsed.

  The day the bank run started, the U.S. Treasury Department dispatched a three-person emergency response team from the Office of Technical Assistance in Washington. If Kabul Bank stopped functioning, the salaries of teachers, soldiers, police officers, and much of Karzai’s government would not be paid. Treasury officials were now hearing rumors about Azizi Bank, started by Farnood’s rival, and its reckless lending and real estate speculation in Dubai. Financial panic could take down other banks and cause economic catastrophe. Unwilling to risk sending American diplomats into a potential riot, the U.S. embassy dispatched its local Afghan staff to Kabul Bank branches to quietly watch the bank run and report back. American diplomats in the United Arab Emirates also began trying to ascertain the value of Farnood’s real estate holdings. The Americans watched with growing alarm as the bank’s reserves evaporated. On paper, Kabul Bank had $458 million in cash when the crisis started. Within three days, this would be gone.

  Fitrat was frantically searching for money to bail out Kabul Bank. The Central Bank sold its reserves on the hawala market in Kabul to buy dollars to ship over to Kabul Bank, but there wasn’t that much in the country. Afghanistan had around $700 million in international banks, and Fitrat needed an emergency transfer as quickly as possible. Fitrat begged the hawala association to leave large sums of cash in the banks to help keep them solvent. Until money could arrive from overseas, the Central Bank needed access to afghanis. The hawaladars agreed, but exacted an exorbitant price.

  On the third night of the bank run, he called his colleagues around the world. Fitrat recalled that the United Arab Emirates’ Central Bank governor was traveling, his cell phone off. The Bank of Tokyo was closed for the night. He asked the U.S. embassy if the Federal Reserve could send $300 million in two days, but an official told him no. He tried Citibank, Standard Chartered, Commerzbank. Nobody could promise a bulk delivery in one or two days; such transfers usually took at least two weeks. Finally, Fitrat found that Deutsche Bank in Germany could fly $180 million of Afghanistan’s reserves to Kabul in two days, plus another $120 million the following day. The fee would be high, nearly $1 million. Fitrat needed President Karzai’s approval for such a costly move. He called Karzai that night and told him Afghanistan was out of money. “Take care of it,” Karzai said, and don’t worry about the fee. “Afghanistan is a country where one gets accused of everything.”

  The money the Central Bank was spending to bail out Kabul Bank—$825 million when it was all over—was largely American money. The U.S. military and civilian agencies paid the Afghan government in dollars, which they converted into afghanis and paid to the contractors for the reconstruction and development projects. The Obama administration did not want to be seen condoning such a blatant scandal and did not allocate new funds for the bailout. But the reality of Afghanistan’s finances meant that whatever pot they pulled from invariably included American tax dollars. “We didn’t have any money before donors came to Afghanistan,” Fitrat told me. “This was donors’ money, U.S. Army money. We didn’t bring this money from Venus or Mars; this was U.S. taxpayers’ money and other international donors’ money. We paid it from the Central Bank’s reserves.”

  This was one of the reasons that the bank episode became, in both Kabul and Washington, the defining scandal of the Karzai government. It was a glaring example of how the greed of a small cabal of relatives and political and business cronies had stolen from both poor Afghans and the U.S. government. The scope of the fraud was enormous: the bailout represented 5 to 6 percent of the country’s GDP. But the real problem was even larger, because a lot of people involved in Afghanistan lost hope. Much of the daily war news was bad: another far-off firefight and a helicopter crash, the dead marked as numbers, not names. But the venality of this situation further stripped away the veneer of valor from what was already a very weathered enterprise. After the Kabul Bank fiasco, it was harder to make the case that we were fighting for something worthwhile or paying to build something that would last.

  For President Obama and his administration, it represented a turning point. It was well documented that Obama had been wary about sending new troops to Afghanistan. He knew those soldiers could win any direct physical battles they might have to fight, but what would be their larger goal: engineering an honorable and functional democratic government in this war-torn debtor state? And according to U.S. officials who discussed these issues with Obama, the bank scandal reinforced his skepticism about the American mission. Obama seemed interested in the Kabul Bank crisis. He read about it. He asked a lot of questions. “I believe that on Kabul Bank, the president used that as an intellectual litmus test on whether or not this could work,” Karl Eikenberry said.

  One of the things Obama wanted to know from Eikenberry was whether President Karzai was going to deal with this issue and put the people in jail who needed to be there. Eikenberry believed Karzai didn’t have any incentive to confront the crisis. If he attempted to prosecute those responsible, he would be attacking his own political base, as well as his family. If he did nothing, and risked economic collapse, the Americans would pay to prevent that. The best solution would be to blame some marginal figures, accuse the United States of interference, and continue on.

  “Mr. President, no. I don’t think he will,” Eikenberry told Obama.

  —

  In the first moments of the bank run, President Karzai ordered Fitrat to hold a press conference and insist that the situation was under control. Karzai told him to announce that the government had not fired Farnood and Ferozi but that they had resigned voluntarily, that the Central Bank had not taken over Kabul Bank, that the bank was healthy and had no problems—in other words, Fitrat said, “all the lies we told in those days.” President Karzai also offered Fitrat another piece of advice: “Blame the Western media.”

  Fitrat complied. He stood at the microphones that afternoon, with Farnood and Ferozi looking haggard and disheveled before him, and told the gathered reporters that the Central Bank’s board had decided that bank owners could not serve as managers, so Farnood and Ferozi had voluntarily stepped down. “Reports by certain media about Kabul Bank are baseless. Kabul Bank is safe and sound,” Fitrat told the crowd. “Kabul Bank itself has appointed a new CEO.”

  “The bank is solvent, the bank is solvent,” he insisted. “Kabul Bank has no cash problem.”

  Throughout the Kabul Bank crisis, Karzai dragged his feet. He’d refused to meet Fitrat for months. He’d resisted hiring outside experts to do a forensic audit because he didn’t want the United States government to see the results. He reluctantly agreed with Fitrat’s decision to oust the bank’s leadership. It wasn’t that the crisis didn’t worry or anger him—he was
furious with his brother Mahmood for getting involved with the bank and sullying the family name—but he wasn’t willing to concede to American demands for reform or risk alienating his supporters. He believed that the Kabul Bank fiasco, like all the other crises, was an American conspiracy to destabilize his government and oust him from the palace.

  Once Massoud Ghazi and his Central Bank team took over the bank, the industrial-scale theft stopped and the bigger test for Karzai—the prosecution of those responsible and the recovery of the lost money—began. Within days, several Kabul Bank employees, including many of the Indians and Pakistanis who had been hired for technical jobs and in the credit department, fled the country. Sherkhan Farnood, who had flown to Dubai after he’d resigned as chairman, said he would return to Kabul only if he could be kept safe. Fitrat worried that the chances of recovering the bank’s money were slipping away. In palace meetings, he stressed that the guilty would flee, and it would be shameful for the government.

  Ghazi soon realized that he had other problems besides the angry depositors on the sidewalk. The staff kept hiding things and wouldn’t answer his questions about how the bank worked. Nobody was heeding his orders, and shareholders were using their connections in the bank to withdraw money. Farnood had wired $5.87 million to Dubai in four installments, starting the night Fitrat forced him to resign. The ousted chief executive, Khalil Ferozi, had still not left his office, and Ferozi’s relatives were also withdrawing vast sums. “I realized on the first or second day: How can I trust these people?” Ghazi told me. “Everyone here was involved.”

  Even more worrisome to Ghazi, the bank’s security guards, some fourteen hundred of them, were employed by Ferozi and were still loyal to him. The chief of security at the Central Bank had heard rumors that the guards were planning to attack Kabul Bank, to blow it up or set fire to the building. The government wanted to replace the guard force, but there weren’t enough trustworthy police officers to take over. Ghazi worried that the guards were planning to destroy computers and documents and break into the vault. Fitrat believed the warnings were credible enough that he asked Ghazi to sleep at the bank, so that he could raise an alarm if the guards made a move. During the day, the crowds of angry customers kept the guards busy; at night, Ghazi was alone. “The fear,” he said, “it was there.”

  The physical safety of the bank and its remaining staff was eventually ensured when the Afghan intelligence agency agreed to seize control from the guards. Its agents from Department 10, the section responsible for the protection of public officials, performed what amounted to a raid on the bank. The agents ordered all the guards to lay their weapons on the ground and leave the premises. The officers picked up the discarded weapons and took up positions throughout the bank. After that show of physical force, Ghazi was able to work. “If we hadn’t removed the guards, I don’t think we could have stopped the bank run,” he said. “They were here to destroy the archives. They didn’t get a chance.”

  Three weeks after the takeover, Fitrat drafted a letter to President Karzai. He considered it highly sensitive and did not want to deliver it through the normal channels to the palace’s department of administrative affairs. Fitrat’s personal secretary typed it up, and he decided to carry it by hand. An official lunch with top officials, including the finance minister, national security adviser, and Karzai’s chief of staff, was scheduled for two days later; Fitrat would deliver it then. Given that the shareholders could not be trusted to voluntarily stay in Kabul or cooperate with any investigation, Fitrat wanted permission to have them placed under house arrest.

  After the meal concluded, Fitrat handed the president his letter. Karzai read over the five-paragraph request in silence.

  To his excellency the President of the Islamic Republic of Afghanistan:

  Respectfully would like to apprise you that since 29 August 2010 until 20 September of the ongoing year, Sherkhan, Ferozi, and Haseen Fahim, by making excuses and arguing with each other, haven’t effectively cooperated with the Central Bank and new custodian due to which the progress has been very slow.

  The stilted translation of the letter that I obtained said that through loans and embezzlement, these men were responsible for taking more than $500 million from the bank. Fitrat had still been too afraid to include Mahmood Karzai’s name among the others.

  Additionally, each of these men hold passports of several countries [and] risk of their escape is expected any minute. If these individuals…run off, recovery of the embezzled assets will not only be difficult or even impossible [but] would cause a huge reproof toward the government of [Afghanistan].

  Also, it should not be forgotten to mention as every day passes by and the investigation expands, many…of these men’s felonies, forgeries, counterfeits, ironies, and embezzlements are being exposed. As currently enough evidence exists to put them on trial.

  I hope your Excellency will at least issue the order of bringing these men under custody in an appropriate location in order to avoid these criminals’ flee [sic, translation] and public assets being squandered…Whatever be your direction will be implemented.

  Karzai turned the paper upside down. Then back the right way. He peered at it. Fitrat noticed that the president’s face was flushed as he handed the letter back.

  “I’m not a dictator!” Karzai shouted. “What do you expect me to do? Do you think President Barack Obama would do this with Madoff?”

  This defensive, obfuscating Karzai was very different from the idealistic man who’d started in the palace a decade ago. In the early days, he would at least muster the energy to rage to his cabinet against the evils of corruption, if not try to stop them. One of the best examples of this was the scandal over the Kabul neighborhood known as Sherpur. In the nineteenth century, the area had been the site of a British cantonment, then later an Afghan army camp. When Karzai took power, the neighborhood was mostly a squatter settlement at the base of a muddy hill. Thousands of refugees were streaming back to Kabul, and the capital’s population had soared since the Taliban regime had left. Land was in demand, and this was coveted real estate: close to the palace and the diplomatic compounds. The idea of divvying up Sherpur to the new government elite was presented to Hamid Karzai over breakfast; his vice president, Mohammad Qasim Fahim, told Karzai that there was prime land surrounding the Sherpur garrison that used to be inhabited by the nobles of Kabul. Palace chief of staff Said Tayeb Jawad recalled Fahim’s use of that word in particular: “nobles”—in Dari, ashraf.

  “Now we are the new nobles of Afghanistan,” Fahim told Karzai. “And I suggest that we distribute this land to the new nobles because many government officials do not have a place to stay.”

  The breakfast ended without a decision from Karzai. But Fahim pushed ahead. He ordered a decree drafted by the palace’s administrative affairs office to distribute Sherpur among a small coterie of officialdom. The Afghan government in 2003 did not yet have a parliament, nor an elected president. When Karzai was traveling abroad, Fahim, as first vice president, became the acting interim leader, with authority to sign presidential decrees in his name. Karzai’s aides worried about such trips for this reason. In their absence, Fahim would sign orders carrying out his whims—“in two days, you’d have a hundred decrees signed,” one of the palace aides recalled. Even if Karzai disagreed, he could do little to stop Fahim.

  In September 2003, government bulldozers demolished several dwellings in Sherpur and police chased away its residents to clear ground for the new homes. A report by the United Nations’ special rapporteur that month warned the Karzai government that it must “come to grips with the prevailing culture of impunity.” The U.N. investigator, Miloon Kothari, referred to the Sherpur seizures as a “microcosm of what has been happening all over the city and the country,” and he called publicly for the sacking of Fahim. The Afghanistan Independent Human Rights Commission weighed in, fanning the scandal by listing twenty-nine senior officials, including six cabinet ministers, the mayor of Kabul, and the Ce
ntral Bank governor, as having illegally received land in the neighborhood. The day after the human rights report was released, September 15, 2003, Karzai met with his cabinet in the palace. According to handwritten notes of the gathering and to witnesses’ recollections, Karzai opened the Monday meeting by telling his ministers that there had been a lot of talk about them in the media over the past few days. “The world has never paid as much attention to an Afghan as it is paying to us right now,” he noted. Their behavior had to change.

  “This cabinet has lost its credibility,” Karzai said.

  From now on, he ordered, they would have to publicly declare their wealth and property. If they didn’t want to be misjudged at the end of their term, they needed to follow some rules.

  “In the eyes of people, cabinet members are land grabbers, not land givers,” he said. “We should not give the impression to people that Karzai and his cabinet have come to get rich and fill their pockets.”

  As he lectured them, Karzai grew more animated and forceful.

  “I have always tried to be nice with you in the past, but you can’t expect me to be nice and soft on this issue, too. I don’t want to be the president of an infamous cabinet. From ministers to the lowest-ranking government official, all of you have grabbed people’s land. Today, I want to know what you are going to do about it.”