Report - United States Department of Defense

UNCLASSIFIED
to operate as an independent and effective legislative, representative, and oversight body on
behalf of the Afghan people. The international community and NGOs continue to support efforts
aimed at building the technical, legal, and analytical capacity of Parliamentary committees.
3.6: FINANCIAL REFORM AND THE BANKING SECTOR
An IMF Board review had originally been anticipated to occur in December 2012, based on end-
September criteria. 34 However, because of poor performance by GIRoA, the IMF decided to
defer the December board review and combine it with the third review in spring 2013, based on
end-December criteria. The Afghan Government has not yet completed the measures required to
proceed with the combined review.
Many of the IMF benchmarks require the creation of a legal and administrative framework of a
modern economy and financial system (banking law, anti-money laundering/countering
financing of terrorism law, value-added tax law, etc.). The Afghan Government has not fully
embraced these reforms and prioritized their implementation sufficiently to overcome its
capacity constraints. In addition, the Afghan Government’s ambitious plans to increase
domestic revenues have not been entirely successful, meeting only 93 percent of its FY2012
revenue target. 35
Resolution of the aftermath of the Kabul Bank crisis remains an important issue and a test of the
government’s willingness and ability to reform. In November 2012, the independent Afghaninternational
community Monitoring and Evaluation Committee (MEC) on corruption issued a
report of the full range of issues on the collapse of Kabul Bank, and determined that the bank
was used to run a pyramid investment scheme in a “regulatory vacuum,” diverting savings assets
to personal and business ventures of 12 beneficiaries. The report made 48 recommendations,
primarily for government authorities, including the Central Bank, the Attorney General’s Office,
and the Kabul Bank Special Tribunal. Many recommendations were technical in nature and
implementation is underway; other more politically sensitive recommendations are less likely to
be implemented. One recommendation called for criminal investigations of all participants and
beneficiaries, and another recommended the expansion of Mutual Legal Assistance (MLA)
requests by the Attorney General’s Office to track money that has left Afghanistan. The
Ministry of Foreign Affairs submitted MLA requests to the United Kingdom, United Arab
Emirates, India, Switzerland, and France.
Three major tasks remain in the resolution of the Kabul Bank scandal: recovery and disposal of
the remaining assets from ex-shareholders and borrowers; sale or dissolution of the remaining
“good bank,” New Kabul Bank; and prosecution of those responsible for perpetuating fraud. The
first task, asset recovery, is proceeding slowly, especially for those assets in Afghanistan, even
though the Afghan authorities proclaim that they are confident that they will recover a
respectable amount. However, there have been important recent developments on the other two
tasks. The results of the auction of New Kabul Bank produced only one bid, which the MoF-led
34 For additional background information on the IMF Extended Credit Facility arrangement with Afghanistan, refer to Financial Reform section
of December 2012 Report on Progress Toward Security and Stability in Afghanistan.
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