private founded kabul bank 2004 headquarters kabul afghanistan website new kabul bank kabul bank is a commercial bank in afghanistan that has its main branch in the capital of kabul . established in 2004 it is the main bank used to pay the salaries of the army and security forces . the bank provides facilities to maintain accounts in current savings bank and fixed deposits ; and offers its consumers branch and automated teller machine services . the bank is under the supervision of da afghanistan bank dab the central bank of afghanistan . kabul bank was badly shaken and almost collapsed in one of the worst banking scandals in history according to the guardian newspaper . 1 in late 2012 according to the los angeles times independent investigators and journalists uncovered widespread corruption in kabul bank . 2 the new york times in 2012 headlines indicate audit says kabul bank began as ponzi scheme following investigation and judicial action in the aftermath of the bank s crisis and scandal . 3 in 2010 it was disclosed that its chairman sherkhan farnood and other insiders were spending the bank s us 1 billion for their own personal lavish style living and lending money under the table to family relatives and friends . the bank scandal also involved members of afghan president karzai s family including one of his brother mahmood karzai . in september 2010 one of the principal owners of the bank said that depositors had withdrawn 180 million in two days and predicted a revolution in the country s financial system unless the afghan government and the united states moved quickly to help stabilize the bank . 4 5 in november 2010 reports appeared that farnood and chief executive khalilullah frozi both had been sacked from duties ; 6 as of early 2011 both were effectively under house arrest and could not leave the country 7 and in july 2011 both were formally arrested and detained in kabul . 8 dab stated in february 2011 it would seek to sell kabul bank within three years once it was rehabilitated 9 but both the international monetary fund and us officials subsequently pressed for a rapid wind down of the institution . 10 a usaid inspector general report estimated that fraudulent loans diverted 850 million to bank insiders . 8 by october 2011 more than a year after the government seized control officials had recovered less than 10 percent of the nearly 1 billion that went missing . 11 contents 1 history 2 2010 depositor panic and aftermath 3 depositor and u.s. taxpayer losses 3.1 anti corruption report 4 oversight and reform efforts 5 murder of imf official 6 renewed investigation prosecution & prison terms for former bank officials 7 see also 8 references 9 external links history edit an advertisement for the bakht account lucky account . the kabul bank was established in 2004 . after only six years in operation in 2010 there was a panic of customers seeking to withdraw their savings from the bank . despite nearly 1 billion in u.s. taxpayers funded assistance in the form of afghan government salaries deposited into kabul bank . kabul bank was on the brink of collapse and mobs of customers massed outside of bank locations trying to get their deposits out of the bank with limited luck . 12 kabul bank claims that accounts can be opened and maintained in afghani u.s. dollars and euro . kabul bank claims that it is connected throughout the globe with swift facility which enables fund transfer for its customers . the bank has correspondent relationship with seven international banks situated in germany china iran tajikistan saudi arabia and india . despite kabul bank s near collapse in 2010 during the corruption allegations kabul bank claims it is significant to afghanistan s internal security and stability because it is the vehicle used to pay largely with money supplied by the united states government as many as 300 000 afghan government employees mostly military and police who are key to plans to rebuild afghanistan s capacity to deal with its ongoing taliban led insurgency . 6 president karzai s brother mahmood karzai is reported to have played a significant role in the back scandal and is alleged to have received millions of dollars in loans from kabul bank . he was later alleged to be under investigation by a u.s. federal grand jury and u.s. tax authorities including the u.s. internal revenue service for tax evasion allegations . canada s maclean s magazine reported that mahmoud karzai was being investigated for racketeering . extortion and tax evasion as a result of connections to the bank and hamid karzai . 2 13 14 15 16 17 18 19 during the bank scandal and panic in september 2010 hundreds of afghans including many civil servants and their families gathered outside kabul bank offices in the capital and elsewhere in afghanistan . long lines formed of depositors hoping to withdrawal some or all of their money . afghan police beat back mobs at the kabul bank worried their money would be lost according to the washington post . panic set in among many depositors according to reports by the new york times . 20 on december 27 2010 a suicide car bomber killed at least three afghans including one policeman as he targeted police officers who lined up to withdraw their salaries in front of kabul bank in central kandahar ; the midday explosion also wounded 16 policemen and five civilians officials said . 21 on february 19 2011 at least 38 people including 13 policemen were killed during an insurgent raid on a branch of kabul bank in jalalabad the provincial capital of nangarhar and at least three militants were killed officials said . three suicide bombers reportedly entered the bank and detonated themselves and fighting between insurgents and security forces continued for over four hours ; president hamid karzai and a nato international security assistance force spokesman condemned the attack which was the deadliest in the country since june 2010 . 22 in its review of the kabul bank scandal and its aftermath international non governmental organization ngo transparency international has raised repeated concerns about problems of corruption in afghanistan and its impact on the economy business investment security and civil society . 23 24 2010 depositor panic and aftermath edit in early 2010 the washington post reported that the kabul bank played a part in a crony capitalism that enriches politically connected insiders and dismays the afghan populace . 25 at the beginning of september frozi one of the two largest shareholders of kabul bank said reports indicating that the institution had lost as much as 300 million were overstated . but he predicted that if afghan depositors continued to withdraw their money at the current rate kabul bank would almost certainly collapse undermining confidence in the nascent financial system the afghans have been trying to build with american help . if this goes on we won t survive mr. frozi said in an interview . if people lose trust in the banks there will be a revolution in the financial system . mahmood karzai is one of the brothers of the afghan president hamid karzai and a seven percent shareholder in the bank . in a telephone interview with the boston globe he said america should do something . 26 in october the washington post reported that mahmood karzai could soon be indicted for tax evasion in the u.s. though he denied the charges telling the newspaper i m very clean and insisting his only interest was rebuilding afghanistan . 5 17 afghan leaders promised to guarantee deposits in an attempt to arrest the panic which began at the end of august when the country s top banking officials demanded the resignations of both frozi and farnood . 4 the government has decided that there will be an audit firm that will be coming to audit not only kabul bank accounts but also other private banks in afghanistan an afghan presidential spokesman announced in late october . earlier in the month the government also froze assets held by some of kabul bank s owners even as the central bank governor said it was solvent and had the backing of karzai s administration . 5 u.s. educated economist hamidullah farooqi a former karzai minister and chairman of the afghanistan international chamber of commerce said afghanistan received a massive wake up call from the crisis further stating it s not just a lack of capacity in our institutions there is a lack of laws and a lack of accountability which is much more serious . it s a case of the blind leading the blind . they are too young they are babies . 6 in mid january 2011 acting chief financial officer rana tayyab tahir and other pakistani employees of kabul bank fled to pakistan apparently out of fear for their lives and possible arrest though some said they were being made scapegoats for powerful shareholders . afghan authorities also called in several bank managers including foreigners for questioning and detained some in southern afghanistan s helmand province in connection with illicit transfers of bank funds . 7 in early february 2011 dab governor abdul qadir fitrat said the central bank would impose stricter rules on banks wanting to handle about us 1.5 billion worth of salaries for government and security officials which until now has been done by kabul bank . fitrat also told reuters the total amount of money at risk over suspected irregularities at kabul bank amounted to 579 million almost twice the figure estimated when the bank s troubles first surfaced . fitrat dismissed concerns that it faced liquidation saying it would be privately owned again within three years . kabulbank is stabilised it has enough cash at its disposal and the central bank is trying to rehabilitate the bank and then at some point sell it to potential buyers in two or three years fitrat told reuters . 9 in early july 2011 fitrat resigned as head of the central bank after fleeing to the united states claiming his life had been threatened and that he was being made a scapegoat for politically connected individuals . 8 after a mid february 2011 visit by neal wolin the u.s. deputy treasury secretary the afghan finance ministry said that weak international support had exacerbated the crisis . afghan and us officials agreed that the crisis ... was compounded by the erroneous audit by pricewaterhousecoopers and ineffective international technical assistance and supervision the ministry said . however wolin pressed the government to rapidly place the lender into receivership echoing calls made by a previous international monetary fund imf delegation . the deputy secretary ... stressed the need for the afghan government to take swift and decisive action to ensure a credible effective resolution of issues related to kabul bank the u.s. embassy said in statement . 10 kabul bank was put into receivership following the scandal and a new bank set up but only 70 million of fraudulent loans it granted have so far been recovered with criminal investigations ongoing . in october 2011 afghanistan s parliament approved a 51 million payment to dab as part of a planned compensation package over its multi million dollar bailout ; the payment is part of a package of government measures agreed with the imf to secure a new loan . afghanistan has been without an imf program since the kabul bank failure but the imf announced that it is moving ahead on a new 129 million loan in the wake of the government s reform promises with a new program expected to be submitted to the imf executive board for approval in november 2011 . 27 at the end of june 2011 the washington post reported that farnood and frozi used fake names forged documents fictitious companies and secret records as part of