Kabul Bank fraud scandal: Ex-officials arrested
Authorities have arrested two former executives of Kabul Bank for bilking scandal-ridden bank.
Kabul: Authorities have arrested two former executives of Kabul Bank for allegedly bilking the scandal-ridden bank of hundreds of millions of dollars, an Afghan prosecutor said Thursday.
It`s the first time that anyone has been arrested for activities at the nation`s largest bank, which nearly collapsed last year because of mismanagement and questionable lending.
Deputy Attorney General Rahmatullah Nazari said Sherkhan Farnood, former bank chairman, and Khalilullah Ferozi, the former chief executive officer, were arrested Wednesday and were being held in a detention center in Kabul. He would not disclose details about the charges they face, saying only that they are accused of together taking as much as $1 billion from the bank illegally.
A recent USAID inspector general report estimated that fraudulent loans diverted $850 million to bank insiders.
The arrests are the latest in the saga of Kabul Bank — now under the control of Afghanistan`s central bank. The troubled institution has became a symbol of the country`s cronyism and deep-rooted corruption and is now considered a bellwether on attempts to root out patronage and show accountability to world financial institutions, such as the International Monetary Fund.
Earlier this week, the former head of the Afghan central bank resigned after fleeing to the United States.
Abdul Qadir Fitrat said he left Afghanistan after receiving threats to his life. He complained that he was being made a scapegoat while the Afghan government had refused to charge politically connected individuals involved in making or receiving hundreds of millions of dollars in questionable loans.
"Since I exposed the fraudulent practices on April 27 in parliament I have received information about threats on my life," Fitrat told The Associated Press in a telephone interview Monday from a hotel in Northern Virginia. "To date, there is no information of any credible plan to try and prosecute these suspects for the crimes they have allegedly committed." After he left the country, the attorney general`s office said Fitrat and other central bank officials were facing allegations of failing to act on warnings about widespread corruption at Kabul Bank. Nazari said Fitrat would be prosecuted and that an arrest warrant for him had been sent to Interpol and the U.S. Embassy in Kabul to return Fitrat to Afghanistan for questioning.
Fitrat said he has permanent resident status in the United States and would not be returning to Afghanistan.
The Kabul Bank crisis began last year as the public discovered the bank made hundreds of millions of dollars in questionable loans to shareholders.
Farnood, a world class poker player, and Ferozi each had owned 28 percent of the bank`s shares. President Hamid Karzai`s brother, Mahmood Karzai, was the bank`s third largest shareholder with 7 percent.
Some of the questionable loans were used to buy luxurious mansions in Dubai, United Arab Emirates; and invest in risky prestige projects like an airline and shopping malls in Kabul. Many of the loans were made "undocumented," so there was no system to ensure they were paid back.
Earlier this month, The International Monetary Fund stopped an expected $70 million reconstruction payment to Afghanistan. The halted payment showed the displeasure of the IMF and other international donors who have pressed Afghan officials to do more to address problems at Kabul Bank and prosecute those responsible for its near demise. If donors remain unsatisfied, it could halt the billions of dollars that flow into a country reliant on foreign aid.