Afghanistan: Sophisticated fraud sees Kabul Bank squeezed dry

Kabul Bank's lending was investigated by a committee. Picture: AP
Kabul Bank's lending was investigated by a committee. Picture: AP
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Hundreds of millions of dollars from Kabul Bank were spirited out of Afghanistan – some smuggled in airline food trays – to bank accounts in more than two dozen countries, according to a report released yesterday after an independent review into the massive fraud that led to the collapse of the nation’s largest financial institution.

The report, financed by Britain and Denmark, offers new details about how the men at Kabul Bank and their friends and relatives got rich from fraudulent loans in what the International Monetary Fund has called a “Ponzi scheme” that used customer deposits.

The report said $861 million – 92 per cent of Kabul Bank’s loan book – went to 19 individuals and firms. Among them are key bank shareholders, including Sherkhan Farnood, the bank’s former chairman and a world-class poker player; former chief executive Khalilullah Ferozi, and Mahmood Karzai and Mohammad Hussain Fahim, brothers of president Hamid Karzai and first vice-president Mohammad Qasim Fahim respectively.

The report describes how Kabul Bank was a sophisticated operation, with one set of books for the regulators and another set 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 and company documents and financial statements were fabricated – the credit department used more than 100 corporate stamps for fake firms to make documents look authentic.

The report points to poor oversight by Afghan banking regulators, political interference in the criminal investigation and activities by a special judicial tribunal hearing the case that it said were “well outside the legal norms of criminal procedure”.

The bank’s failure and subsequent bail-out represents more than 5 per cent of Afghanistan’s GDP, making it “one of the largest banking failures in the world”, according to the ­report by the independent joint anti-corruption monitoring and ­evaluation committee.

The committee consisted of three Afghan professionals and scholars and three international corruption experts.

Its report said: “Every citizen in Afghanistan will bear the cost of the hundreds of millions of dollars required to secure deposits and the tens of millions of dollars required to deal with the aftermath.”

In October 2011, Afghan MPs passed a bill to provide up to $825m to recapitalise Afghanistan’s central bank for bailing out Kabul Bank. Whatever money is recovered from debtors will offset this amount.

“This is the money from the budget of Afghanistan – from the pockets of Afghan people,” Drago Kos, chairman of the committee, said yesterday in Kabul. “This money should be much better used for healthcare, education and security.”

Earlier this month, a trial began for more than 20 people charged in the debacle.

The report said Afghan authorities learned in late 2009 that Kabul Bank was moving money “through food trays” on flights operated by Pamir Airways, an Afghan airline established with loans from the bank. It has since gone out of business.

As much as $900m was moved out of the country via electronic transfers between March 2007 and April 2011 and ended up in the bank accounts of related parties in 28 countries.