A Kingdom of Their Own

by Joshua Partlow

  “He always had an enormously soft heart,” Qayum said. “Beggars used to come to our house and ask for Hamid.”

  In the palace, Hamid Karzai lived an almost ascetic life, rejecting many of the perks of his position. Early on, he ordered the palace chefs to scrap the lavish menu that had been favored by earlier regimes. He replaced multicourse meals with basic Afghan fare—rice, salad, bread—and limited meat to three days a week. He once issued a presidential decree that he did not want to inherit any of his father’s land in Kandahar. These views on wealth and privilege informed his politics in unexpected ways. At times he argued against his own defense minister who wanted the United States to pay for a larger, more powerful military; Karzai worried that it would create an entitled military class, like in Pakistan, and dominate Afghanistan’s domestic politics. He complained that his military officers drove expensive cars and believed they should live more Spartan lives. Karzai preferred reinstating a military draft to encourage nationalism and a more egalitarian force (although that didn’t come to pass). “He is probably the cleanest, most uncorruptible Afghan I’ve ever met,” recalled Javed Ludin, who served as Karzai’s chief of staff. “He has no economic interest in anything. He’s a poor man.”

  Karzai’s relatives often mocked his seeming disinterest in money. A Persian Gulf dignitary had once given Karzai and his wife diamond-encrusted watches, but Karzai took them away and had them cataloged and held by the government, to Zeenat’s frustration. “I don’t think he’s ever lived an extravagant life anywhere,” Patricia Karzai, his sister-in-law, said. “He likes nice things. He’s not necessarily going to shop at a Walmart for his clothing, but he’s never led an extravagant life.”

  “Afghan families tend to try to live beyond their means,” Karzai had once written. “They overconsume. Everything is taken to excess. They put too much food on the table, they spend money they don’t have on clothes, and there is no notion of saving. It’s a strange characteristic of Afghans that is quite puzzling to me.”

  The president’s attitude toward money, and his lack of interest in helping others get rich, infuriated many of his relatives, who thought he acted too superior. This was something that the U.S. anti-corruption investigators were missing as they sketched their criminal patronage network maps inside ISAF headquarters: the president wasn’t the godfather pulling the strings on a family mafia.

  “He doesn’t want any of his relatives to get rich,” his cousin Hashim, who was one of the partners in the Aino Mena development, complained to me one afternoon over fried chicken at a Popeyes fast-food joint in Dubai. “You know what the president wants? He wants us to live in, what do you call it, a soup kitchen? Or live in a shrine. Or an orphanage. Something like this. You tell him, ‘Oh, I saw your cousin, he’s a big businessman in Dubai. He owns a hotel.’ He’ll be very upset. If you tell him, ‘I met your cousin, he’s living in a shrine, he’s smoking tobacco and he doesn’t have any money for his food,’ he’ll say, ‘Oh, what a great guy.’ ”

  When the war started, Afghanistan was basically bankrupt. By 2001, there were six state-owned banks, confined largely to Kabul and virtually defunct. Management was inexperienced. Audits had not been conducted in years. The IMF first visited in late January 2002, and as a consultant wrote in a subsequent report, “It soon became clear that in reality, none of these financial institutions had been operating in a normal fashion for years.” Most of the staff did not know how to use a computer. All the money in circulation in the country totaled about $270 million. Government employees had gone months without salaries. The Central Bank vault was nearly empty, the few stacks of remaining bills wrapped in rubber bands. The Taliban had run off with gold bars and cash in U.S. dollars and Pakistani rupees. A diminutive central banker with a nasal voice, Abdul Qadir Fitrat, went on the BBC the same month as the IMF visit and informed the world that “if the international community as a whole fails to provide us with immediate short-term and long-term assistance, we have no choice but to resort to printing new bank notes, which is a disaster for the economy and would put much pressure on the already existing inflationary pressure.” He said “we need at least $25 to $30 million per month to meet both military and civilian employees of the government alone. Let alone other government expenses, furniture and other day-to-day expenses.

  “At least provide us with some security,” Fitrat pleaded to the world. “That promise alone would mean a lot.”

  To handle the incoming foreign aid and make the country more amenable to American companies, Bush administration officials believed Afghanistan needed to move away from the hawala money-transfer network and toward a modern banking system that could interact with Western banks. Besides New Ansari, the hawala that Kirk Meyer would later investigate, the biggest player in the Afghan market was Shaheen Exchange. It was run by a short, pale, balding, overweight Afghan businessman named Sherkhan Farnood. When the Soviets invaded Afghanistan, Farnood, an ethnic Tajik from the northern province of Kunduz, relocated to Moscow, where he could avoid conscription into the Afghan army. He learned the language, studied at the Moscow Textile Institute, and started a hawala out of his dorm room to move money between Russia and Kabul. After the collapse of the Soviet Union, his hawala took off. By the late 1990s, Farnood’s business in Moscow had run afoul of the law. Ten of his employees were arrested and convicted of illegal banking activity. Meyer learned that Russian authorities had seized one million dollars when they executed their search warrant. Fearing arrest in Russia, Farnood headed for Dubai, the burgeoning hub of Islamic finance. The Persian Gulf emirate, flooded in oil wealth and racing to build new skyscrapers and malls, was paradise for freewheeling businessmen. In 1996, Farnood, who was a fugitive on charges of illegal banking, money laundering, and organizing a crime syndicate, opened the Shaheen Exchange, a hawala named after his son, out of an office near the Gold Souk, a market for platinum, diamonds, and gold. His business flourished. One former Shaheen employee estimated that the company made $100,000 a week in profits. His colleagues were impressed by his acuity in mathematics and his calculating ruthlessness, his competitiveness and cunning. In 2003, Afghanistan had passed a banking law, written with the help of advisers at the USAID contractor BearingPoint. That year, Farnood moved to transform himself from fugitive hawaladar to respected international banker.

  How to begin?

  “It started with a bribe,” Naseem Akbar said.

  Akbar was deputy director of the Afghanistan Investment Support Agency, or AISA, a small government agency across the street from the Foreign Ministry that licensed companies to work in Afghanistan. On December 28, 2003, not long after the country drafted a banking law, Farnood submitted a preliminary application for a license for Kabul Bank. Akbar was in his office one day not long after when a colleague came to him with an envelope holding $5,000 in cash given to him by one of Farnood’s employees, in order to speed along the bank’s first license.

  “At the time, that was quite unusual,” Akbar recalled. “They wanted a simple license—you didn’t even need to pay a five-thousand-dollar bribe.”

  Kabul Bank started when the country had little experience in enforcing banking rules or regulating this new industry. The law required background checks on the shareholders and management. The names of Farnood’s first partners in the bank—including his brother, bodyguard, and driver—were submitted to the Interior Ministry for review and cleared in September 2004, three months after the bank had already opened. The check, if it happened at all, raised no alarms; nor did it note that Farnood was a fugitive or that his brother’s curriculum vitae was, almost word for word, identical to his own.

  “Sherkhan was never doing business according to the law. He was thinking, I am the law,” Kamal Nasar Kroor, whom Farnood had recruited from his job with the United Nations refugee agency to join Shaheen Exchange and, later, Kabul Bank, told me. “He did not consider the government as real. He thought, I’m Sherkhan. I’m the one.”

  Kabul Bank’s first office
was a storefront on Flower Street, a pleasant Kabul shopping lane populated with florists. When it opened, in June 2004, Farnood also brought over employees from Shaheen Exchange; they would continue their money transfer services from inside Kabul Bank. The two companies merged seamlessly, their staffs in regular contact from Kabul to Dubai. Farnood’s casual approach toward following rules wouldn’t be much of an obstacle; it was nearly three years before any Central Bank regulators visited Kabul Bank. As late as February 2010, an audit by A. F. Ferguson & Co., a member firm of Price­water­house­Coopers, noted that the bank had no compensation committee to look at management salaries and no code of ethics or conflict-of-interest policy; furthermore, it was missing a slew of loan documents such as borrowers’ financial statements, tax clearance forms, trade licenses, passports, and credit reports.

  Farnood’s vision for Kabul Bank was simple: he wanted a pool of money from which to finance other investments for himself and a small group of allies. Within five years of Kabul Bank’s founding, he would come to own or have major stakes in an airline, a television station, a fuel import company, an oil storage complex, a cement plant, more than a dozen Dubai properties, more than two hundred cars and motorcycles, and a Mi-8T helicopter. Because Farnood’s banking license came through early, he lent to other entrepreneurial Afghans who needed financing. The rates varied widely: competitors would sometimes pay 35 percent interest; allies paid none. Farnood’s willingness to lend massive sums to bank insiders and his cronies helped popularize Kabul Bank among the political elite, including Mahmood Karzai and Haseen Fahim, the brother of the vice president, both of whom became major shareholders, paying for their stocks with loans issued by Kabul Bank itself. Kabul Bank was a major donor to President Karzai’s 2009 election campaign, contributing tens of millions of dollars. The bank also purchased dozens of vehicles for Karzai, including bulletproof SUVs, for the campaign to distribute as gifts, and paid for his media advertising campaign, billboards, and television ads. All this despite an order from the Central Bank’s governor, Abdul Qadir Fitrat, that said banks were “required to remain politically neutral and strictly refrain from campaigning for any of the presidential candidates,” as such contributions from depositors’ funds were “immoral and inappropriate.”

  Among the average Afghan, who lived on a few dollars a day, the big attraction to Kabul Bank was the lottery. Big prize giveaways had become popular among banks in Dubai and in other Islamic countries, where offering interest is a religious taboo. On the second anniversary of the bank’s opening, Farnood began holding drawings for his depositors, offering cash prizes, first on a monthly basis, then weekly. The first lottery winner took home one million afghanis, or $20,000. As one early employee put it: “The bank was a runaway success.”

  “Kabul Bank’s relentless journey in pursuit of excellence is on course,” Farnood wrote in the bank’s second annual report, illustrated with cover photos of a pile of bills in multiple currencies and a line of sprinters leaving the blocks. At that time, Kabul Bank had issued about $100 million in loans. The headquarters had moved into a building in the Shar-e-Naw neighborhood with a blue glass façade. It had twenty-one branches in eleven provinces—numbers that would triple in a few years—and planned to open a network of ATMs. The bank’s customer base by that time had reached a “whooping 165,000,” Farnood wrote, and the “financial highlights of the Bank depict a glorious picture.

  “Let us make Kabul Bank the nation’s pride.”

  Within a few years, what the bank had made was Farnood and his friends fabulously rich. Mahmood Karzai soon owned about 8 percent of the bank and was living in one of Farnood’s villas on Palm Jumeirah in Dubai, a home worth several million dollars. That was just one example of their taste for luxury. In the span of six weeks during the summer of 2009, Farnood’s former bodyguard turned bank chief executive, Khalil Ferozi, racked up $121,000 in bank expenses on shopping trips. In Dubai and India, he charged thousands at Tom Ford, Taherian Jewellery, Versace, Dolce & Gabbana, Yves Saint Laurent, and the Taj Palace Hotel. In Paris, he swung through Christian Dior, Chanel, Louis Vuitton. Ferozi had once sold emeralds to raise money for Ahmad Shah Massoud, the anti-Taliban guerrilla commander. During Ferozi’s rise to Kabul Bank’s chief executive, he was gifted a large portion of the bank’s shares. Farnood loved to gamble with his money and considered himself Afghanistan’s best poker player. He played for high or low stakes, against anyone who wanted a game. In 2008, he had won an event in London at the World Series of Poker Europe.

  Farnood had also been pouring his depositors’ money into Dubai real estate, as the emirate was booming, snapping up properties in his name and that of his wife, Farida. He owned at least sixteen properties, including several villas on Palm Jumeirah, the man-made island shaped like a palm tree, which cost more than $4 million each, and two office towers under construction, the Wave and the Dolphin, in an area of Dubai known as Business Bay. These seemed like sound investments until the shock waves of the 2008 world financial crisis reached the Persian Gulf and the value of Dubai properties started to fall. A city that had once been renowned for its bountiful supply of construction cranes began to be known for its high-rises standing empty in the blistering desert.

  The losses began to create friction between Farnood and his business partners, and it didn’t take long before rumors of his spending began to circulate in Kabul. In October 2009, Afghanistan’s intelligence agency notified the Central Bank that two Afghan institutions—Kabul Bank and a rival, Azizi Bank—were buying hundreds of millions of dollars in Dubai property. The intelligence report stated that the financial crisis had eliminated at least 40 percent of the value of their holdings. It warned of the banks’ growing instability. And it noted that millions of dollars were flowing into the accounts of Kabul Bank’s leadership, including Mahmood Karzai. The bankers, the report added, “are in collusion with drug smugglers and people turning black money into white.”

  Newspaper articles published in the following months laid out many of the problems and conflicts of interest at Kabul Bank, information that terrified the governor of Afghanistan’s Central Bank, Abdul Qadir Fitrat. Unlike others in the Afghan diaspora who’d returned from exile to join Karzai’s government, Fitrat was unusually well qualified. His career in Washington, with the International Monetary Fund and the World Bank, had given him a solid understanding of first-world macroeconomics. He had helped write Afghanistan’s post-Taliban banking law. As the leader of the Central Bank, he was proud of the chance to help guide the country’s fragile financial system in this new democratic era. A fastidious man, Fitrat wore conservative suits and wire-rimmed glasses. He tried to keep a low profile and focus on his work. Among the Afghan cabinet, he was well liked by the U.S. embassy. Eikenberry viewed him as an ally and a strong advocate for reform. The DEA’s Kirk Meyer, who worked with Fitrat on his financial investigations, called him “the real deal.” For an Afghan official, this was doubled-edged praise.

  Any increase in esteem for Fitrat from the U.S. embassy was matched by rising suspicion from President Karzai. Karzai viewed Fitrat’s letter to the banks about campaign contributions as a political attack, and he subsequently ignored repeated requests for meetings. Fitrat once complained to Earl Anthony Wayne, a deputy U.S. ambassador overseeing economic affairs, that his attempts to regulate the banks were putting him in political danger, which in Afghanistan meant real danger. “Good people are under attack in Afghanistan because they are the minority,” Fitrat told him.

  “While rumors continue to swirl about Governor Fitrat’s future, we remain convinced that his leadership has improved the financial sector,” the embassy wrote in a cable at the time. “Unfortunately, his work to uphold the law and enforce regulations may have made him a target of power banks like Kabul Bank.”

  Fitrat worried that the revelations about Kabul Bank’s outlaw style could spark panic. A run on the bank, he felt, could devastate the nation’s fragile economy. He considered resigning. The U.S. emba
ssy had similar worries, and believed Kabul Bank’s failure would “severely” undermine American goals in the country. Two days after a lengthy Washington Post article about Kabul Bank, Fitrat sat down at his desk and wrote President Karzai a letter.

  “I, with all due respect, want to remind you that it’s been several months that I’ve tried to consult with you about highly important and sensitive issues that the life of the banking system depends on,” he wrote. In the preceding months, “tens of my requests to meet with you” were rebuffed by the palace protocol department. Now that the presidential elections were over, Fitrat noted, “it’s time to make serious decisions and bring key corrections to the leadership structure of these banks. From my point of view, further delay will result in the decrease and destruction of Afghanistan’s banking system.”