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.


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