By Matthew Rosenberg
KABUL—Investigators probing massive fraud that nearly brought down Afghanistan's largest bank have found the lender avoided scrutiny for years by giving clandestine loans—and sometimes outright bribes—to senior Afghan officials, said Afghan and U.S. officials and former bank insiders.
The Wall Street Journal, Jan. 31, 2011: While Kabul Bank's influence peddling has been widely known since it's near collapse in September, Afghan and U.S. investigators say the sheer scope of the alleged pay-offs is now just coming to light. Among those under suspicion for allegedly taking money from Kabul Bank are Finance Minister Omar Zakhilwal, Education Minister Farouk Wardak and former Interior Minister Hanif Atmar, Afghan and U.S. officials said.
Some of those who allegedly took Kabul Bank's money were until recently among a small core group of cabinet ministers touted by U.S. and European officials as potential reformers who would clean up the pervasive corruption that has undermined President Hamid Karzai's administration and fueled support for the Taliban.
The problems at Kabul Bank represent one of the most widespread and destabilizing corruption scandals to emerge in the nine-plus years since the U.S.-led coalition toppled the Taliban. Most of the government's own accounts are at the bank and it handles roughly $1.5 billion in coalition-financed annual salary payments to about a quarter of a million Afghan soldiers, police and teachers.
The involvement of senior Afghan officials with Kabul Bank is being seen by U.S. and European officials as the latest indication that two years of Western-backed anticorruption efforts have yielded little progress. While Kabul Bank's influence peddling has been widely known since it's near collapse in September, Afghan and U.S. investigators say the sheer scope of the alleged pay-offs is now just coming to light.
Among those under suspicion for allegedly taking money from Kabul Bank are Finance Minister Omar Zakhilwal, Education Minister Farouk Wardak and former Interior Minister Hanif Atmar, Afghan and U.S. officials said.
None of the three responded to requests for comment and they have not been charged with any crimes. Mr. Zakhilwal denied any wrongdoing in connection with Kabul Bank or corruption in general in an interview late last year. Mr. Karzai's office also did not respond to requests for comment.
Kabul Bank nearly collapsed in September after a run sparked by news that its two top executives—and top shareholders—had been replaced by the central bank over allegations of financial irregularities.
Apart from the alleged loans and bribes to politically connected people, the bank made large donations to Mr. Karzai's 2009 re-election campaign, Afghan and U.S. officials say. Its chairman has since acknowledged spending more than $150 million of the bank's money to buy Dubai villas in his and his wife's name. The villas were then occupied by members of Afghanistan's political and economic elite, including President Karzai's brother Mahmood, who owned a 7% stake in the lender, who says he since moved to a new Dubai home.
Afghan officials say the villas have been returned Kabul Bank, although some U.S. officials say they have not yet seen evidence of this.
All told, Kabul Bank's exposure could be anywhere between $800 million and $1 billion, said a Afghan central bank official.
In a brief telephone interview, Mahmood Karzai denied taking part in any wrongdoing at Kabul Bank, and blamed all of its ills on its former chairman, Sherkhan Farnood, a world-renowned poker player.
Other key shareholders in the bank have also blamed the bank's problem on Mr. Farnood, who did not respond to requests for comment.
The allegations come from bank records, personal records kept by Mr. Farnood and information provided by bank insiders and other people with knowledge of the pay offs and loans, say Afghan and U.S. officials.
Afghan officials have said Mr. Farnood, who owns 28% of Kabul Bank, was the original whistleblower who exposed the lender's alleged problems. They said he decided to come clean because he had grown tired of a feud that had pitted himself against his chief executive, Khalilullah Fruzi, who also owns a 28% stake, and Mahmood Karzai. Mr. Farnood has not himself acknowledged this.
The officials believe Mr. Farnood feared he was going to lose control of the bank to Messrs. Fruzi and Karzai. Mr. Fruzi could not be reached for comment.
The Afghan government has already pumped more than $500 million—a sum equal to nearly half the government's annual revenues—to keep the bank afloat, as first reported by The Wall Street Journal in November.
There are multiple overlapping investigations into Kabul Bank. The central bank is plowing through the books, assisted by U.S. advisors. The Afghan Attorney General's office is also looking into the matter, although it has long been criticized by Western officials for doing more to block corruption investigations than further them.
A parallel investigation is being run by U.S. officials. "Corrective action in response to any instance of abuse, poor banking practices or fraud is essential for public and international confidence in Afghan financial institutions," said U.S. Embassy spokeswoman Caitlin Hayden.
"We will offer Afghanistan any technical support we can that is requested and will continue to work with Afghan authorities in support of their efforts to ensure an effective response," she added, although she refused to directly comment on the U.S. investigation.
Western and some Afghan officials said they have seen one positive sign so far: major Kabul Bank shareholders, including Mahmood Karzai, are selling off assets to pay back loans under pressure from President Karzai.
They are being pressed because the International Monetary Fund has delayed renewing its assistance program to Afghanistan in part because of problems with banking sector regulation, Western and Afghan officials said.
That could cost the cash-strapped Afghan government billions of dollars in annual assistance. Most of the donor nations Afghanistan relies on to finance more than half its annual budget and billions more in development programs could be forced to delay aid because their own rules require aid recipients to be in good standing with the IMF, officials said.
Mahmood Karzai, whose 7% share of Kabul Bank was financed with a loan from the lender, said he was selling off his stake in Afghanistan's only cement plant. But he denied doing it because of pressure.
"I'm repaying every penny. No one can say that I am getting special treatment," he said.