| | Fraud Trial Begins in Multimillion-Dollar Afghan Bank Scandal The New York Times
11/19/2012
By Alissa J. Rubin
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KABUL - A major step toward resolving the loss of hundreds of millions of dollars from Kabul Bank began last week with the trial of nearly two dozen people, including the bank’s former chairman and former chief executive, who are accused of being the main architects of a colossal fraud.
The scandal at Kabul Bank, Afghanistan’s largest private financial institution, has laid bare the crony capitalism and corruption that has thrived here in the past decade. The bank was forced into receivership in 2010 under the weight of nearly $900 million in bad loans and missing funds. With this long-stalled trial, the government is trying to demonstrate to Afghans and international donors that it is able to hold powerful people accountable in corruption cases.
International donors, including the United States, the European Union and others, had demanded that the Afghan government take a series of steps to combat corruption in the aftermath of the collapse of Kabul Bank. One of the most important was to prosecute those who had perpetrated the fraud. For a year, the International Monetary Fund suspended Afghanistan’s program largely because of the government’s lack of progress in bringing to justice the people behind the bank debacle.
Now with the trial under way, donors privately say they are cautiously optimistic. And, as important, Afghans are watching as local television stations have begun to broadcast reports of the trial proceedings.
“The Afghans are working it through their legal system, which is what the international community has encouraged them to do,” said a senior American official, who asked not to be quoted by name because of the delicacy of the case. “And we will be watching for the result, as will the Afghans themselves.”
Another Western official said: “This is absolutely one of the two or three big-picture issues in Afghanistan today, along with the security and civilian transition. If this process is not credible, it puts into question a lot of the international commitments made to Afghanistan going forward.”
The three judges hearing the case listened intently on Saturday as two of the defendants made their opening statements. The judges then peppered them with questions about the bank’s practices, the system for transferring money and their failure to detect the fraud.
Ten more defendants facing a variety of charges will present their cases in the coming days, including former Kabul Bank officials and officials at the Central Bank, who prosecutors say should have known about the malfeasance and should have tried to stop it.
The trial opened on Wednesday, and the judges heard from five defendants, including the former bank chairman, Shirkhan Farnood, and the former chief executive officer, Khalilullah Frozi, who are accused of having engineered the fraud. At that hearing, the two, who are now at each other’s throats over who bears more responsibility for the bank’s collapse, lobbed insults and accusations at each other. Mr. Frozi, who also appeared at Saturday’s session, spoke loudly and loomed over the judges’ desk as he tried to make his points.
After Saturday’s nearly five-hour session, the chief judge, Shams Rahman Shams, said the case was not a simple one. “In fact,” he said, “this is a very complicated case and a world issue, and resolving this case cannot be completed in one or two days.”
When asked by local reporters if he was feeling any pressure related to the case, Judge Shams said: “The trial is going very well, it is transparent. We have not received instructions from any institution nor have we have accepted any orders, nor will we accept orders from any organizations.”
The case had appeared to be stalled for months as different government anticorruption commissions gathered information and the attorney general’s office questioned people, seemingly overwhelmed by the case’s complexity and the political connections of many of those involved.
The logjam was broken in April when President Hamid Karzai announced the appointment of a special prosecutor and a special judicial tribunal to handle the case.
Mr. Karzai was forced to act because of the case’s importance to international donors and because he appeared to want to demonstrate to Afghans that his government was willing to clamp down on corruption even when it involved people with close ties to the highest levels of government. The bank’s former leaders, Mr. Farnood and Mr. Frozi, had close ties to the presidential palace and gave shares in the bank to the president’s brother, Mahmoud Karzai, and the vice president’s brother, Hassan Fahim.
The tribunal began to gather evidence four months ago after the Afghan attorney general’s office announced its intention to file charges against nearly two dozen people. Initially, the attorney general named 21 people, but last week 22 defendants were scheduled to appear in court, Judge Shams said. Judge Shams said four or five had fled Afghanistan and would be represented by court-appointed lawyers.
Investigators have yet to complete the painstaking job of tracing where millions of dollars went. The case involves a combination of an elaborate Ponzi scheme, sloppily executed loans that were often made with little regard for the value of the real estate, assets or businesses being financed and outright gifts and perquisites that amounted to millions of dollars, according to officials close to the case.
News of the bank’s troubles began to leak out in August 2010 as it became clear that the amount of cash in the bank was hundreds of millions of dollars less than what depositors had put in. The Central Bank then replaced Mr. Farnood and Mr. Frozi with Massoud Ghazi, who testified on Saturday that when he arrived on Aug. 31, 2010, there was a deficit of $842 million: depositors had put $1.3 billion in the bank but only $448 million was on hand.
Subsequent accounting checks found that more money was missing, said officials familiar with an audit and a recovery of assets report done by Kroll Associates, a forensic accounting firm.
One of the most important questions is whether those accused of being the architects of the fraud will be found guilty under the money-laundering law, which would allow the government to obtain internationally recognized confiscation orders.
Of the roughly $900 million that was either stolen or given out in bad loans, a large portion is believed to have been squirreled away in foreign bank accounts and could be recouped if the Afghan government has confiscation orders, said Western officials familiar with Afghan law and international financial regulations.
Sharifullah Sahak contributed reporting.
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