Farnood accused both men of conspiring with him to plunder the bank’s assets. On top of that, he claimed that the bank had given $20 million to Karzai’s reelection campaign.
“On a scale of one to ten, it was a twenty here,” an unnamed senior U.S. Treasury Department official said in a Lessons Learned interview. “It had elements that you could put into a spy novel, and the connections between people who owned Kabul Bank and those who run the country.”
Within weeks, Farnood and Kabul Bank’s chief executive were forced to resign. News reports questioning the firm’s solvency prompted a run on the bank. Tens of thousands of Afghans mobbed Kabul Bank branches to rescue their savings.
President Karzai held a news conference and tried to calm the panic. He declared his government would fully guarantee all Kabul Bank deposits as the central bank took control of its operations. Behind the scenes, however, the government scrambled to find enough cash to make good on Karzai’s promise. Afghan officials made emergency arrangements to fly in $300 million in U.S. currency from a German bank in Frankfurt to alleviate the crisis.
At first, in public and in private, the Obama administration leaned on Karzai to fully investigate the Kabul Bank scandal—not only to recover the stolen money but also to demonstrate to the Afghan people that no one was above the law. U.S. officials viewed the episode as a pivotal moment in the anti-corruption campaign and in the war itself.
“There were a million things we were trying to do, and all of it depended on the Karzai regime as an effective partner,” an unnamed former senior U.S. official said in a Lessons Learned interview. “But if this [Kabul Bank scandal] was allowed to continue, is the rest of this kind of moot? There was a lot of personal anger and disgust. Feeling we cannot have this.”
The scandal also embarrassed the U.S. government, which had deployed legions of financial advisers and consultants to Kabul to help Afghan banking officials regulate their nascent financial industry, yet overlooked a giant Ponzi scheme under their noses.
The warning signs were hard to miss. In October 2009, the U.S. embassy sent a cable to the State Department reporting that cash couriers were transporting large sums of money to Dubai on Farnood’s airline. U.S. spy agencies knew about illicit activities inside Kabul Bank about a year before the meltdown, an unnamed senior U.S. official said in a Lessons Learned interview. American intelligence officials had tracked money flows from the bank to the Taliban and other insurgents, and shared the information with their counterparts in Afghan intelligence, he said. But none of the intelligence agencies alerted law enforcement, “because it wasn’t in their mandate,” he added.
In February 2010, U.S. and Afghan officials realized they needed to act after The Post published its interview with Farnood in a report on the bank’s dodgy operations. The article’s findings shocked Abdul Qadeer Fitrat, the governor of Afghanistan’s central bank. Because Afghan regulators had limited power and resources, he asked U.S. Treasury officials to conduct a forensic audit of Kabul Bank.
The Americans said they needed Karzai to approve the request. But Karzai refused for months to meet with the central bank governor to discuss the issue, saying he was too busy. By the time the Afghan president consented to the audit, it was too late.
The U.S. government missed the extent of Kabul Bank’s fraud even though it had hired numerous private-sector consultants to embed with Afghanistan’s central bank as advisers.
A second unnamed Treasury Department official said that soon after he arrived in Afghanistan in the summer of 2010, he met with an American who had worked on contract with the central bank for at least three years. The Treasury Department official wanted to know more about Kabul Bank. Neither of them had any inkling it was on the verge of failure.
“We had an hour-long conversation,” the second Treasury official said in a Lessons Learned interview. “I asked him, do you think this is a financially sound bank? He said, ‘Yes.’ And literally thirty days afterward, the whole house of cards came down. This was one of the biggest misses in my career. A $1 billion bank collapsed, and the U.S. adviser swore to me it was financially sound.”
The Afghan government’s takeover of the bank sparked a war of recriminations between regulators and the firm’s politically connected investors. Meetings to untangle the bank’s finances erupted into violence as participants threw dishes and chairs. Fitrat, the central bank governor, said his office had to stop serving hot tea so the combatants wouldn’t scald one another.
In April 2011, Fitrat told the Afghan parliament that Kabul Bank’s bad loans totaled almost $1 billion. He testified that many lawmakers and cabinet officials had pocketed questionable payments from the bank, but that Afghan law-enforcement officials had refused to prosecute. He also announced that the central bank would try to freeze the assets of Kabul Bank shareholders.
Afghan power brokers rebelled at attempts to retrieve the missing money. Two months later, fearing for his life, Fitrat fled to the United States. In a memoir, he wrote that Afghanistan was “hostage to a group of mafia-controlled politicians who were looting precious international assistance intended for improving the lives of the people.”
For about a year after the scandal became public, the U.S. embassy in Kabul, led by Ambassador Karl Eikenberry, prioritized the case and pressed Karzai to take action, three former U.S. officials said in Lessons Learned interviews. But they said the embassy backed off after Ryan Crocker replaced Eikenberry in July 2011.
“It was a case study of how fragile and precarious U.S. policy can be. Literally overnight our entire policy changed,” the second Treasury Department official said. Crocker’s “attitude was to make the issue go away, bury it as deep as possible, and silence any voices within the embassy that wanted to make this an issue.”
Crocker, Gen. David Petraeus and other Obama administration officials did not want to risk further offending Karzai because they needed his support at the height of the surge with 100,000 U.S. troops in the country. Crocker and his allies also did not want Congress or international donors to use the bank scandal as an excuse to cut off aid to Kabul.
“The United States started easing up its pressure due to the changeover in leadership at the embassy,” an unnamed former International Monetary Fund official said in a Lessons Learned interview. “I saw the tide turn when the going got tough.”
In a Lessons Learned interview, Crocker said he agreed corruption was an enormous problem that had sabotaged the war. But by the time the Kabul Bank scandal struck, he said it was too late. He also said he was sympathetic to a counterargument from the Afghan president, who spread the blame for the wave of corruption more broadly.
“I was struck by something Karzai said and repeated a number of times during my tenure, which is that the West, led by the U.S., in his clear view, had a significant responsibility to bear for the whole corruption issue,” Crocker said.
After Karzai left office in 2014, his successor, Ashraf Ghani, reopened an inquiry into the Kabul Bank scandal. The investigation found that $633 million in improper loans still had not been repaid.
Farnood, the poker-playing founder of the bank, was sentenced to fifteen years. He died in prison in 2018.
Few others faced justice. The bank’s chief executive also received a fifteen-year sentence, but it was loosely enforced; the government allowed him to leave his prison daily to tend to a large real-estate investment project. Nine other defendants paid fines or served less than a year in jail.
I. Flynn retired from the Army in 2014 and later became known for his brief, legally troubled stint as President Trump’s first national security adviser and for expressing extremist political views. Flynn pleaded guilty to lying to the FBI after Trump’s victory in the 2016 presidential campaign. Trump pardoned Flynn in November 2020.
II. Mahmoud Karzai and Haseen Fahim denied wrongdoing. Neither was prosecuted, though the Afghan government later found that they failed to pay back millions of dollars in loans. In an email to the author, Mahmoud
Karzai blamed Kabul Bank’s management, U.S. officials and the International Monetary Fund for the bank’s “destruction.”
PART FIVE THINGS FALL APART
2011–2016
CHAPTER SIXTEEN At War with the Truth
Leon Panetta fingered a string of rosary beads as he sat in a CIA conference room in Langley, Virginia, his 73-year-old eyes glued to a secure video link that showed U.S. helicopters flying in the darkness over Pakistani terrain. At Mass that morning—May 1, 2011— Panetta prayed to God that the daring, secret mission he had hatched would work.
A former congressman and White House chief of staff, Panetta had served in government long enough to know that his job and reputation were at stake. As CIA director for the past two years, he had overseen the faltering hunt for Osama bin Laden, the most-wanted terrorist in the world. He had just asked for presidential approval to send two dozen Special Operations forces deep into Pakistan—a prickly nuclear power—based on the CIA’s guess that a recluse living behind the walls of a $1 million compound in the city of Abbottabad was actually bin Laden. If the operation failed, the fallout would be impossible to contain.
Panetta watched two of the helicopters land at the compound via a live video feed transmitted by stealth drones circling over Abbottabad. But the airborne cameras could not see inside the compound walls. When a team of Navy SEALs barged into the building, all Panetta could do was listen and wait. After an interminable fifteen minutes, the team radioed back: They had found the target and killed him.
The spymaster resisted the urge to celebrate until the Special Operations forces returned safely to their staging base in Afghanistan and confirmed bin Laden’s identity. Panetta smiled and thought of his old friend Ted Balestreri, a restauranteur in Monterey, California, who had once promised to open the most prized possession in his wine cellar—an 1870 Chateau Lafite Rothschild—if Leon ever caught the 9/11 mastermind. Panetta phoned his wife, Sylvia, at their home. Call Ted and tell him to turn on CNN, Panetta said, he owes me a bottle of wine.
Bin Laden’s death appeared to mark a genuine turning point in the star-crossed war in Afghanistan. The whole purpose had been to eliminate bin Laden and his network. As long as the al-Qaeda leader remained free, no president could realistically consider ending U.S. military operations in Afghanistan. Now, after ten long years, the United States had finally won vengeance for 9/11 and an opportunity seemed at hand.
Two months later, Panetta traveled to Kabul. President Obama had just appointed him secretary of defense and this was his first overseas trip to meet the troops. He had good news to share.
Obama had decided to start bringing U.S. troops home. From a peak of 100,000, the number of troops would drop to 90,000 by the end of the year and shrink to 67,000 by the summer of 2012. On the surface, the U.S. war strategy looked like it might pan out. Panetta felt relaxed and loose.
Unlike his predecessors, who weighed every spoken word for their blowback potential, Panetta demonstrated a flair for blunt, unscripted comments during his visit to Afghanistan and the region. He blabbed away about the CIA’s clandestine presence in Afghanistan, called bin Laden a “son of a bitch” and marveled to the troops at every stop how improbable it was for him—a part-time walnut farmer from California and the son of poor Italian immigrants—to end up in charge of the most powerful military in the world.
In a more serious-minded discussion with reporters traveling with him, Panetta characterized bin Laden’s death as the beginning of the end of the so-called war on terror. Thanks to an unrelenting CIA drone strike campaign, Panetta estimated al-Qaeda had only ten to twenty “key leaders” still alive in Pakistan, Somalia, North Africa and the Arabian Peninsula. None was left in Afghanistan, where U.S. military officials guessed al-Qaeda could only draw on fifty to one hundred low-level fighters. “We’re within reach of strategically defeating al-Qaeda,” Panetta said. “I think now is the moment… We can really cripple al-Qaeda as a threat to this country.”
The success of the bin Laden raid gave Obama a huge political lift. But it also raised the public’s expectations and intensified pressure to show that his policies in Afghanistan were working. Obama had promised to turn around the war when he first ran for the White House. He would face the judgment of the voters the following year.
“We take comfort in knowing that the tide of war is receding,” Obama declared in June 2011, when he announced the troop reduction. Under his withdrawal timetable, 33,000 troops would come home by August 2012, three months before Election Day.
The reputations of his senior military commanders were also on the line. They had sold their counterinsurgency strategy to the president and the American people two years earlier. Ever confident, they continued to predict success.
“We’ve made a lot of progress,” Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, told television talk show host Charlie Rose in June 2011. “From a strategy standpoint it really appears to have worked as we had hoped.”
But the upbeat, reassuring rhetoric obscured the truth: Despite massive investments, Obama’s war strategy was failing. The United States and its allies could not fix some fundamental problems. The Afghan security forces showed little sign they could ever safeguard their own country. Taliban leaders slept soundly in their sanctuaries in Pakistan, biding their time until the foreign forces decided to leave. Corruption deepened its grip on the Afghan government, alienating and angering the people it supposedly served.
U.S. officials wanted to pull out but feared the Afghan state would collapse if they did. Bin Laden had hoped for this exact scenario when he planned 9/11: to lure the U.S. superpower into an unwinnable guerrilla conflict that would deplete its national treasury and diminish its global influence.
“After the killing of Osama bin Laden, I said that Osama was probably laughing in his watery grave considering how much we have spent on Afghanistan,” Jeffrey Eggers, the Navy officer who served as a National Security Council staffer for Bush and Obama, said in a Lessons Learned interview.
To paper over the problems, U.S. officials repeatedly downplayed bad news from the front, sometimes twisting it to the point of absurdity.
In September 2011, a cloud of bleak headlines trailed Panetta when he went to Capitol Hill to testify before a Senate committee. An assassin had killed a former Afghan president in charge of peace overtures. The Taliban also had carried out a rash of suicide bombings and coordinated assaults on high-profile targets in Kabul—supposedly the most protected part of the country—including the U.S. embassy and NATO headquarters.
But even the blunt-spoken Panetta had to uphold the illusion of success. He drew a mostly sunny picture for lawmakers, citing “undeniable progress” and saying the war was “headed in the right direction.” He called the assassination and suicide attacks “a sign of weakness of the insurgency,” arguing that the Taliban resorted to such tactics only because it was losing territory to U.S. forces.
When Panetta returned to Afghanistan for a visit in March 2012, another string of public-relations disasters followed. Moments after the defense secretary’s Air Force C-17 landed at a NATO base in Helmand province, an Afghan assailant drove a stolen truck onto the tarmac and tried to run over a U.S. Marine general and others in Panetta’s welcoming party. The attacker set himself on fire and crashed the truck, later dying of his injuries. Panetta had not yet disembarked from his plane and no one else was hurt, but it was a close brush with catastrophe.
Just as they had five years earlier when a suicide bomber targeted Vice President Cheney at a different base in Afghanistan, U.S. military officials tried to cover up the incident. For ten hours, they withheld news of the attack from reporters who were traveling on the same plane with Panetta, releasing sketchy information only after British news media broke the story.
At first, Panetta and other officials suggested the timing of the attack was a coincidence and said they had no reason to believe it was aimed at him. But they subsequently acknowledged that if the atta
ck had occurred five minutes later, the speeding truck could have struck Panetta as he walked off the plane.
During his trip, Panetta also had to deal with the fallout from one of the worst atrocities of the war. A few days before his arrival, a lone U.S. soldier, Staff Sgt. Robert Bales, strode into two Afghan villages in Kandahar province in the middle of the night and inexplicably massacred sixteen sleeping villagers, most of them women and children. The mass murder inflamed Afghans and the Taliban exploited it as propaganda fodder.
Despite all that, Panetta called his visit “very encouraging” and said the United States was “very close to accomplishing” its mission. “The campaign, as I’ve pointed out before, I think has made significant progress,” he told reporters in Kabul. “We’re on the right path. I’m absolutely convinced of that.”
To reinforce the message, Obama administration officials touted statistics that distorted what was really happening on the ground. The Bush administration had done the same, but Obama staffers in the White House, the Pentagon and the State Department took it to a new level, hyping figures that were misleading, spurious or downright false.
“We have broken the Taliban’s momentum,” Secretary of State Hillary Clinton told a Senate committee in June 2011. As evidence, she quoted an array of metrics: Afghan schools had enrolled 7.1 million students, a seven-fold increase since the fall of the Taliban; infant mortality had decreased by 22 percent; opium production was down; hundreds of thousands of farmers had been “trained and equipped with new seeds and other techniques”; and Afghan women had received more than 100,000 micro-finance loans.
“Now, what do these numbers and others that I could quote tell us?” Clinton said. “Life is better for most Afghans.”
The Afghanistan Papers Page 21
