October 31, 2014

Kabul Bank Was a Massive Fraud Scheme: Audit

By Sajad - Tue Nov 27 2012, 8:09 pm

Afghanistan’s biggest private bank was a massive fraud scheme from its founding, with £540 million ($861 million) diverted to a clique of beneficiaries including the president’s brother, a British-funded audit has found.

Details of the audit were revealed in a leaked report seen by the New York Times newspaper. Revelations of corruption led to a run on the bank in 2010.

The bank’s primary purpose, the audit suggests, was financial gain for Hamid Karzai insiders, who garnered depositors’ cash. Among the alarming details, via the Times: The bank, which officials seized in 2010, used at least 114 rubber stamps from fake companies on forged documents.

At the same time 10 airline pilots were on the payroll, apparently to help smuggle vast sums of cash out of the country to Dubai via Kabul airport.

Among those who benefited from illegal loans was Mahmoud Karzai, the report says. However, he has always denied any wrongdoing and says he has repaid all of the cash.

Meanwhile, some 92% of the bank’s loan portfolio went to just 19 people and firms, all interconnected, the audit says. “We never imagined that the criminality was as deep as it was, that it was so widespread and that it included high-ranking officials and their relatives,” says a former governor of Afghanistan’s central bank.

The bank’s near collapse triggered a financial crisis and became emblematic of the rampant crony capitalism which has undermined the Afghan state since 2001.

Kabul Bank had been hailed as proof of progress and modernisation in the country and held the salaries of hundreds of thousands of soldiers, policemen and government staff paid by international donors including America and Japan.

Kabul Bank’s founder and its former chairman Sherkhan Farnood and ex-CEO Khalilullah Ferozi are among several people charged in connection with the bank’s collapse.

In the meantime The Report of the Public Inquiry into the Kabul Bank Crisis will be publicly released by the Independent Joint Anti-Corruption Monitoring and Evaluation Committee (MEC).

The Kabul Bank report provides details related to the licensing of the Bank, its fraudulent activities, the sufficiency of regulatory efforts to detect the fraud, and the response to the crisis from the central bank, the government, the justice system, and the international community.

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