In the spring of 2009, as the reëlection campaign of President Hamid Karzai was gathering momentum, a group of prominent Afghan businessmen met with the candidate for breakfast at the Presidential palace. Among them was Khalil Ferozi, the chief executive officer of Kabul Bank, a freewheeling financial institution owned by some of the most colorful and politically well-connected Afghans in the country, including one of President Karzai’s brothers.

Ferozi, a banking novice, had a history that seemed lifted from a Saturday-afternoon adventure movie. In the late nineteen-nineties, working for the legendary anti-Taliban commander Ahmed Shah Massoud, he sold emeralds mined in the crags of the Panjshir Valley and used the proceeds to pay an obscure Russian company to print truckloads of Afghan currency. In this way, he helped underwrite Massoud’s movement. But, according to a Massoud associate, the commander became enraged when he discovered that Ferozi was helping to print currency for the Taliban as well. Before Ferozi could be hauled in—“Tie his hands, tie his legs, and bring him to me,” Massoud reportedly said—Massoud was killed, on September 9, 2001, by Al Qaeda assassins. Ferozi denied the story and went on to become Kabul’s most improbable C.E.O. With a body like an oil drum, and a retinue of gunmen around him, he prowls the streets of Kabul looking less like a banker than like a footballer lost in a war zone.

“We’d like to contribute to the campaign,” Ferozi told President Karzai at the breakfast in 2009. “What can we do?” The President pointed Ferozi in the direction of his finance minister and campaign treasurer, Omar Zakhilwal.

Two days later, Zakhilwal told me recently, two men identifying themselves as Kabul Bank employees appeared bearing a briefcase containing two hundred thousand dollars in cash. “Two guys, one case,” he said. Zakhilwal said that he took the briefcase and passed it directly to his colleagues at Karzai’s campaign headquarters. Zakhilwal didn’t keep a record of the contribution, and no record of it was made available by the Independent Election Commission, either. “You will never ever find a record of a gift from them of any value, not even a dollar,” Zakhilwal said, denying any wrongdoing.

Now American officials say that Zakhilwal was one of many Afghan leaders and businessmen who, collectively, accepted tens of millions of dollars in gifts and bribes—some sources say as much as a hundred million dollars—from executives at Kabul Bank. The scandal is perhaps the most far-reaching in the nine years since Karzai took power.

Poring over stacks of documents, investigators at the American Embassy in Kabul have pinpointed dozens of instances in which Kabul Bank executives may have bribed Afghan officials, including a successful bid to process the salaries that the government pays its employees each month—at least seventy-five million dollars. Access to the salaries would give bank officials an opportunity to earn millions of dollars in interest in the course of a single year.

American officials say that Kabul Bank’s largesse extended to members of parliament and almost anyone whose silence would allow bank executives to embark on a spree of buying, lending, and looting. In addition, some current and former Afghan officials say, Kabul Bank became an unofficial arm of the Karzai government, bribing parliamentarians in order to secure votes for its legislative agenda.

The investigation into Kabul Bank was run by a remarkable but little-known group of Americans working at the Embassy called the Afghan Threat Finance Cell. Their findings are considered so sensitive that almost no one—generals, diplomats, the investigators themselves—is willing to talk about them publicly. The unit, made up of agents from the F.B.I., the Drug Enforcement Administration, the Treasury Department, and the Pentagon, has compiled extensive evidence of bribery. “If this were America, fifty people would have been arrested by now,” an American official told me.

Secretary of State Hillary Clinton was briefed on the investigation in January, but some people fear that the Obama Administration won’t do anything about what has been discovered. After months of sparring with Karzai, the Administration appears to be paralyzed. “We have to work with these people,’’ a senior NATO officer told me.

The Threat Finance Cell also has almost single-handedly demonstrated the degree to which the American-led war in Afghanistan is compromised by connections among the Taliban, drug traffickers, and Afghan officials. The group was set up, in 2008, to sever the links between Taliban insurgents and their financing, much of which was believed to come from the drug trade. Instead, the investigators found that the lines connecting the Taliban and the drug smugglers often ran through the Afghan government. They also uncovered one of the darker truths of the war: the vast armies of private gunmen paid to protect American supply convoys frequently use American money to bribe Taliban fighters to stand back. These bribes are believed by officials in Kabul and in Washington to be one of the main sources of the Taliban’s income. The Americans, it turns out, are funding both sides of the war.

By last summer, the Threat Finance Cell and its Afghan counterpart—a group called the Sensitive Investigative Unit—had begun looking into Kabul Bank, previously one of the most successful institutions in post-2001 Afghanistan. The American and Afghan investigators quickly realized that the bank was hugely overextended and headed for disaster. The bank, under the guidance of its top executives, Ferozi and Sherkhan Farnood, a world-class poker player, had begun to founder, in part owing to the collapse of the property market in Dubai. Farnood had spent tens of millions of dollars in depositors’ money to buy more than a dozen luxury villas on or near Palm Jumeirah, an exclusive man-made island. At the urging of Americans, the Central Bank of Afghanistan, which is charged with insuring that Afghan banks adhere to financial regulations, stepped in and replaced Ferozi and Farnood.

The evidence, according to American officials close to the inquiry, appears to implicate Afghan officials and businessmen at the highest levels. Many of them, like Zakhilwal, are among Karzai’s most trusted advisers, with regulatory responsibilities for the Afghan financial system. Others are regarded by American officials as being some of the most capable in Karzai’s government: Farook Wardak, the Minister of Education; Yonous Qanuni, a former speaker of the Afghan parliament; and Haneef Atmar, a former Minister of the Interior. It’s not clear exactly how much each official got, or what they are believed to have done to get it.

Atmar, Wardak, and Qanuni told me that they had never received any gifts from the bank. Qanuni said that he had accepted money from executives at Kabul Bank in the form of donations for his parliamentary campaign but could not recall how much. In an e-mail, Atmar laid the blame for the allegations on a dispute within the bank. “I have NOT borrowed or received any type of funds from the Kabul Bank under any name for any purpose,” he wrote.

Former Afghan officials say that the bribery and influence-peddling was at times florid and spectacular, with some of it unfolding in Dubai, the Vegas-like sheikhdom where many high Afghan officials maintain second homes. Mahmoud Karzai, the President’s brother, was allowed to live in one of Farnood’s villas, as was Ahmed Zia Massoud, a former Vice-President. When I visited Massoud’s house in Dubai last summer, a blue Rolls-Royce was parked out front, but nobody was home. “Girls, money, cars,” one Afghan official with knowledge of the investigation said. “Whatever the human weakness.”

At least some of Kabul Bank’s payments to high-ranking local officials appear to have been intended to prevent anyone from examining the bank’s practices too closely. An Afghan political leader, who was once a senior member of Karzai’s government, told me that Ferozi had bragged to him that much of Karzai’s government was on Kabul Bank’s payroll: “Ferozi said to me, ‘None of the ministers have the guts to speak against us. They are ours.’ ” The senior NATO official called the payments “just straight bribes.”

Investigators say that they are now trying to determine the extent of illegality committed under Afghan law, which requires candidates to report their campaign contributions, and which prohibits bribery. But there is no way to know how much any individual gave, because election officials have not released the records. Given that Karzai has not indicted a single senior official of his own government, U.S. officials are skeptical that he will act without overt American pressure. Some of those suspected of wrongdoing might be liable under Western law, if they have dual citizenship.

The money that has apparently been doled out by Kabul Bank to Afghan officials is part of an estimated nine hundred million dollars that is lost or missing from the bank. That amount far exceeds the three hundred million dollars in losses that emerged after the Central Bank’s takeover. Investigators said that the nine hundred million dollars includes failed loans and loans to apparently fictitious corporations. The chairman of the Central Bank said that it has recovered some of the loans, but a Western official told me that much of the money is gone: “They can’t find it.”

The troubles at Kabul Bank stand as a parable for the sometimes malign effect that the influx of billions of dollars has had on this impoverished country since the current war began, in 2001. Although Western money has done a great deal to create a modern economy, much of it has been captured by a tiny minority of well-connected Afghan businessmen and politicians, often illegitimately. The loss of nine hundred million dollars or more at the bank represents a significant percentage of Afghanistan’s gross domestic product, which is only about twelve billion dollars.

Politics and business in Kabul are increasingly dominated by criminal networks and their patrons in the Afghan government. The vast majority of the loans appear to have gone to Kabul Bank’s sixteen shareholders. One of them is the President’s brother Mahmoud Karzai. He spent most of his adult life in the United States, eventually owning a number of restaurants, until returning to Kabul after the Taliban were driven out of the city, in 2001. He has an American passport and is currently under investigation by federal prosecutors in the United States for failing to report income. Another shareholder is Haseen Fahim, the brother of Mohammed Fahim, who is one of Karzai’s two Vice-Presidents. For the Obama Administration, such official connections make something like the Kabul Bank scandal difficult to confront but impossible to ignore. “I’m really hoping that something positive comes out of this,” the senior NATO officer said. Then, after a pause, he added, “Maybe it’s too big to turn away from.”

Graft infests nearly every interaction between the Afghan state and its citizens, from the police officers who demand Afghani notes to let cars pass through checkpoints to the members of Karzai’s government who were given land in Kabul’s once empty quarter of Sherpur, now a neighborhood of huge rococo-style buildings, where homes sell for hundreds of thousands of dollars.

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Bribes feed bribes: if an Afghan aspires to be a district police officer, he must often pay a significant amount, around fifty thousand dollars, to his boss, who is usually the provincial police chief. The policeman earns back the money by shaking down ordinary Afghans. In this way, the Afghan government does not so much serve the people as prey on them. Last year, Transparency International ranked Afghanistan as the world’s hundred-and-seventy-sixth most corrupt country out of a hundred and seventy-eight, surpassed only by Somalia and Myanmar. “It’s a vertically integrated criminal enterprise,” one American official told me.

The war in Afghanistan is not a simple conflict, with the U.S. and the Afghan government on one side and the Taliban insurgents on the other. When it comes to money—particularly American money—allies and enemies often seem interchangeable. One example, offered by an American investigator: the director of an Islamic charity in Pakistan, which American investigators believed was giving money to insurgents, had close ties to Afghan leaders.