For Afghanistan, then just finding its legs after the US invasion in 2001, the early success of the Kabul Bank seemed a ray of hope in the fight to rebuild a shattered nation. Until recently, bank executives were boasting of deposits worth US$1 billion (Dh3.67bn).
"This was really a good bank when we started off," said Mahmoud Karzai, the third-largest shareholder of Kabul Bank and brother of the president of Afghanistan. "Now, it's a mess."
Allegations of massive losses and widespread corruption last year, including claims that funds were spent on luxury villas on the Palm Jumeirah in Dubai, led to a panic among ordinary depositors and fears of a collapse that would threaten the country's entire banking system. Only the intervention of the Afghan Central Bank saved the day.
How did Kabul Bank get to this point? The two men who would know best will not say. That is partly because they are so busy trying to clean up the mess they are accused of helping create in the first place.
Sherkhan Farnood was a high-flying Afghan businessman who spent his weekends in the UAE. He can be found these day, however, in a grubby, red, two-storey building in a courtyard of the very bank he founded.
Emerging from an apartment hidden in the walled-off Kabul Bank courtyard, he at first refused to acknowledge that he was indeed Mr Farnood. When he finally did, he declined to speak in front of three armed guards who were standing watch.
"I am under investigation," he said, wearing a pair of glasses and an old-looking sweater to keep out the Afghan winter. "I am not allowed to speak."
Kabul Bank was the largest financial institution in Afghanistan when Mr Farnood founded it. The bank was touted as one of the first signs that the war-torn country was starting to emerge from chaos.
Flush with cash from the business and his own hawala operation, he travelled through the capitals of Europe to play in poker tournaments. He won US$120,000 (Dh440,700) at the 2008 World Series of Poker Europe in London. In a picture from that tournament, he is smiling, his sleeves rolled up in front of a pile of chips.
He also developed a love affair with Dubai in the mid-2000s, when the city was in the midst of one of the greatest speculative property frenzies to occur in the region. It was there that he placed one of his largest bets, spending $150million on 15 villas and an apartment on Palm Jumeirah as well as two plots of land in Business Bay. The transactions were registered in his name and that of his wife, Farida. The homes were rented out or simply given over to friends of Mr Farnood and shareholders of the bank.
The transactions turned out to be the beginning of the end for Mr Farnood's reign as chairman of Kabul Bank. In September, the Central Bank, known as Da Afghanistan Bank, removed him and his chief executive, Khalilullah Fruzi, from their positions after the investments were revealed. The Dubai properties were signed over to the bank.
After news got out of the men's dismissals, thousands of angry Afghans who had deposited their savings in the bank rushed to withdraw everything. Security had to be called to guard the bank and most people were allowed to withdraw only a small percentage of their deposits at a time, exacerbating tensions in the days just before Eid al Fitr.
The run on Kabul Bank led the Afghan Central Bank to deposit $100m in emergency funds so it could make payroll to the thousands of teachers, policemen and soldiers who received their salary through the bank. Eventually, the Central Bank took control of Kabul Bank's operations entirely.
The fact that Mr Farnood, despite being removed from his position, can still be found in Kabul Bank working with the authorities points to the complexity of the issues the bank faces. Beyond the $150m improperly invested in Dubai are hundreds of millions more in loans the bank made to various people.
Several Afghan government officials and a shareholder of the bank interviewed by The National said Mr Farnood and Mr Fruzi are barred from leaving the country as the authorities try to get the money back from borrowers or restructure them into proper loans.
Many of these loans were given to shareholders, their friends and family in defiance of corporate-governance guidelines and Afghan law, according to Mr Karzai.
One major loan went to Pamir Airways, a money-losing airline founded by Mr Farnood that flies from Kabul to Dubai three times a day. Others have gone to local businesses and even more property purchases in Dubai, he said.
"Most of these loans were never put before a board of directors," Mr Karzai said in an interview at the Palace Hotel in Dubai. "The investments in Dubai were just part of the problem … The bigger problem is getting back all of this money from friends of Sherkhan."
The Central Bank is now focusing on recovering the loans or converting them into ordinary term loans with proper payment schedules, something it cannot do without the help of Mr Farnood and Mr Fruzi, Mr Karzai said.
Mr Farnood "did everything like a primitive hawala system guy", Mr Karzai said. The Central Bank needs him to get the loans back because many were poorly documented or were filtered through layers of related companies that are difficult to untangle.
Mr Farnood declined to respond to questions and Mr Fruzi could not be reached for comment. A spokesman for the Kabul attorney general's office confirmed that both men, who are also the largest shareholders of Kabul Bank, each owning a 28.16 per cent stake, are under investigation and barred from leaving the country.
The plight of Kabul Bank stands as an advertisement for how little the country, nearly 10 years into a war, has achieved when it comes to building the institutions and companies that will help it emerge as a secure country for its citizens. Across the government, there is mounting tension about how to handle investigations of possible corruption by powerful people and a palpable disgust at the extent of extortion, bribery and theft of funds meant for development.
Haroun Mir, the head of Afghanistan's Centre for Research and Policy Studies in Kabul, said: "When political power and business interests are linked together, it creates situations like what happened at Kabul Bank. Afghanistan is dealing with corruption at the highest levels. We are still dealing with this."
The situation will prove an important test for the Afghan authorities, who are trying to reassure foreign governments and the country's banking public that they are stamping out corruption.
Banking is a relatively new concept for the majority of Afghans, who lived through a post-Soviet civil war and then under the rule of the Taliban from 1994 until the invasion in 2001. Mr Mir said most citizens still don't understand completely what exactly happened at Kabul Bank, which has led to a broader distrust of the financial system.
"If we don't build confidence among Afghans in these banks in a way that they can feel their deposits are guaranteed, we could never build a financial system," he said. "And a solid financial system is important for a modern economy, which builds security."
Kabul Bank's shareholders are closely tied to the government of the president, Hamid Karzai. These include Zahed Fahim, the nephew of the vice president, Mohammed Qasim Fahim.
Mahmoud Karzai, who is a prominent businessman in Afghanistan through investments in property, a cement factory and other interests, has also borrowed money from Kabul Bank. He obtained a loan from Mr Farnood that he used to buy and sell a home on Palm Jumeirah for a profit of more than $900,000.
In previous interviews, Mr Karzai has said there was nothing wrong with the transaction and that he had bought his villa to obtain a residency visa in Dubai so that his children could go to school. However, the revelation of the deal in September led to his having to pay the US government taxes on the transaction, several years late.
Mr Karzai said he would soon pay Kabul Bank for a $400,000 loan that he guaranteed for a business associate and shift other loans (including one for his cement business and another for his investment in Kabul Bank itself - to a different bank because he wanted to rid himself of any appearance of a conflict of interest.
The Central Bank is now dismantling some of the products Mr Farnood introduced at the bank, including an immensely popular account called Bakht, which means "fortune" in Dari. For each 5,000 afghanis (Dh430) deposited, customers would get a ticket for a monthly lottery of 1m afghanis.
When the Central Bank closed the account recently, more than $250m was taken out of the bank, according to Mr Karzai. "They are destroying the ability of the bank to compete," he said of the Central Bank.
All the same, Mr Karzai admitted that change was needed at the bank. "People don't want to feel like their gambling their money," he said.
* With additional reporting by Ali Ahmad Safi
