Karzai's brother begs US to rescue failing Kabul Bank

Published on Friday 3 September 2010 17:09

AFGHAN president Hamid Karzai's millionaire brother begged the United States to save his failing bank yesterday - but officials said the businessman and Afghan government were blocking American efforts to investigate the company books.

"America should do something," Mahmood Karzai said as Afghan efforts to reassure more than two million depositors failed to stem a 130 million run on the country's largest bank.

Most of the money was moved by wire transfers, but branches in Kabul, Kandahar, Herat and Mazar-e Sharif ran out of cash on Thursday as angry depositors demanded their money back.

"If this goes on, we won't survive," said Khalilullah Frozi, one of the bank's largest shareholders and, until recently, it's chief executive. He was forced to resign last week, alongside bank chairman Sherkhan Farnood, amid allegations of gross irregularities and looming insolvency.

The Scotsman understands a team of US treasury investigators arrived in Kabul two weeks ago "to get a handle" on the loan book. But a source said they never got "a foot through the door". "They are ready to go in and and start the investigation process in an attempt to get a handle on what the loans are," said a senior official. "But Mahmood Karzai, using his brother's name, has said they are not to set one foot in Kabul Bank."

A second senior official confirmed there were at least three dedicated investigators, recently arrived in Kabul, who had been denied full access to accounts.

President Hamid Karzai ordered the Central Bank to intervene on Monday under pressure from the US and Nato commander, General David Petreaus, but, on Thursday, the president denied there was a crisis and blamed western media for "negative and provocative" reporting.

A senior western financier said the Central Bank should have enough reserves to keep the Kabul Bank afloat, though the run on withdrawals could continue despite reassurances from president Karzai. "It's not so much a financial crisis as a political crisis," she said. Diplomats said the president thinks the bank fiasco as an attempt to embarrass him, which has prompted him to block the US probe. Tensions are so high that the US embassy has refused to say anything publicly.

President Karzai has already enraged Washington by interfering in corruption investigations and attacking US policy. Mahmood Karzai borrowed money from the bank to buy his stake. He also borrowed to buy Afghanistan's only cement factory, its only Toyota franchise and four coal mines. Previously he was the waiter-turned-owner of a chain of Afghan restaurants in America.The vice-president's brother, Haseen Fahim, also a shareholder, is understood to have borrowed more than 60m.

The bank's bad assets include at least 104m of properties in Dubai, including 16 villas in the Jumeirah Palm, on a frond known as Kabul Bank Street, and two half-built tower blocks.

"The Karzais are worried the mess is so bad, they don't want people to see who has borrowed and how much they have borrowed. There are so many directors and VIPs taking loans who were just looting the bank."

But White House spokesman Tommy Vietor would only say: "We support the Afghan Central Bank's efforts to uphold international standards and its decisive action in response to reports of fraud at the Kabul Bank."