Kabul Bank Fraud

[Ehrenfeld]

Is US Aid to Afghanistan Buying Expensive Condos in Dubai? Why the Obama Administration Doesn’t Seem to Care

January 26, 2011

By Rachel Ehrenfeld

In his State of the Union speech on January 25th, the President stated:

“The Afghan government will need to deliver better governance. But we are strengthening the capacity of the Afghan people and building an enduring partnership with them.”

It is not a secret that President Karzai’s government is rife with corruption. It is misappropriating and siphoning off as many billions dollars from foreign aid, as it can. This lawlessness deepens the region's political and economic instability that enables the Taliban and other insurgencies to prosper.

Sources close to the investigation of the “fraud” at Afghanistan’s largest bank, Kabul Bank, confirmed that the inquires identified that among the suspects of fraud and suspicious loans to the bank's shareholders, are the President brother Mahmoud Karzai, and Haseen Fahim, the brother of the first vice president, Gen. Muhammad Qasim Fahim.

The IMF estimates the loss at $850 million. However, knowledgeable independent sources who wish to remain nameless say the loss totals more than one billion dollar.

How could this happen? The Chairman of Kabul Bank is alleged to have bought 20 condos on Dubai's Palm Jumeirah Island, averaging $7 million per condo. He bought them in his personal name with depositors’ money. He maintains that he bought them for the “benefit of ‘certain’ people who want to remain anonymous.” But it has been discovered that the condos are occupied by relatives of Cabinet members, including Mahmoud Karzi, the president’s brother.

This is but one example of Karzai's government rampant corruption.

Incredibly, most U.S. Agency for International Development (USAID) and Treasury programs and projects do not include any consideration for the criminogenic environments created by pouring huge funding into Finance, Health and Infrastructure projects in Afghanistan, with little or no oversight.

U.S. Bank supervision assistance to the Central Bank does NOT include a program to detect or prevent fraud. The reason for this, according to an AID officer: “we don’t want to offend the counterparts by including Criminal conduct prevention measures.”

It is time the Obama Administration to talk less about “good governance,” and stops the corrupting relationship with the Afghan government. It is time to stop the politically correct attitude that allows the disappearance of billions of dollars aimed at improving the condition of the Afghan’s people. And it is time to take serious action to prevent the massive fraud perpetrated by the Afghans, and often executed in partnership with members of international aid agencies and foreign contractors.

Although the President did not mention it in his address, fighting and corruption in Afghanistan will continue unless the U.S. takes steps using environmentally safe methods to eradicate Afghan opium poppy and Hashish cultivation and heroin production.

The Afghan people would benefit from a stable government that could help build a stable economy, only once the vast illegal income that generates hundreds of billions of dollars in revenues are eliminated. Until then, expect more of the same.

[Cavendish]

A coterie of well-connected Afghan businessmen and politicians may have plundered as much as $900m from the country's biggest commercial bank, three times the amount of earlier estimates, and the equivalent of about 7 per cent of Afghanistan's total gross domestic product.

Kabul Bank's funds were treated like personal accounts, it is claimed by several well-known members of Afghan society. Mahmoud Karzai, a brother of the Afghan President and prominent shareholder in Kabul Bank, told The New York Times that the bank's former chairman lent himself about $98m (£62m) to buy one of Afghanistan's airlines, and then used deposits to subsidise the carrier in an attempt to drive rivals out of business. Yet so difficult has the hunt for the missing millions become that the very same man, Sherkhan Farnood, had been brought in to help trace the missing cash.

Officials say the value of questionable outstanding loans written by the bank is far greater than originally thought – and auditors poring over the lender's books think up to $800m is potentially unrecoverable.

The crisis is so severe – with fears that a run on the embattled Kabul Bank could lead to its collapse – that Afghanistan's central bank chief, Abdul Qadir Fitrat, was forced yesterday to deny reports that the embattled lender was close to failure. He claimed the sums at stake were smaller than reported and that auditors had been able to account for all but $100m lent to members of Afghanistan's elite.

The case is acutely embarrassing both for President Hamid Karzai, whose tenure has seen Afghanistan turn into a mafia state, and the Obama administration, which has adopted a policy of ignoring institutionalised corruption after several bitter diplomatic spats with Mr Karzai got it nowhere.

In an account of goings-on at Kabul Bank that is devastating in its detail, the New Yorker magazine records how "Kabul Bank's largesse included 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 former and current Afghan officials say, Kabul Bank became an unofficial arm of the Karzai government, bribing parliamentarians in order to secure votes for its legislative agenda," it reports.

"Dozens of Afghan leaders and businessmen... 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 story is a startling illustration of an adage popular with diplomats in Kabul, which goes: "It's not that the system is corrupt; it's that corruption is the system."

In one reported incident, the bank's former chief executive, Khalil Ferozi, is alleged to have told President Karzai that he wanted to contribute to his re-election campaign and was pointed by the Afghan leader in the direction of his Finance Minister and campaign treasurer Omar Zakhilwal. Within days Kabul Bank employees delivered $200,000 in cash to Mr Zakhilwal and more was on the way. "Two guys, one case," he said. But "you will never ever find a record of a gift from them of any value, not even a dollar."

In another episode, Mr Ferozi bragged to a former Afghan cabinet minister that members of the government were on his payroll. "None of the ministers have the guts to speak against us," he is reported to have said. "They are ours."

American investigators say many of Mr Karzai's closest advisers, some with regulatory responsibilities over the Afghan financial system, are implicated in the scandal.

Some are viewed by Western donors as the most accomplished members of Mr Karzai's cabinet, like Farouk Wardak, the Education Minister, or Haneef Atmar, the former interior minister.

"Atmar appeared at one point to be receiving $3m a month," the New Yorker reported, noting that Kabul Bank had won the contract to pay government salaries to the police – who came under Mr Atmar's aegis – after paying a bribe worth perhaps $75m.

It's a meticulous account of the workings of kleptocracy, but from a Western perspective perhaps the most terrifying part of the tale is the motive. The businessmen, politicians and officials – the cream of Afghan society – are milking Afghanistan for all they can. Why? Because they don't believe their country has a future.

[DEB RIECHMANN]

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KABUL, Afghanistan (AP) — Afghan lawmakers agreed on Saturday to reimburse the government for bailing out the Kabul Bank, which nearly collapsed last year because of mismanagement and hundreds of millions of dollars in questionable loans.

The lower house passed a bill to provide up to $825 million over the next eight years to recapitalize Afghanistan's central bank — a move that smooths the way for the International Monetary Fund to extend Afghanistan a new line of credit. Afghanistan has been without IMF backing for more than a year, threatening to choke off billions in aid to the country.

The Kabul Bank debacle has become a symbol of the country's deep-rooted corruption. The case is being closely followed by Afghans and international donors because it is a barometer of government officials' pledge to root out patronage, graft and show accountability to world financial institutions, such as the IMF.

A parliamentary decision to provide money to shore up the central bank was a key step requested by the IMF in meetings earlier this month, the Afghan Finance Ministry said in a statement.

"Completing the last requirement to enter a new IMF program is an extremely significant milestone in transition to increased Afghan responsibility for security and development," Finance Minister Omar Zakhilwal said in the statement.

He said it would encourage those working to restructure the bank, recover assets and investigate criminal activity and gives the international community assurances it sought to fulfill its commitment to deliver 50 percent of all international assistance through government coffers. He said work would begin on implementing reforms for the nation's financial sector.

According to Zakhilwal, of the more than $800 million in fraudulent loans issued by Kabul Bank, more than $70 million had been recovered, $350 million in loans had been restructured for repayment and $110 million in assets associated with the loans have been seized and transferred to the government.

Whatever money is recovered will offset the amount that the government will spend to recapitalize the central bank.

Criminal investigations against the bank's top two executives, several bank officials and others are under way. The two bank executives are Sherkhan Farnood, the former chairman of Kabul Bank and a world-class poker player, and Khalilullah Ferozi, the former chief executive officer.