Death threats over inquiry into $1bn bank scandal

Afghanistan’s finance minister has received death threats over his handling of a banking crisis that has mired Kabul’s political elite in accusations of corruption and fraud.

Finance Minister Omar Zakhilwal told American and European ambassadors in a meeting earlier this year that the threats on his life had forced him to move members of his family abroad.

Zakhilwal is currently under intense pressure from the International Monetary Fund to find a way out of a scandal that implicates Kabul’s ruling class in a case of fraud totalling almost $1 billion.

This week, the finance minister ordered a forensic audit of Kabul Bank, which handled the salaries of 300,000 soldiers, policemen and civil servants.

The investigation threatens to reveal in detail how the bank’s senior executives and shareholders, who include the brothers of both the president and vice-president, used Afghanistan’s largest private bank like a personal slush fund.

Afghan and Western officials describe how Afghanistan’s largest private bank, which nearly collapsed in September after allegations of insider lending were made public, was run as a “ponzi scheme”.

They say documents reveal how its politically connected shareholders and directors took money from the bank to buy a string of luxury villas in Dubai and two shopping centres in Kabul.

The shareholders also invested in an airline and oil and gas businesses, some of which have no assets or operations, according to Afghan officials at the Central Bank.

There are also allegations that bank officials bribed Afghan cabinet ministers to ignore the bank’s fraudulent dealings and gave millions of dollars to President Hamid Karzai’s 2009 election campaign, which was itself tainted by accusations of voter fraud.

“They (the shareholders and executives) are terrified of what else will come out in public from all of this,” said Obaidullah Barakzai, the head of the parliamentary complaints commission, which is investigating how the government overlooked the fraud.

“There are lots of people who stand to lose financially and politically. They don’t want the details coming out. You could see why death threats are flying around.”

The IMF has suspended its aid programme to Afghanistan until it is satisfied that the Afghan government is serious about solving the crisis by recouping the loans and prosecuting those responsible for the scandal.

The IMF’s decision has forced donor countries, including Britain’s Department for International Development, to withhold millions of dollars in aid money that pays for the salaries of teachers, health workers and government employees.

“If the IMF doesn’t show some leniency then it will be catastrophic for the country,” said a senior aide to the minister, who spoke on condition of anonymity.

In a meeting earlier this month, which was attended by Minister Zakhilwal and senior representatives from foreign embassies in Kabul, the head of the United Nations said that the finance minster was at breaking point because of the IMF’s refusal to back down on some of its demands.

“He (Zakhilwal) has suffered great personal risk over the issue and there is a fear that he might throw in the towel from frustration and stress,” the UN’s special representative to Afghanistan, Staffan di Mistura, told embassy representatives before Minister Zakhilwal entered the room for the meeting.

The IMF also wants the Finance Ministry to ensure that the bank’s shareholders and directors repay the almost $1 billion in irregular loans to the bank before June 30.

The ministry has asked Interpol to seize their assets should they fail to pay the money back, according to the minister’s senior aide. Azizi Bank, whose directors are privately suspected of conducting similar fraud, will also be targeted by the ministry’s forensic audit.

But Zakhilwal himself has not escaped from the scandal untainted. The finance minister also allegedly accepted briefcases stuffed with hundred of thousands of dollars from senior bank executives to fill the coffers of President Karzai’s election campaign.

The minister, who believes the allegations are part of a coup against him, refused to respond to the allegations.

His aide said the attorney-general had cleared Zakhilwal of any wrongdoing. In the past, the attorney-general has been accused of blocking investigations into members of the president’s inner circle.

Critics of the government’s reaction to the banking scandal doubt the government’s sincerity in bringing those responsible for the eight-month old crisis to justice.

The central bank claims that Kabul Bank’s directors kept two sets of records documenting the loan payments: a fake one in Dubai and a real one in Kabul.

“In other places, there is a system that controls the country but in Afghanistan people control the system,” said Hayat Dayani, an economic analyst and former head of the state-owned Pashtany Bank.

“The Kabul Bank scandal was a big problem but who closed their eyes is an even bigger problem. The Central Bank says the perpetrators have hidden the loan documents from us. This is not even an argument.”

Critics say that the Central Bank’s investigation is a sham. As examples, they point to the fact that the current CEO of the bank, who took over when the government sacked the former director and placed the bank in receivership, was arrested by Afghanistan’s intelligence agency one and a half years ago. He also has no prior experience of heading a private bank.

Similarly, the central bank’s representative in charge of the committee looking into the crisis is in his mid-twenties and has only two years experience in financial matters. He is also a relative of the governor’s.

“Does Afghanistan have no one else?” Asked Mr Dayani. “At least someone with grey hair and knowledge of the banking sector. You see the crisis, you see the IMF involvement and then you see a kindergarten child. It makes you speechless.”

The government is putting together a criminal case against the bank’s former chairman, Sher Khan Farnood, to ensure that he can’t “wiggle away”, according to one western diplomat.

Farnood, a world-class poker player who is described by western officials as an Afghan Bernie Madoff, is accused of taking $504 million from the bank.

Farnood used $150 million to buy a string of luxury villas in his and his wife’s name on Dubai’s glitzy Palm Jumeirah – a manmade island that juts out into the sea in the shape of a palm tree, where David Beckham also has a house.

Members of Afghanistan’s political and economic elite, including the president’s brother Mahmoud Karzai who owned a 7% stake in Kabul Bank, then moved into the villas.

Western and Afghan officials believe Farnood, who is under house arrest in Kabul, will be made the fall guy for the scandal. They privately doubt that other shareholders such as Mahmoud, who denies any wrongdoing, will be prosecuted for their involvement in the scandal.

In some cases, the bank concealed the identities of the loans’ true recipients by giving money to fictitious individuals and companies or to anonymous borrowers, making it harder to trace the cash payments.

Bank documents and the testimony of several Afghan and Western officials involved in the case reveal the complex web of personal relationships and business interests that prevented the massive fraud at the bank from being spotted sooner.

The loans were either given to Kabul Bank’s shareholders, who all knew each personally, or to companies in which those same shareholders and the bank’s directors either had a stake or were in charge.

For example, the bank poured $98 million into the airline Pamir Airways, which was run by bank chairman Farnood, the bank’s deputy chairman Haji Khalil Ferozi and the vice-president’s brother Haji Abdul Hassin Fahim.

Loans were also given to Gaz Group, another company run by the same three men. Kabul Oil, whose four main shareholders include the vice-president’s brother Fahim, the governor of the northern province of Balkh and former Kabul Bank chairman Farnood, was also given millions of dollars in loans with little or no interest and no repayment date.

A coal and cement business headed by Fahim and Mahmoud Karzai also received millions in loan payments from the bank.

It is unlikely the money given to Kabul Oil will ever be repaid because the company has no assets, according to Afghan officials.

The money given to Pamir Airways, which is banned from flying because of its poor safety record, is also unlikely to be recouped because it’s assets – a small, aging fleet of aircraft – are almost worthless.

The airline offered heavily discounted airfares to passengers travelling between Kabul and Dubai in a bid to drive out competition. But there are now fears the airline may also have been used to smuggle drugs out of the country.

Criminal prosecutors are investigating links between the airline and the multi-million dollar drug trade, according to one source at the attorney-general’s office. It has long been suspected that officials in government have links to the opium trade.

The parliamentary complaints commission, which is looking into the allegations, has ordered the Finance Ministry and the Central Bank to submit documentation this week showing where the money went, who took it and how it disappeared.

“We want the precise details,” said the head of the commission, Barakzai. “MPs want to know why ministry and the central bank remained silent while the bank continued to take all this money out of the country. Why didn’t they take any action against them?”

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