All Afghans pay bill for looted bank

  • Article by: DAVID ZUCCHINO , Los Angeles Times
  • Updated: November 28, 2012 - 7:56 PM

A report on the fall of Kabul Bank details massive scale of corruption at work.

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Afghan soldiers stood outside the main Kabul Bank office in 2010. The bank “was nothing but a fraud,” a report released Wednesday said.

Photo: Musadeq Sadeq, Associated Press

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SAROBI, AFGHANISTAN - Afghanistan, notorious for institutionalized corruption, has reached breathtaking new levels of officially sanctioned theft as fresh details emerge of a massive conspiracy to loot the privately owned Kabul Bank.

An independent review released Wednesday said hundreds of millions of dollars was embezzled in a sophisticated scheme that allegedly involved close associates of President Hamid Karzai, including his brother. The review described brazen fraud driven by cronyism and nepotism, perpetrated by politically connected Afghans who stole the bank's deposits and forced its collapse.

The fraud was abetted by weak oversight and a justice system perverted by political influence -- "the perfect environment" for fraud, a summary report said. Interference came from top officials loyal to Karzai, who the report said handpicked those to be charged in the fraud, diverting prosecutors from the well-connected who stole millions.

"Kabul Bank was nothing but a fraud perpetuated against depositors and ultimately all Afghans," the report said.

The inquiry outlined in the report was conducted by an independent commission made up of Afghan and international finance experts. It was financed by international donors.

Kabul Bank, which collapsed in 2010 and went into receivership in April 2011, was looted of $935 million in what the report said was one of the world's largest bank failures, representing nearly 6 percent of Afghanistan's gross domestic product. Ultimately, the bank had to be bailed out by Afghanistan's central bank, at a cost of at least $825 million.

The fraud undermined already shaky confidence in the country's nascent political, justice and banking systems as a multibillion-dollar U.S. nation-building effort struggled to create viable Afghan institutions.

More than 92 percent of Kabul Bank's assets, or $861 million, was reserved for 19 politically powerful individuals or companies, the 87-page report said.

Even after reports of the fraud caused panicked customers to stampede branches to withdraw their money, the attorney general's office waited seven months to mount a credible investigation.

Even then, the report said, "the final decision about who to indict was made at the political level." Prosecutors were summoned by senior presidential aides and told to make the indictments "conform to decisions made."

"This is the money from the budget of Afghanistan, from the pockets of the Afghan people," Drago Kos, chairman of the Independent Joint Anti-Corruption Monitoring and Evaluation Committee, said at a news conference in Kabul.

The committee's report said the fraud has forced the Afghan government to divert funds needed for education, health care and infrastructure: "Every citizen in Afghanistan will bear the cost of the hundreds of millions of dollars required to secure deposits and the tens of millions of dollars required to deal with the aftermath."

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