The 2010 collapse of Kabul Bank, at the time a critically important institution in Afghanistan’s banking system, exposed major regulatory and transaction-related deficits in the system that permitted a large degree of fraud. The involvement of the political elite in the fraud made recovering funds and prosecuting cases extremely difficult. The resolution of the criminal elements and recovery of missing funds have faced the same challenges as before and have fared little better under current president Ashraf Ghani. Strengthening the system of financial oversight offers the best opportunity for success. Donor programs, including the IMF and World Bank, may support the necessary reform.

Summary

  • The September 2010 collapse of Kabul Bank as a result of fraud and embezzlement involving the political elite continues to resonate strongly in Afghanistan, epitomizing the proposition that impunity exists for powerful people.
  • The symbolic importance of Kabul Bank was recognized by President Ashraf Ghani, who made it a cornerstone of his anticorruption campaign. But inadequate investigations, questionable legal proceedings, political expediency, obstruction, intimidation, and regulatory weaknesses are still apparent.
  • Criminal court procedures were done hastily to satisfy President Ghani’s interest in demonstrating tangible progress before the London Conference of international donors and Afghan government officials in December 2014. Political constraints and capacity issues at the Attorney General’s Office have also resulted in the absence of any further meaningful investigations into beneficiaries and participants.
  • The Ghani government has focused on recovering stolen assets while paying less attention to the criminal and punitive elements of the case. Although efforts to recover the hundreds of millions of dollars missing from Kabul Bank continue, there has been limited success since the National Unity Government came to power in September 2014. Powerful people are refusing to make timely repayments, and formal requests for legal assistance from other countries have failed to progress sufficiently because of the government’s failure to address technical deficiencies in the documents of request.
  • Progress has been made in the regulatory reforms needed to secure the financial sector, but implementation continues to be problematic, and oversight of some money laundering channels is weak. The Afghan government should focus on strengthening oversight of money service providers and the reporting and investigation of large cash transfers and suspicious transactions.

About the Report

The collapse of Kabul Bank in 2010 struck a blow at Afghanistan’s banking system. From its inception, the National Unity Government made the resolution of the Kabul Bank crisis the centerpiece of its fight against corruption. This report updates the government’s progress in recovering stolen assets, charging individuals, and addressing the regulatory deficits that enabled the fraud, then provides recommendations for strengthening the regulatory and judicial climate in which banking operates.

About the Author

Grant McLeod is principal consultant at Global Development Advisors LLC, where he mainly focuses on governance, anticorruption, and the justice sector in Afghanistan. Formerly he was the senior policy and legal adviser for the Independent Joint Anti-Corruption Monitoring and Evaluation Committee, which monitors and evaluates anticorruption efforts in Afghanistan.

Related Publications

What to Expect from the Doha Conference on Afghanistan

What to Expect from the Doha Conference on Afghanistan

Thursday, February 15, 2024

By: Kate Bateman;  Andrew Watkins

On February 18-19, United Nations Secretary-General Antonio Guterres will convene a meeting on Afghanistan in Doha to discuss the ongoing humanitarian and human rights crises and the recent report on a way forward by U.N. Special Coordinator for Afghanistan Feridun Sinirlioğlu. Special envoys from U.N. member states and international organizations will attend; representatives from Afghan civil society, women’s groups and Taliban officials have also been invited. The conference is a critical, high-level opportunity for donors and the region to chart next steps on how to improve the situation in Afghanistan and engage with the Taliban regime.

Type: Analysis

Global Policy

The Latest @ USIP: U.N. Engagement in Afghanistan

The Latest @ USIP: U.N. Engagement in Afghanistan

Wednesday, December 20, 2023

By: Kanni Wignaraja

While some parts of the Afghan economy managed to stabilize in 2023, poverty continued to increase and now stands at 69 percent of the population. Kanni Wignaraja, director for Asia and the Pacific at the U.N. Development Programme, discusses UNDP’s efforts to build resilience in local markets and promote women-owned enterprises in Afghanistan; explores ways to navigate relations with the Taliban; and examines how the decline in international aid is affecting humanitarian efforts in the country.

Type: Blog

EconomicsHuman Rights

How the Taliban Enables Violence Against Women

How the Taliban Enables Violence Against Women

Thursday, December 7, 2023

By: Belquis Ahmadi

In just 28 months, the Taliban have dismantled Afghan women’s and girls’ rights — imposing draconian restrictions regarding their education, employment and freedom of movement. Any perceived violation of these oppressive policies is often met with harassment, intimidation, and verbal and physical abuse orchestrated by the Taliban’s Ministry of Vice and Virtue. And when women are detained by authorities, they have been subjected to cruel treatment, including torture.

Type: Analysis

GenderConflict Analysis & Prevention

Afghanistan’s Economy Once Again Nears the Precipice

Afghanistan’s Economy Once Again Nears the Precipice

Friday, November 17, 2023

By: Belquis Ahmadi;  William Byrd, Ph.D.;  Scott Worden

More than two years into Taliban rule, Afghanistan remains one of the poorest countries in the world with some of the highest humanitarian needs. The situation has shown some signs of stabilizing over the last year — but many Afghan households are still struggling to procure basic needs, and many women have been driven from the workforce altogether. Unfortunately, financial troubles loom ahead, and the already beleaguered Afghan economy is now projected to decline. Combined with population growth and the influx of thousands of Afghans forced to return from neighboring Pakistan, this is a recipe for increased humanitarian need over the longer term in the absence of major structural and political reforms.

Type: Analysis

EconomicsHuman Rights

View All Publications