Officials in Afghanistan Begin Investigation Into Possible Fraud at Troubled Bank

New York Times
KABUL, Afghanistan — Afghan officials have begun an investigation into possible fraud at Kabul Bank, four months after irregularities there led to a weeklong run on the bank by depositors.

The investigation was confirmed Friday by Amanullah Eman, the spokesman for the attorney general, who he said ordered the inquiry, which began a week ago. Mr. Eman said that if the investigation showed evidence of fraud by any people connected with the bank, they would be prosecuted.

In early September, the Central Bank replaced the management at Kabul Bank, Afghanistan’s largest, with its own officials after revelations that it had made $300 million in questionable loans to its own shareholders, more than allowed by law. Several of its shareholders were politically influential, including Mahmoud Karzai, a brother of President Hamid Karzai, and Haseen Fahim, the brother of the first vice president, Gen. Muhammad Qasim Fahim.

The investigation comes against a backdrop of an increasingly troubled Afghan banking industry, which has drawn the attention of the International Monetary Fund. It is seeking an overhaul of the entire Afghan banking system and has delayed its renewal of its main credit program for Afghanistan until the financial system’s problems are addressed.

Among the I.M.F.’s demands are that Kabul Bank, as well as other Afghan banks, undergo an outside audit, and that steps be taken to tighten banking sector supervision. It also wants the government to come up with a plan for ensuring that the losses from Kabul Bank do not continue to mount, according to Western officials and diplomats in Kabul who follow financial institutions. The monetary fund declined to comment on Friday.

It is necessary to recapitalize the bank, the officials said, but it is not clear where the money to do so would come from. The Central Bank’s chairman, Abdul Qadir Fitrat, had been urged by American and other Afghan officials to act on Kabul Bank as long ago as last June. He stepped in when the revelations of the bank’s bad loans in the real estate market in Dubai, among others, threatened a potentially catastrophic run on the bank.

After Mr. Fitrat publicly declared the bank sound, the run on it eased, and the Central Bank began notifying the shareholders that they would have to repay their loans.

It was unclear, however, if all of them would be able to do so, according to bankers and businessmen in Kabul familiar with the bank’s finances. Little if any of the money has been recouped, they said. Since last fall Western officials and the I.M.F. have been pushing for the Afghan government to commission an audit of Kabul Bank by an outside accounting firm, but they have met resistance from the government. One point of contention is who would pay for the audit: the Afghan government or Western donors.

The Afghan government wants to ensure that the results are not necessarily shared with outsiders, but if donors pay for the audit, then they would have a right to see the results. Another point of contention is whether the audit would be forensic, meaning that the results could be used in a subsequent prosecution of wrongdoers.

So far there has been no agreement.

“There are lots of contentious issues,” said a Western official in Kabul familiar with Afghan banking.

“And there’s not a lot of incentive for an accounting firm to want to do this,” the official said, adding that a couple had been approached but that they had decided for one reason or another not to pursue the contract.

Meanwhile, many Western diplomats and Afghan bankers fear the banking system remains ill-equipped to make lending decisions and move quickly if loans appear to be going bad, especially when the loans have been made to people with powerful government connections, as was the case with Kabul Bank.

In addition to being politically well connected, the bank has been Afghanistan’s most successful, with an extensive network of branches nationwide and innovative promotions, like a popular lottery for depositors. It also handles a large portion of the Afghan government’s payroll, including salaries for police officers, soldiers and teachers.

It was unclear if the recent move by the attorney general was part of a larger effort to focus on the banking system’s problems or merely an effort to deflect pressure by finding someone to blame.

“When it comes to Kabul Bank and the Afghan government, a lot of people in the government are upset with the principals in the bank and seem to be needing to find a scapegoat,” said a Western diplomat in Kabul.

Mr. Eman of the attorney general’s office refused to give any details of the investigation, and would not say which officials it was focusing on.