Political Meddling Hampers Inquiry Into Kabul Bank Debacle

04.12.2012

By MATTHEW ROSENBERG
Published: November 28, 2012
Source: http://www.nytimes.com/2012/11/28/world/asia/inquiry-into-kabul-bank-fraud-hits-snags.html?ref=afghanistan&_r=0

KABUL, Afghanistan — Persistent political interference has hampered efforts to unravel the colossal fraud at Kabul Bank, with President Hamid Karzai and a small panel of his top aides actually dictating to prosecutors who should be charged and who should not, according to Afghan and Western officials and the results of a public inquiry into the scandal.

According to a report, which was prepared by an independent corruption watchdog commission at the behest of the International Monetary Fund and which is to be released Wednesday, Mr. Karzai’s aides called in prosecutors to tell them who would be indicted in the fraud and collapse of Kabul Bank, even specifying what charges should be brought. A senior Afghan official with knowledge of the decisions, speaking on the condition of anonymity, said that Mr. Karzai was among those directly making the decisions.

The president had previously signaled that he would do so. Ahmad Qaderi, a senior official at the attorney general’s office of Afghanistan, acknowledged the president’s role last year, telling reporters, “President Karzai will decide which accounts should go into receivership and which into the courts.”

The indictments in the case, in June, were hailed as important first steps in finally bringing accountability for officials who profited from a fraud scheme that involved hundreds of millions of dollars and brought down Kabul Bank in 2010. But some were troubling: the indictment list included prominent Afghan financial regulators who were trying to untangle the mess at the bank and had often clashed with Mr. Karzai’s administration, according to the report and Afghan officials.

Further, some of the people who owned large stakes in the bank and received millions in loans with no expectations that they would repay them, including President Karzai’s brother Mahmood Karzai, and Haseen Fahim, the brother of the Afghan first vice president, have escaped indictment.

Aimal Faizi, a spokesman for the president, said that Mr. Karzai would answer all the many “allegations” around his government’s handling of the Kabul Bank crisis at a news conference in the coming days.

The new inquiry report, along with the revelation of the details of a forensic audit by Kroll Investigations that described Kabul Bank as a Ponzi scheme to funnel riches to roughly a dozen members of country’s elite, is a formalization of the frustrations and suspicions that many Afghan and Western officials have held for months about how the government is handling the investigation.

The implications for the country are potentially huge: the Kabul Bank case is increasingly becoming a test for some of the Western donor nations that must decide whether to keep pouring billions of dollars into the Afghan government as the NATO combat mission comes to a close.

“If there’s not a conviction of these guys,” one senior Western official said, “the donors are going to come down hard on them. Without donor support, the government would fall apart.”

The official was talking specifically about the two men suspected of having orchestrated the fraud: Sherkhan Farnood, Kabul Bank’s founder and former chairman, and Khalilullah Frozi, its former chief executive.

The two are suspected of having stolen the most from Kabul Bank, and they are being tried alongside a number of Kabul Bank executives who helped carry out or cover up the theft of nearly $900 million in cash and assets.

The new inquiry report, by the Independent Joint Anticorruption Monitoring and Evaluation Committee, called the beginning of the men’s trial “a major achievement.”

Yet it was sharply critical of the decision to charge eight current and former central Bank of Afghanistan officials who were all involved in investigating or cleaning up Kabul Bank. The charges against them range from negligence for not uncovering the fraud earlier to actively helping conceal the crimes committed at the bank, and some are standing trial.

American and European officials believe the charges against the regulators are, at best, the result of sloppy investigative work, or, at worst, intended to end any further serious investigations of Kabul Bank.

Neither the inquiry report nor the forensic audit found evidence that the central bank officials were complicit. The audit detailed how regulators lacked resources and training, were actively deceived by Kabul Bank’s owners and feared that pressing back too hard could lead to a bank run, which is what happened when the Central Bank eventually seized the lender.

The inquiry report described the prosecutors’ focus on the regulators to the exclusion of others — an apparent reference to Mahmood Karzai and Mr. Fahim — as “difficult to reconcile with what is known about Kabul Bank today.”

The former governor of the central bank, Abdul Qadir Fitrat, is charged with failing to prevent and concealing the fraud. He fled the country last year after a series of disputes with President Karzai over how to handle fallout from the scandal.

Currently on trial in Kabul is the chief of the central bank’s financial crimes unit, Muhammad Mustafa Massoudi, who worked closely with American officials on the Kabul Bank case and other investigations, including at least one that targeted a close associate of President Karzai’s.

An American official said he believed that Mr. Massoudi was being prosecuted because he was “too zealous in digging around trying to find out what happened at Kabul Bank and a few other places.”

In an interview, Rahmatullah Nazari, the deputy attorney general, stood by the charges against the central bank officials, because “they were aware of the problems within Kabul Bank and did nothing.”

He contrasted the regulators with Mahmood Karzai and Mr. Fahim, describing both men as ordinary borrowers, nothing more. They were not even shareholders, he said.

But Mr. Karzai and Mr. Fahim have never hidden their ownership stakes in the bank. Mr. Karzai, in fact, has often acknowledged buying his 7 percent stake with a loan from the bank.

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