Following a presidential decree in August 2010 specifying the closure of private security companies operating in Afghanistan, many such companies closed. However, the Afghan government has reneged on its pledge to close down these companies. Furious lobbying by private development agencies-which use significant numbers of security contractors for protection on donor-funded programmes-led the government to realise that the termination of security companies employing some 40,000 individuals in total would cause social instability, and that development programmes would have to be cancelled because the shortfall could not be made up by Afghan government forces. The Afghan government therefore announced on December 6th that modifications to existing frameworks would allow most security firms-including those working on development contracts, as well as those that were already protected from the disbandment order because they work for NATO, foreign embassies or the UN-to stay in business.

Since August the president's office and the Ministry of Interior had waged a campaign to close all private security companies by mid-December 2010. Initially, eight private security companies, including US-based Xe (formerly known as Blackwater International) were banned. High-level intervention by the US Department of State and the commander of the International Security Assistance Force (ISAF) in Afghanistan, General David Petraeus, prompted Mr Karzai not to implement fully the ban, however, because it would lead to the shuttering of aid programmes in many parts of the country, not least in the volatile south and east. Nevertheless, 54 companies were closed during the investigation process, and the total number of employees in the remaining 52 security companies fell from 40,000 to around 26,500.

Private security companies are widely blamed for contributing to instability and insecurity, not last through the payment of bribes to local Taliban and other armed groups not to attack them. A US senator, Carl Levin, has argued that reliance on private security contractors "has empowered warlords, powerbrokers operating outside Afghan government control".

In addition to private security companies, implementing agencies have also been linked to funding the insurgency. For example, Development Alternatives Inc (DAI), which is implementing the flagship Local Governance and Community Development project, was found to be paying a "protection tax" of up to 20% of individual project values. If this is accurate, it is estimated that US$5.2m of USAID funds were "at risk of falling into the hands of insurgents", according to a report by USAID's Office of Inspector General. (DAI is one of USAID's implementing agencies.)