New Kabul Bank is a bank in Afghanistan that has its main branch in the capital city of Kabul. It was established in 2004 as the Kabul Bank, the first private bank in Afghanistan. After corruption and scandals it was re-established in 2011 as the New Kabul Bank.
It is the main bank used to pay the salaries of the national army and security police 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 the Central Bank of Afghanistan (Da Afghanistan Bank−DAB), the General Directorate of Treasury, and the Afghanistan Ministry of Finance (MOF).
History
Founding in 2004
The Kabul Bank was established in 2004.
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.
Corruption scandal
Kabul Bank was badly shaken and almost collapsed in 2011, in one of "the worst banking scandals in history", according to The Guardian newspaper. In late 2012, according to the Los Angeles Times, independent investigators and journalists uncovered widespread corruption in Kabul Bank. 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.
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 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 In September 2010, one of the principal owners of the bank said that depositors had withdrawn $180 million in two days and predicted a "revolution" in the country's financial system unless the Afghan government and the United States moved quickly to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. In November 2010, reports appeared that Farnood and chief executive Khalilullah Frozi both had been sacked from duties; as of early 2011 both were effectively under house arrest and could not leave the country, and in July 2011 both were formally arrested and detained in Kabul. DAB stated in February 2011, it would seek to sell Kabul Bank within three years once it was rehabilitated, but both the International Monetary Fund and US officials subsequently pressed for a rapid wind down of the institution. A USAID inspector general report estimated that fraudulent loans diverted $850 million to bank insiders. 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.
Bank run and panic in 2010
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.
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. President Karzai's brother, Mahmood Karzai, is reported to have played a significant role in the bank 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.