TRADING CHARGES OVER THE BIGGEST BANKING DEBACLE

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Despite the overwhelming public interest, the mystery surrounding the debacle of Kabul Bank has not been revealed yet, even as powerful politicians trade charges and accuse each other of involvement in what was the largest banking disaster in the world
 
Accusations and counter-accusations of corruption, fraud and deceit, which have been amply highlighted in local and international media with emphasis, have marred the political affairs in this country over the years. The power-mongering political actors often take potshots at each other to settle their personal scores. In a country that has earned the dubious distinction of being the most corrupt country in the world, public servants are accused of squandering public money and government turns a blind eye.

In recent past, Mohammad Omar Zakhelwal, Minister of Finance, was accused by some members of parliament of making illegal financial deals; Mayor of Kabul was accused of corruption by some lawmakers; Mahmood Karzai, brother of outgoing president Hamid Karzai, was accused of involvement in Kabul Bank fraud and the list goes on. Accusations and counter-accusations have been flying thick and fast, leaving public in a confused state.
 

“I had no role to play in Kabul Bank bankruptcy but if they have any proof against me, they should produce it,” says Mahmood Karzai

 
When a public official comes under scrutiny for pursuing illegal agendas, his or her image is bound to get maligned. If the accusations are not proved, damage control exercise becomes a difficult task. During the recently-held presidential elections, Mr. Zakhelwal was dubbed the “biggest thief” by Mahmood Karzai, who owned shares in old Kabul Bank. The accusation was dismissed by former as baseless that smacks of sinister political vendetta.
 
Story behind the damning allegations
What is the story behind these damning accusations and who is on the wrong side? How did this feud begin and whether they have any documentary evidence to back their claims? Truth is often bitter and unpleasant. Afghan Zariza tried to dig out the hidden truth in public interest. We approached all the protagonists of this story including Mr. Karzai, Mr. Zakhelwal, Attorney General Office, Independent Joint Anti-corruption Monitoring and Evaluation Committee, Head of Kabul Bank special court that investigated the case and other governmental institutions and individuals to find out the truth. What we came to know reinforced our fears that there is no fair play in politics and no checks and balances.
 
In Afghanistan, accusations are often countered with more damning accusations and that is what happened in this case as well. Abdul Qadir Jailani, spokesperson in Ministry of Finance, hit back strongly at Mr. Karzai, calling him the “biggest thief in the history of Afghanistan” and accusing him of robbery, embezzlement of public money and involvement in several cases of corruption. According to Mr. Jailani, Mr. Karzai was the central character in Kabul Bank fraud story so he has no “moral right” to accuse anyone of corruption.
 
“He (Mahmood Karzai) is the biggest thief in the history of this country, who was behind the bankruptcy of Kabul Bank,” said Mr. Jailani. “He embezzled millions of dollars in what was unarguably one the largest banking failures in the world.” Kabul 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, faced bankruptcy in 2010. Million of hopes dashed as the bank almost collapsed following the embezzlement of 900 million USD.
 

The practice of accusations and counter-accusations has now become a tradition in Afghanistan, even though according to country’s laws, it constitutes a crime

 
According to Finance Ministry spokesman, Mr. Karzai’s case has not been closed yet and he is liable for criminal action for his involvement in the largest banking fraud in the history of Afghanistan. “His accusations against the honorable Minister is out of sheer desperation because Ministry of Finance has not closed his file yet and he knows he will face the music,” says Mr. Jailani.
 
Kabul Bank is not the only case hanging like a sword of Damocles over his head. Ghori cement factory is another case of embezzlement, according to Mr. Jailani. Mr. Karzai, he says, got the ownership of this factory even though he did not fulfil all conditions. Though he refused to divulge further details about this case, Najib Manalai, press advisor in Ministry of Finance, said Mr. Karzai purchased the factory through illegal means as Ministry of Finance had refused to hand over the keys to him.
 
The illegal extraction of coal mines in Baghlan province and seizure of many thousand hectare land in Kandahar province, under the banner of Aino Mina that belongs to Mr. Karzai, are other illegal activities carried out by him, according to Mr. Jailani. Mr. Karzai and his business partners, alleges Mr. Jailani, owe huge debt to government-owned Bank Millie Afghan and Pashtani Bank. The amount, which is more than 15 million USD, has not been paid yet.
 
“We have sufficient evidence to prove all these claims and we are ready to raise this issue on any platform,” says Mr. Jailani. “Now with the new government taking over, we hope they will pursue this case and take back all the money from him.”
 
Is there any weight in these allegations?
Is there any weight and substance in the damning accusations made against Mahmood Karzai? Speaking to Afghan Zariza, he summarily dismissed all allegations leveled against him by the spokesman of Finance Ministry and accused Mr. Zakhelwal and the government headed by his brother of large scale corruption.
 
Mr. Karzai calls Mr. Zakhelwal “a thief and notorious spy of Karl Eikenberry” (former U.S. Ambassador to Afghanistan), accusing them of plotting the collapse of Kabul Bank. “Kabul Bank collapsed because of the greed of Finance Minister and Karl EikenBerry,” says Mr. Karzai.
 
According to Mr. Karzai, based on Special Inspector General for Afghanistan Reconstruction (SIGAR) report, the Afghan government and its foreign partners sought to disrupt and dismantle the economy of Afghanistan. “The international community is well aware of big financial thefts in Afghanistan, and they should be taken to international criminal court for maintaining silence over it,” says Mr. Karzai, in an angry tone.
 
He rubbishes all the accusations against him. “I had no involvement in Kabul Bank bankruptcy but if they have any proof against me, they should produce it,” says Mr. Karzai. “These accusations are borne out of personal and political vendetta.” He says the main culprits were let off and no serious attempt was made by the government to know the full story. “They did not follow the case properly so they do not know whether I held any chair in the bank or was I just a shareholder, whether I signed any document or not, these allegations are simply wild and baseless,” he says.
 
Mr. Karzai says the allegations against him are being made because he has denounced the government and international community for creating a pervasive culture of corruption in this country. “I am in the line of fire because I was perhaps the first one, about 6 years ago, who criticized them for wasting money,” says Mr. Karzai. “They splurged 20 million USD on a work project that could have been done with just one million USD.”
 
In one case, he says, 276 million USD were allocated to purchase electricity generators in Kabul city, and they wanted the same project to be implemented in Kandahar, which he refused. “The approach was not right so I opposed and that also went against me,” he says. “The way staggering amount of money is spent in big contracts and the way international donations are being spent is far from ideal, as it only paves ground for corruption and fraud.”
 
Referring to road construction projects, Mr. Karzai says the money does not flow through right channels and he has unequivocally spoken against it. “Let us suppose a project worth 90 million USD is given to several companies, by the time it is executed the money becomes 32 million USD, this way the money is squandered and roads also do not last long because of poor quality material used by contractors who have to work with small budget,” says Mr. Karzai.
 
His strong stand on such issues, he says, has made him more enemies than friends who now accuse him of corrupt practices. “The Afghan government and its foreign partners have committed horrendous wrongs in Afghanistan and now to cover up their own wrongs they accuse others,” says Mr. Karzai. Refusing his involvement in Kabul Bank fraud, he says he returned all loan money he had taken from Kabul Bank. “My hands and conscience are clean.”
 
The curious case of Kabul Bank crisis
For the people of Afghanistan, the Kabul Bank fraud was a tragedy of monumental proportions. Despite the overwhelming public interest, the story of what happened at Kabul Bank and what role various government and non-government entities played in its downfall was never made public. The investigative agencies failed to nail the culprits and no effort was made to introduce reforms and prevent the repeat of such crisis. It severely dented the confidence and trust of people in large financial institutions.

Many high-level officials in government and shareholders of the bank were found directly and indirectly involved in the fraud, yet no action was taken against them. According to investigators, the bank – founded in 2004 by Sher Khan Farnood, a leading international poker player – issued 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 investigations. 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.
 
Mr. Zakhelwal, speaking to Afghan Zariza, admitted that government failed to investigate and bring culprits to book. “We failed to pursue the Kabul Bank case which cost us immensely in financial terms,” says Mr. Zakhelwal. “Kabul Bank crisis affected our economy as severely as the current stalemate over election results.”
 
According to Finance Minister, at least 900 million USD were stolen from Kabul Bank but the loss suffered by the bank was more than that. “It was a big jolt to the country’s economy and the flow of foreign funds was also affected,” he says. “Based on our conservative estimates, the Kabul Bank crisis cost us six to seven billion USD and we are still recovering from that shock.” The international community, he says, has made it clear that the volume and flow of foreign funds will be affected if the case is not resolved.

Many economic analysts believe the government did not pursue the case with full conviction. “It was the duty of government to follow the case but they showed no intent to recover money and nab the culprits,” says Abdul Mohamim, economic analyst. Even four years after the crisis, the money has not been fully recovered. “We have so far recovered 175 to 180 million USD besides some properties which amounts to 250 to 275 million USD,” says Mr. Zakhelwal.
 
Main actors in the collapse of Kabul bank
Mr. Karzai, one of the shareholders in old Kabul Bank, accuses the bank administration, government of Afghanistan, Central Bank of Afghanistan and Ministry of Finance for the disaster. According to him, when the money was transferred to Dubai by Khan Farnood, Chairman of Kabul Bank; Khalilullah Ferozi, Chief Executive Officer, Mr. Zakhelwal and the officials in U.S. Embassy were fully aware but they refused to act. “I have prepared a petition against them, especially Finance Minister who was aware of Kabul Bank money being transferred to Dubai,” says Mr. Karzai.
 
He says he knows many inside secrets that can stir hornet’s nest. “Abdul Qadir Fetrat, then Chairman of Central Bank of Afghanistan, hailed it as the best bank because he used to send his observers who would come back with their pockets full,” says Mr. Karzai, who was one of the shareholders. According to him, besides Mr. Zakhelwal and Mr. Eikenberry, Mr. Fetrat was also involved in the sinister plot.
 
Mr. Zakhelwal says everyone was aware, including Mr. Karzai, who was a shareholder. “He was a shareholder and he was fully aware so what was his responsibility, I had no responsibility because it is an independent financial institution but I informed the Central Bank of Afghanistan as soon as I got the hang of it,” says Mr. Zakhelwal.
 
A special court was formed in 2012 to investigate the debacle of Kabul Bank. Shams-ul- Rahman, who headed the court, told Afghan Zariza that 22 persons were found guilty and were given jail terms and asked to pay fine. 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. Both of them, however, denounced the verdict as ‘unjust’ and said the main culprits were let off. Drago Kos, Chairman of IJACMEC, said many influential people were involved in the fraud and they got away. “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.
 
“We had categorically mentioned in the verdict that they should be prosecuted because they had apparently grabbed more money,” says Mr. Rehman. He says Mr. Karzai and Mr. Fahim admitted before the jury that they took loan from.

this bank. He says the court verdict against Mr. Fitrat stands and he will be prosecuted whenever he comes back to Afghanistan. “Nobody will escape the clutches of law, they have to pay for their deeds today or tomorrow,” he says.
 
Mr. Karzai said he took 22 million USD and Mr. Fahim said he took 18 million USD from Kabul bank. “We re-paid the loan and bank also acknowledged the payment,” he says. Attorney General Office (AGO) says Mr. Karzai as a shareholder of Kabul Bank faced legal issues but now AGO is not dealing with his case. Abdul Basir Azizi, spokesperson of AGO, says those who were found guilty in Kabul Bank case have been prosecuted already.

Mr. Karzai says his strong stand against the Afghan government and his criticism of foreigners has created problems for him. “I have already repaid my loans but Mr. Eikenberry insists that the government must take legal action against me,” he says. “I criticized him regarding Helmand and Oruzgan provinces and it made it a personal issue.” The U.S. Embassy could not be reached for comments despite repeated attempts.
 
The feud between Karzai and Zakhelwal
The feud between Mr. Zakhelwal and Mr. Karzai, especially since the campaigning started for this year’s presidential elections, has been widely publicized. Both accuse each other of corruption and political vendetta. Mr. Zakhilwal says the allegations against him do not merit a response. “This case is in public domain and everyone knows who has committed fraud so I do not feel the need to respond to his accusations,” says the Finance Minister, who will be stepping down this month as the new government takes over.
 
“He is implicated in Kabul Bank case, Ghori Cement Factory case and the loans he had taken from Bank Millie Afghan and Pashtany Bank and never paid back,” says Mr. Zakhilwal, hitting back at Mr. Karzai. Ahmad Khosraw Zia, technical deputy in Bank Millie Afghan, seconds it. “Mr. (Mahmood) Karzai and several others have not yet paid the loan they took from Bank Millie Afghan and Pashtany Bank,” he says.
 
Mr. Karzai admits that he along with his other shareholders took 10 million USD loan in which his share was 3.5 million USD but he refuses to clearly say whether he has repaid it or not. He, however, trains guns at the government for squandering public money and failing to carry out development projects. Mr. Karzai considers the Finance Minister and other senior government officials as serious roadblocks in the development of private sector. “They do not encourage and support private investments because that will bring economic reforms and make it difficult for them to embezzle money through illegal means,” says Mr. Karzai.
 

The feud between Mr. Zakhelwal and Mr. Karzai, especially since the campaigning started for this year’s presidential elections, has been widely publicized

 
He says the Ghori Cement Factory had the capacity to produce 25 tons cement in the past but now with more investment it produces 1200 tons cement and provides employment to 1500 people. Regarding Aino City in Kandahar province, coal mines in Baghlan province and other projects, Mr. Karzai says they are all legal and helping the national economy. “I am being accused of corrupt and illegal practices because they do not want economic development in this country,” he says.
 
He accuses Mr. Zakhelwal of involvement in illegal projects and taking bribe in exchange of lucrative government contracts. He says Mr. Zakhelwal has the membership of procurement commission that observes and analyses bids before awarding them. According to him, the contracts are awarded to those who pay hefty bribe. Mr. Zakhelwal rejects the accusation, saying the bidding process follows proper legal procedures and only the deserving people are awarded the contracts.
 
The outgoing Finance Minister, says Mr. Karzai, had nothing when he first came to Afghanistan but now he owns several houses in Kabul city and has investments worth millions of dollars in Canada and other countries. He accuses Mr. Zakhelwal of having 150 million USD in his Swiss Bank account.
 
Mr. Zakhelwal calls these accusations false and asks him to produce evidence. “I asked him to prove what he claims, especially me being a shareholder in Amanullah Khan City, but he failed to produce any evidence,” says Mr. Zakhelwal. He says he is ready to face legal action if accusations against him are substantiated with evidence. “I have nothing to hide, I have not done anything wrong, so all I am asking is evidence,” he says.
 
The practice of accusations and counter-accusations has now become a tradition in Afghanistan, even though according to country’s laws, it constitutes a crime. According to Article 377 of criminal law of Afghanistan, if an individual reports lie about a crime he is liable to be prosecuted and sentenced to at least three years in jail with fine of 15,000 Afs.
 
Ruh-ul-Amin Aram, researcher and writer, believes that such accusations come into play when mutual interests clash which shows weakness of the government in Afghanistan. “If there is a powerful authority that imposes and enforces law in a uniform way, all these problems will be sorted out,” says Mr. Aram. “The new government must have a clear policy and all the measures must be taken to prevent such frauds and such feuds that are not in national interest.”
 
Kabul Bank case, believe analysts, will be a litmus test for new government to see where it stands on corruption.

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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 )