- Associated Press - Wednesday, November 28, 2012

KABUL, Afghanistan (AP) — Political interference stymied an investigation into the collapse of Afghanistan’s largest bank, according to an independent report of how the men at Kabul Bank and their friends and relatives got rich off $861 million in fraudulent loans.

The 87-page report, released on Wednesday, details how politics played a role in who was charged in the case and why it took prosecutors so long to render indictments. Its findings reinforce the image of Afghanistan as deeply corrupt. If those who carried out the fraud are not punished, it will likely be more difficult for the West to donate money to this impoverished nation where U.S. and NATO forces are trying to extricate themselves from an 11-year-old war.

The bank’s collapse and subsequent bailout represents more than 5 percent of Afghanistan’s gross domestic product, making it one of the largest banking failures in the world. Hundreds of millions of dollars were sent out of Afghanistan — some in airplane food trays.

The report depicts the Kabul Bank scandal as a saga about money-grabbing, weak banking oversight, lax prosecution, nepotism and fraud. The cast of characters includes a poker-playing bank chairman, an Afghan central bank head who feared his life was endangered and fled to the U.S., the wealthy relatives of the Afghan president and vice president, and bank shareholders — some who bought posh properties in Dubai and spent lavishly on themselves and their circle of friends and relatives.

The bank, which was licensed in 2004 and grew to become Afghanistan’s largest financial institution, was run like a Ponzi scheme under nascent banking oversight, according to the Independent Joint Anti-Corruption Monitoring and Evaluation Committee, which issued the report.

It claims a special judicial tribunal that started hearing the case this month is involved in activities that are “well outside the legal norms of criminal procedure.”

The report says the tribunal has had off-the-record meetings with accused individuals and potential witnesses, has conducted its own probes on the sidelines and has held meetings with shareholders, urging them to repay money. Getting the money back is the job of the receivership, which as of Oct. 31 has recovered $135.3 million in cash as well as assets with a book value of $181.1 million.

Drago Kos, chairman of the committee, told reporters at a news conference in Kabul that Afghan officials were “deferring questions to political parties” rather than acting independently to investigate, prosecute and try the case.

“We also see some cases of direct political interference from above,” Kos said.

The report does not specify who was involved in the political interference. The committee said it did not come across any documents indicating that the presidential palace was meddling in the case.

However, the report says that after an investigative commission that Karzai set up to look into the scandal issued its own report, the commission “publicly announced that the president would decide who to prosecute based on its recommendation.”

The committee also criticized the attorney general’s office for not undertaking a substantial probe into the bank until April 2011 — a year after the news of the bank’s problems surfaced, eight months after nervous customers ran to withdraw deposits and five months after the central bank asked the attorney general’s office to start a criminal investigation.

Although criminal indictments were prepared by the attorney general’s office around May 2011, the indictment was not issued until more than a year later, according to the report.

The indictment names more than 20 bank executives, bank employees, central bank workers and others who allegedly benefited from the fraud. The charges include money laundering, misuse of authority, using counterfeit documents and opening accounts under pseudonyms. But the report claims the indictment is tainted by political influence.

The report says the indictment did not name officials from accounting firms that created false documents for Kabul Bank, airline employees who smuggled money out of Afghanistan or some shareholders who received funds from loans at zero interest, “apparently with no intention of repayment.”

“The major factor impeding the criminal investigation process is political interference resulting in reluctance to pursue charges against some of the participants of the Kabul Bank fraud,” the report says.

“Information received during the inquiry indicates that the final decision about who to indict was made at the political level in the spring of 2011 by a high-ranking committee — and that prosecutors from the attorney general’s office were called in to amend the indictment to conform to the decisions taken.”

Basir Azizi, a spokesman for the attorney general’s office, said Tuesday that the Kabul Bank case was not treated as a political issue.

“We strongly reject any comments that the attorney general’s office dealt with this case as a political issue,” he said.

The report says $861 million, or 92 percent of Kabul Bank’s loan book, went to 19 individuals and companies. Among them are key bank shareholders, including Sherkhan Farnood, the former bank chairman and a world-class poker player; former chief executive officer Khalilullah Ferozi; Mahmoud Karzai, one of Karzai’s brothers; and Hassan Fahim, a brother of first Vice President Mohammad Qasim Fahim.

The former bank executives were charged, but the brothers of Karzai and Fahim were not named in the indictment.

The report describes Kabul Bank as a sophisticated operation with one set of books for the eyes of regulators and another in the back room that logged how those running the bank and others were fattening their wallets.

Loans were made but rarely repaid. Borrowers took out loans to pay back loans. Company documents and financial statements were fabricated. The bank’s credit department used more than 100 corporate stamps for fake companies to make documents look authentic. The bank operated some of its more than 100 branches without a permit from the government.

“Since 2006, the bank was running a pure Ponzi scheme,” Kos said.

The review was conducted to satisfy one of several benchmarks the International Monetary Fund asked the Afghan government to meet in cleaning up the scandal.

The report gives the Afghan central bank credit for carrying out various examinations of the bank, saying it tried to take enforcement measures or corrective actions four times after consistently spotting regulatory violations. But the committee said that unless the central bank and other Afghan institutions move to operate independently, stand up to political interference and hold wrongdoers accountable, the Afghan government will never be able to sustain a fully functioning democracy.


Associated Press writer Rahim Faiez contributed to this report.

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