Tags: kabul | bank | ponzi | scheme

Audit: Largest Afghan Bank Touted By US Began as 'Ponzi Scheme'

By Stephen Feller   |   Tuesday, 27 Nov 2012 02:36 PM

An audit of Kabul Bank, a major, Western-style bank in Afghanistan, has been revealed to be almost totally consumed by fraud, with the report referring to the bank as a "Ponzi scheme" connected to almost all levels of the Afghan government and beyond.

The New York Times reported nearly all of the bank's loans were fraudulent and that the institution’s existence appears to mainly have been to funnel money to people connected to Afghan President Hamid Karzai.

Afghan regulators first discovered the fraud in 2010, despite several private audits which never raised concern about problems with the bank’s records, according to an investigative firm hired by the Bank of Afghanistan, the nation’s central bank.

“We never imagined that the criminality was as deep as it was, that it was so widespread and that it included high-ranking officials and their relatives,” Abdul Qadeer Fitrat, the former governor of the Bank of Afghanistan, said in 2010.

“At the beginning, I received information from the U.S. Embassy that maybe $150 million or $200 million is gone in bad loans to powerful people... The number soon climbed close to $900 million, though we did not know who took the loans and that they were all tied to a few individuals.”

The New Yorker reported in 2011 that a group of Americans — made up of agents from the FBI, Drug Enforcement Administration, Treasury Department, and Pentagon — had compiled extensive evidence of bribery at the bank.

The concern at the time, the magazine said, was that so many of the people which the U.S., NATO, and other international forces work with in the country were involved.

Sherkhan Farnood, Kabul Bank’s chairman and his former bodyguard, Khalil Fruzi, the bank’s chief executive, are thought to have crafted the scheme and benefitted the most from it. The duo took money from investors and depositors in the bank for everything from buying homes in Dubai, to expensive meals, to helping bankroll Karzai’s re-election campaign in 2009.

Fruzi approached Karzai at a breakfast asking how to help his campaign, was directed to his treasurer and the next day delivered a suitcase filled with $200,000 in cash. The bank eventually did much more work with Karzai, bribing members of Parliament in exchange for votes, unnamed sources told the New Yorker.

Though much of its business was fraudulent, the bank was responsible for handling payroll, for example, for the U.S. for hundreds of thousands of soldiers, police, and teachers.

The international community has pushed hard for myriad prosecutions to take place against those responsible for turning the bank into a private treasury for anybody connected to the Afghan government.

Concerns also have been raised about the Afghan view of America’s influence on the formation of the country’s elected ruling order and relatively new capitalistic system as a result of the scandal.

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