Monday 31 January 2011 22.00 GMT
- Article history
Kabul bank, once Afghanistan's largest, was known to have been struggling to recover $300m of loans to politically well-connected businessmen who frittered it away on disastrous investments, including Dubai's real estate bubble.
But Mahmoud Karzai, the president's brother and a leading shareholder in the disgraced bank, said there was an additional $375m that investigators were trying to retrieve.
If true, the total amount owed exceeds the central bank's $400m bailout of Kabul bank last year, when revelations about the extraordinary dealings led to a run on the latter and the near collapse of Afghanistan's embryonic banking system.
It will also re-ignite concerns about the viability of Kabul bank and whether anyone will face criminal charges, given how intertwined it had become with the government of Hamid Karzai.
"The first $300m has been acknowledged by borrowers and some repayments have been made," the president's brother said. "But the rest are larger loans that they cannot pay because all the money is invested in these projects."
Even though Mahmoud Karzai insisted that all the money could eventually be recovered, and some loans had already been repaid, his figure is lower than the one obtained by the New York Times. Citing information from US and Afghan officials, the newspaper says losses could be as high as $900m – a huge figure in an impoverished, war-shattered country with a GDP of $12bn.
At a press conference today, Abdul Qadir Fitrat, governor of the central bank, denied the allegations, claiming that Kabul bank had loaned $540m of its assets.
But an official at the banking regulator told the Guardian that in September Kabul initially asked the government for a $700m bailout from its foreign reserves, which would ultimately be paid for by ordinary Afghans through their taxes if the money was not recovered from bank borrowers.
The central bank instead agreed to $200m in a bid to shore up confidence of customers, who include most of Afghan soldiers and policemen. When that proved insufficient it lent another $200m.
The request for $700m suggests that Kabul bank knew its liabilities were far higher than it chose to admit publicly. A former Afghan intelligence officer claimed that the $400m had already been "stolen" by some of the individuals involved.
Forensic accountants have been employed to try to unravel the mess at the bank that for years was run by two of the least likely executives: its chairman Sherkhan Farnood, an international poker champion, and Khalilullah Frozi, a former gem dealer.
One western official with knowledge of the case said it would be impossible to recover all the money, in part because of one of the scams allegedly employed by the bank to hide large loans that broke banking regulations.
Instead of the total sum being in one person's name, it would allegedly be lent in smaller amounts to family members and in some cases domestic staff, although they never received any money.
"In some instance when the limit was exceeded they created false companies and people," said Mahmoud Karzai (pictured below). But he added that he believed that in many cases it was obvious who the real borrowers were.
The investigators' task is made all the harder by the political clout said to have been purchased by the bank through campaign contributions to his brother's re-election campaign in 2009. Although such allegations have been made before, including last year by the opposition leader Abdullah Abdullah who told the Guardian that a Kabul bank guest house was used as a place to buy the votes of MPs, an article on the website of the New Yorker magazine, headlined "The Great Afghan Bank Heist", names former and current government ministers.
The article quotes unnamed US officials saying that Omar Zakhilwal, the finance minister, "was one of dozens of Afghan leaders and businessmen who, collectively, accepted tens of millions of dollars in gifts and bribes" from the bank.
Zakhilwal vigorously denied the claims, telling the Guardian that when he was approached by an offer of a personal donation of $200,000 to Hamid Karzai's re-election effort, he merely "directed" the money to campaign staff.
The finance minister said the bribe allegations reflected anger among some sections of the international community over his recent efforts to tax foreign contractors. "If anyone throughout my government career presents credible information that Kabul bank has bought me even a cup of coffee or a single penny from any business person, Afghan or foreign, I will submit my resignation," said Zakhilwal.
Renewed allegations about high-level corruption could further weaken the Afghan president, who has lost much of his influence over the country's MPs after he was humiliatingly forced last week to inaugurate a new parliament in which his political enemies now predominate. In a further blow, Karzai's favoured candidate for speaker, a former warlord accused of human rights abuses called Abdul Rasul Sayyaf, failed to win election.
From the US embassy cables
Confidential cables in the most recent release of material by WikiLeaks show that US diplomats were concerned about the bank long before it almost collapsed last September. These concerns included the bank's alleged use of depositors' cash to subsidise an airline it owned in an attempt to put rival carriers out of business.
In a February 2010 cable the US embassy warned that Kabul bank was the least liquid bank operating in Afghanistan and it was "highly exposed to the Dubai property market". The fact that the bank would often delay paying government workers' salaries for two weeks was an indication that it was strapped for cash and using the salaries to collect interest, the cable said.
It routinely ignored orders from the central bank, in theory the main regulator of commercial banks, telling it to phase out "lottery" accounts designed to entice depositors with the promise of winning a cash prize.
The bank, the cable revealed, was also planning to build a multimillion-dollar headquarters in Kabul with "three office towers encased in bulletproof glass" that would include three underground garages, a waterfall and a rotating restaurant on top.
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