Hundreds of millions of dollars from Kabul Bank werespirited out of Afghanistan — some smuggled in airline food trays — to bankaccounts in more than two dozen countries, according to an independent reviewreleased on Wednesday about massive fraud that led to the collapse of thenation's largest financial institution.
The report, which was financed by international donors,offers new details about how the men at Kabul Bank and their friends andrelatives got rich off $861 million in fraudulent loans in what theInternational Monetary Fund has called a Ponzi scheme that used customerdeposits and operated under nascent banking oversight in the war-torn country.
The report describes Kabul Bank as a sophisticated operationwith one set of books for the eyes of regulators and another in the back roomthat logged how those running the bank and others were fattening their wallets.
Loans were made, but rarely repaid. Borrowers took out loansto pay back loans. Company documents and financial statements were fabricated.The bank's credit department used more than 100 corporate stamps for fakecompanies to make documents look authentic. The bank operated some of its morethan 100 branches without a permit from the government.
The 87-page report, which was conducted to satisfy one ofseveral benchmarks the IMF asked the Afghan government to meet in cleaning upthe scandal, points to poor oversight by Afghan banking regulators, politicalinterference in the criminal investigation and activities by a special judicialtribunal hearing the case that it said were "well outside the legal normsof criminal procedure."
The bank's failure and subsequent bailout represents more than5 percent of Afghanistan's gross domestic product, making it "one of thelargest banking failures in the world," according to the report by theIndependent Joint Anti-Corruption Monitoring and Evaluation Committee. Thereport said "hundreds of millions" were sent out of the impoverishednation where Afghan, U.S. and NATO forces are fighting an 11-year-old war withthe Taliban and other militants.
"Every citizen in Afghanistan will bear the cost of thehundreds of millions of dollars required to secure deposits and the tens ofmillions of dollars required to deal with the aftermath," the report said."This is real money from the annual budget of the government that could bemuch better spent on other priorities, such as education, health care,infrastructure or security."
The Kabul Bank scandal is a saga about money-grabbing, weakbanking oversight, lax prosecution, nepotism, political contributions andfraud. The cast of characters includes a poker-playing bank chairman, an Afghancentral bank chairman who feared his life was endangered and fled to the U.S.,the wealthy brothers of the Afghan president and vice president, and bankshareholders — some who bought posh properties in Dubai and spent lavishly onthemselves and their circle of friends and relatives.
President Hamid Karzai announced in April 2011 that KabulBank would be put into receivership. Earlier this month, a trial began for morethan 20 people indicted in the debacle, which has become a symbol of thecountry's deep-rooted corruption and cronyism. The case is being closelyfollowed by Afghans and international donors because it is a barometer ofgovernment officials' pledge to root out patronage, graft and showaccountability to international donors.
The report said Afghan authorities learned in late 2009 that"Kabul Bank was moving money through food trays" on flights operatedby Pamir Airways, a multimillion-dollar Afghan airline that was establishedwith loans from the bank and has since gone out of business.
An official knowledgeable about the report said as much as$900 million — a majority derived from loan schemes — was moved out of thecountry through electronic transfers between March 2007 and April 2011. Thatmoney, the official said, ended up in bank accounts in 28 countries, includingthe United Arab Emirates, Latvia, China, Turkmenistan, Britain, Kazakhstan,South Korea, Turkey, Russia, the United States and Switzerland.
The official spoke on condition of anonymity because he wasnot authorized to disclose the information, which was not included in thereport.
According to the report, 10 Pamir Airways pilots were paid$320,000 in salaries between March 2008 and November 2010 under the descriptionof "pilots of cash delivery."
The report said the Afghan attorney general's officerecently asked for international assistance in tracking the funds abroad butthe request was limited to help from four countries — Switzerland, France,Britain and India — for information on funds tied to the former top two bank executives.
The report also criticizes the attorney general's office fornot undertaking a substantial probe into the bank until April 2011 — a yearafter the news of the bank's problems surfaced, eight months after nervouscustomers ran to withdraw deposits and five months after the central bank hadasked the attorney general's office to start a criminal investigation.
The indictment names more than 20 bank executives, bankemployees, central bank workers and others who allegedly benefited from thefraud. The charges include money laundering, misuse of authority, usingcounterfeit documents and opening accounts under pseudonyms. But the reportclaims the indictment is tainted by political influence.
"Information received during the inquiry indicates thatthe final decision about who to indict was made at the political level in thespring of 2011 by a high-ranking committee — and that prosecutors from theattorney general's office were called in to amend the indictment to conform tothe decisions taken," the report said.
Basir Azizi, a spokesman for the attorney general's office,said Tuesday that the Kabul Bank case was not treated as a political issue.
"We strongly reject any comments that the attorneygeneral's office dealt with this case as a political issue," he said.
The committee also is critical of the special tribunal thatKarzai created to hear the case. The report said the tribunal has hadoff-the-record meetings with accused individuals and potential witnesses, hasconducted its own probes on the sidelines and has held meetings withshareholders, urging them to repay money — a job tasked to the receivership.
As of Oct. 31, the receivership has recovered $135.3 millionin cash as well as assets with a book value of $181.1 million, according to thecommittee.
The report gives the Afghan central bank credit for carryingout various examinations of the bank, saying it tried to take enforcementmeasures or corrective actions four times after consistently spottingregulatory violations. But the committee said that unless the central bank andother Afghan institutions move to operate independently, stand up to politicalinterference and hold wrongdoers accountable, the Afghan government will neverbe able to sustain a fully functioning democracy.
The report said $861 million, or 92 percent of Kabul Bank'sloan book, went to 19 individuals and companies. Among them are key bankshareholders, including Sherkhan Farnood, the former bank chairman and aworld-class poker player, former chief executive officer Khalilullah Ferozi,and the brothers of Karzai and first Vice President Mohammad Qasim Fahim.
Other bank funds — an estimated $66 million — were spent onlavish expenses, cars, rent, bonuses, salary advances and salaries foremployees that did not exist
In 2009, the central bank advised Afghan banks to refrainfrom making political contributions in the presidential campaign.
"This letter was not enough to dissuadeKabul Bank, which reportedly provided millions of dollars to the campaign of atleast one presidential candidate — in addition to dozens of cars, and paymentof the entire media campaign including billboards and televisionadvertisements," the report said.