Why Kabul Bank is the biggest test for President Ghani

In a post-conflict country, where the democratic institutions are still evolving and rule of law is scandalously absent, the chances of political manipulations and financial frauds are always colossal. While Afghanistan continues to occupy the top slot on Transparency International’s corruption index, no efforts are being made, either by the government or its international partners, to rid the country of this hydra-headed monster.

A large chunk of foreign aid meant for development projects inside Afghanistan has been embezzled by powerful people. This scandalous truth, however, does not invoke outrage anymore, since corruption has become an ill-omened culture in this country. The banking sector has been the worst victim in terms of monumental financial frauds. Powerful politicians and their cohorts have taken full advantage of weak laws to embezzle money that actually belongs to public.

The story of Kabul Bank’s catastrophic debacle in 2010 is still shrouded in mystery. More than 900 million USD were embezzled and shipped out of the country by some unscrupulous elements with blessings from people in higher echelons of power. It was the biggest banking scandal in the history of this country.

Afghan Zariza dedicated two back-to-back cover stories, in September and October issues, to Kabul Bank debacle in an attempt to unravel the mystery surrounding the crisis of bank. Our findings revealed shocking details of how powerful people took law into their hands and destroyed the bank, which was the central financial institution in the lives of millions of Afghans and represented for many their first experience with formal banking system. Million of hopes dashed as the bank almost collapsed in 2010. The story of what actually happened at Kabul Bank was never told, despite the overwhelming public interest. We decided to ride against the tide and tell the story of the biggest banking debacle.

Afghan Zariza dedicated two back-to-back cover stories, in September and October issues, to Kabul Bank debacle in an attempt to unravel the mystery surrounding the crisis of bank 

In the run up to elections, many politicians sparred in public, in a bid to score brownie points over each other. One such public showdown, just before the elections, happened between Minister of Finance Omar Zakhelwal and Mahmood Karzai, the famously infamous brother of former president Hamid Karzai. Both made damning allegations against each other. While Mr. Zakhelwal accused Mr. Karzai of orchestrating the biggest banking scandal in the history of Afghanistan, Mr. Karzai hit back saying the fraud was engineered by the Finance Minister with the help of some western diplomats.

We decided to interview both of them to understand the source of acrimony between them. They did what they had been doing all the time: blame-games, mud-slinging, accusations, counter-accusations. It became amply clear that the Kabul Bank crisis was not a co-incidence. It was an engineered banking scandal, which was pushed under the carpet to save big fishes.

Mr. Zakhilwal admitted that government failed to bring culprits to book. “We failed to pursue the Kabul Bank case which cost us immensely in financial terms,” he told Afghan Zariza. According to him, at least 900 million USD were stolen from Kabul Bank but the losses suffered by the bank were more than that. “It cost us six to seven billion USD and we are still recovering from that shock.”

For the people of Afghanistan, the Kabul Bank crisis was a tragedy beyond monetary terms. It was a blatant breach of trust in financial institutions that dented the confidence of ordinary people. They deserved to know the story of what happened at Kabul Bank and what role various government institutions played in its decline and fall. The investigations proved to be a sham and no efforts were made to bring reforms and prevent the repeat of such disasters.

Many high-profile people in government and share holders of the bank were found directly and indirectly responsible for the crisis, still no legal action was taken against them. Investigators said the bank – founded in 2004 by Sher Khan Farnood, a leading international poker player – made hundreds of millions of dollars of inappropriate loans. Abdul Qadir Fitrat, former Governor of Central Bank of Afghanistan (CBA), resigned from his position and fled the country.

The bank was bailed out in September 2010, when the CBA took control of its finances. Mr Fitrat, as Head of CBA, was in charge of investigation. He said the government put roadblocks before him to save the culprits. Mr Fitrat had publicly named some high-profile figures in Parliament who he said were allegedly involved in it. The names included Sher Khan Farnood, Chairman of Kabul Bank; Khalilullah Ferozi, Chief Executive Officer; Husain Fahim, brother of the then Vice President Marshal Mohammad Qasim Fahim; Mahmood Karzai, brother of President Hamid Karzai; Abdul Ghafar Dawi, Chief of Dawi Oil Company; Gulbahar Habibi, Chief of Gulbahar Center; Tahir Zahir and Sofi Nisar.

Mr. Farnood and Mr. Ferozi were considered the key culprits and were sentenced to 5 years jail term. In addition, Mr. Ferozi was asked to pay 531 million USD and Mr. Farnood 278 million USD. Mahmood Karzai and Husain Fahim, who were shareholders of the bank, dismissed the charges against them.

Many high-profile people in government and share holders of the bank were found directly and indirectly responsible for the crisis, yet no action was taken against them 

According to a report by Independent Joint Anti-Corruption Monitoring and Evaluation Committee (IJACMEC), “Kabul Bank was nothing but a fraud perpetrated against depositors, and ultimately all Afghans; and weak institutions and political realities in Afghanistan offered the perfect environment to operate.”  Drago Kos, Chairman of IJACMEC, said many powerful people behind the fraud were let off. “The brothers of Afghan President and brother of his first Vice-President were using the assets of Kabul Bank but they have never been investigated,” said Mr. Kos.

Four years after the scandal, an elixir of hope has emerged in the form of the new government led by former banker Dr. Ashraf Ghani Ahmadzai. Barely two days after assuming office, President Ghani ordered reinvestigations into the Kabul Bank case, giving clear instructions to the Attorney General’s Office (AGO) to arrest the 19 individuals found guilty in the case. He also ordered the Ministry of Finance (MoF) to finalize documents for the privatization of the New Kabul Bank. It won’t be exaggeration to call it Afghan Zariza impact, since we are the only media house in Afghanistan that vigorously pursued this case.

Integrity Watch Afghanistan (IWA), a national corruption watchdog body, has welcomed the intervention of the new president. IWA believes it an important move that will send a strong signal to criminals and crooks in power. However, it remains to be seen if AGO or MoF are able to execute the task they have been entrusted with, since the deadlines are already over.

Now, let us drop another bombshell. Bank Millie Afghan, one of the leading banking service providers in Afghanistan with an extensive network across the country, seems to be going Kabul Bank way. As per investigations carried out by Afghan Zariza, millions of dollars the bank had given as loan have not been recovered. So, is it another banking disaster in the making?

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Afghan Zariza ( Millennium )

The Zariza is designed to inform, educate, and engage young generation inside Afghanistan. The Zariza’s goal is to empower Afghans to create better future through knowledge and actionable, positive and uplifting reporting and news. The Afghan Zariza was founded based on those needs and goals, and will fill this gap....

The Magazine ISSUE ( Feb 2015 )