Kabul Bank Lent 92% of Its Money to 19 People

Between 2008 and 2010, ten pilots working for an Afghan airline were paid a total of $320,000 under a line item in Kabul Bank’s accounts.

The line item was called “pilots of cash delivery.”

The airline was Pamir Airways. It had been founded with loans from Kabul Bank, and it was partly owned by the bank’s own chairman. On its flights to Dubai, cash was packed into the trays used to serve meals to passengers and carried out of the country.

Afghan authorities learned the bank was moving money through food trays in late 2009.

By the time the bank collapsed, roughly $935 million had been taken out of it. That was around 5 to 6 percent of Afghanistan’s entire economic output.

Kabul Bank was the largest financial institution in the country. It held over a billion dollars in deposits from about a million Afghan account holders. And it had been given responsibility for the Western-funded payroll of the country’s soldiers, its police, its civil servants and its teachers.

The money that paid the people fighting the Taliban passed through a bank that the International Monetary Fund would later describe as a Ponzi scheme.

Here is the full file.

Kabul Bank was founded in 2004 by Sherkhan Farnood, a professional poker player who had built a money transfer business in post-Soviet Moscow before returning to Afghanistan.

It was meant to be a success story. After decades of war, Afghanistan had a modern private bank with branches, cards and electronic transfers. Western officials cited it as evidence that the reconstruction was working.

Farnood’s political connections secured the thing that made everything else possible. The government handed Kabul Bank the payroll accounts for the army, the police and the civil service, funded largely by Western donors.

Overnight, the bank began receiving enormous, regular, predictable deposits of cash.

Understand what that meant for a man running a fraud. He did not need to attract savers one by one. Every month, international donor money arrived in bulk to pay hundreds of thousands of government employees, and it sat in his bank until those employees withdrew it.

The bank kept two sets of books. One for the regulators, showing a functioning institution. One recording what was actually happening to the money.

An independent review commissioned by the Afghan finance ministry established the scale.

Of Kabul Bank’s entire loan book, $861 million, representing 92 percent of all loans the bank had made, went to just 19 individuals and companies.

Not 92 percent to the connected elite alongside normal lending to businesses and farmers. Ninety-two percent to nineteen names. Many of the loans went to companies that did not exist. Essentially none were repaid.

The names on that list included Farnood himself, chief executive Khalilullah Ferozi, Mahmood Karzai, brother of the President of Afghanistan and a shareholder in the bank, and Haseen Fahim, brother of the First Vice President.

Neither Mahmood Karzai nor the Fahim family were accused of wrongdoing in the report.

The money left the country two ways. The food trays were the small channel. The large channel was electronic, moving through the Shaheen Exchange, a hawala in which Farnood held a 49 percent stake, and onward into bank accounts in 28 countries including the United Arab Emirates, Latvia, China, Turkmenistan, Britain, Kazakhstan, South Korea, Turkey, Russia, Switzerland and the United States.

More than $160 million of it bought luxury villas and two residential towers in Dubai, several on the Palm Jumeirah. The properties were registered in Farnood’s name and his wife’s, then made available to the bank’s politically connected shareholders.

Another $66 million went to cars, rent, bonuses, salary advances and salaries paid to employees who did not exist. Ferozi spent bank money at Louis Vuitton and Versace.

Asked by a reporter why villas belonging to the president’s brother were registered in his own name, Farnood gave an answer that is the most honest sentence in this entire story. He said that this is Afghanistan.

This is the part that should hold your attention, because it is the part that repeats in every issue of this newsletter.

Deloitte advisers, working under a contract funded by the United States Agency for International Development, were placed inside the Afghan central bank specifically to strengthen banking supervision.

In December 2009, those advisers were told that Kabul Bank owned Pamir Airways and that the bank’s shareholders had bought property in Dubai with bank funds.

That was roughly nine months before the collapse, and it was the entire fraud described in one sentence.

The subsequent report records what happened next. The lead adviser said that his professional judgement and risk tolerance were probably clouded by the Afghanistan context of incessant rumour of fraud and corruption, and that he consequently did not take the fraud indications seriously.

Read that again. The warning was accurate. It was delivered to the exact people placed there to receive it. And it was filed under background noise, because in that environment everything sounded like background noise.

This is how institutional failure actually looks. Not a cover-up. Not a bribe. A competent professional receiving correct information in an environment so saturated with rumour that correct information was indistinguishable from the rest of it.

The scheme ran for nine more months.

What finally ended it was not a regulator or an auditor. Farnood exposed his own Ponzi scheme in 2010, to take revenge on Ferozi, his deputy, who had moved to push him out.

Afghans queued at the branches. About $180 million was withdrawn in a matter of days.

The Afghan government, which had almost no money, bailed out the bank. The Special Inspector General for Afghanistan Reconstruction put the cost at approximately $825 million, consuming 5 to 6 percent of national GDP.

For comparison, the United States spent roughly 5 percent of GDP on the entire TARP programme in 2008, and most of that was eventually recovered.

Afghanistan paid the same proportion of its economy, for one bank, and recovered little.

The convictions came in 2013. Farnood and Ferozi received five years each. Public anger was immediate and an appeal court raised the sentences to fifteen years in 2014. Twenty-one other employees received two to four years. The fines ran into hundreds of millions.

But the monitoring committee noted the detail that mattered. Recovery of the roughly $747 million still missing would be severely hampered, because the tribunal had not registered a conviction for money laundering.

Without that conviction, the legal basis for pursuing the assets across 28 countries was substantially weaker. The villas, the accounts and the transfers remained largely out of reach.

Abdul Qadir Fitrat, the governor of the Afghan central bank who had named names, fled to the United States saying he feared for his life.

Sherkhan Farnood died in a prison north of Kabul in 2020, aged 57.

The country he had taken 5 percent of fell to the Taliban the following year.

Three conclusions.

A bank is the deposits, not the building. Kabul Bank looked like a bank. It had branches, cards, a logo, audited statements and international advisers. What it actually was, from the first year, was a mechanism for converting other people’s deposits into villas registered to one man in Dubai. The appearance of an institution is cheap to manufacture and tells you nothing. What tells you something is where the money actually goes, and in this case 92 percent of the lending went to 19 names. That figure was available internally the entire time. It is the single number that would have ended the question, and nobody with authority asked for it until it was too late.

Correct information fails when it cannot be distinguished from noise. The USAID-funded adviser was told the truth in December 2009 and discounted it, not out of corruption, but because in an environment of constant unverified allegation, a true allegation looks exactly like a false one. This is a general failure mode and it applies directly to you. In any area saturated with claims, from financial news to social media, your default filter stops working, and the real signal is lost in the same bin as the noise. The only defence is a method that is independent of how the claim sounded: go to the primary document, check the number at its source, and treat the tone of a claim as irrelevant to its truth.

Someone always pays, and it is almost never the person who took it. Roughly $935 million left Afghanistan. Two men went to prison and most of the money was never recovered, because a single legal element was missing from the verdict. The $825 million bailout was paid by one of the poorest countries on earth, which means it was paid by the people whose salaries the bank had been handling. The same structure appears in every issue of this newsletter, at every scale. The loss does not vanish when a fraud is uncovered. It is transferred to whoever is least able to refuse it.

92%. The share of Kabul Bank’s entire loan book that went to 19 individuals and companies.

$825,000,000. The bailout, equal to 5 to 6 percent of Afghanistan’s economic output.

$320,000. The amount paid to ten pilots, recorded in the bank’s own accounts under the heading “pilots of cash delivery.”

The bank that paid the salaries of Afghanistan’s soldiers, police and teachers was taking their deposits out of the country in the trays used to serve airline meals, and it had been doing it for years before anyone with authority treated the warning as real.

That is not a conspiracy theory. That is the finance ministry’s own report.

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