KABUL — The top two officials of Kabul Bank used fake names, forged documents, fictitious companies and secret records as part of an elaborate ruse to funnel hundreds of millions of dollars to shareholders and top Afghan officials, according to newly obtained documents and interviews.
The scheme overseen by Sherkhan Farnood, the bank’s former chairman, and Khaililullah Frouzi, the chief executive, helped to cover up a vast disbursal of funds to Afghanistan’s ruling elite, the documents and interviews with bank insiders as well as U.S. and Afghan officials show. Among the major recipients was Mahmoud Karzai, the president’s brother, who allegedly received $22 million in loans; some parliament members, warlords and cabinet ministers, including Mohammed Fahim, Afghanistan’s first vice president, are alleged to have received smaller sums.
Farnood and Frouzi were detained Wednesday night in the first high-level arrests since the scandal began. Both deny responsibility, and neither has been charged with a crime, but Afghanistan’s attorney general, Mohammed Ishaq Aloko, said in a brief interview that the evidence against them is “quite clear.’’
The documents, from the Afghan government and from the bank, provide the most detailed account yet of how the fraud was carried out in the years before it was discovered in 2010, forcing the Afghan government to take over the bank, split it in two, dissolve the shareholders’ assets and spend more than $800 million to bail it out.
The crisis at Kabul Bank has shaken confidence in Afghanistan’s financial system and caused the lapse of the International Monetary Fund’s line of credit, which has stymied tens of millions of dollars of foreign aid to the country. Now the job of recovering as much as possible of the $912 million in loans amounts to perhaps the most serious task for President Hamid Karzai’s government outside of fighting the Taliban.
Without a successful resolution of Kabul Bank’s problems, said one senior U.S. official, Afghanistan could face “the collapse of the banking sector.”
Senior prosecutors in Afghanistan announced the arrests of Farnood and Frouzi several days after a special commission, established by President Karzai last year to investigate charges of improper loans and financial mismanagement at the bank, completed its work and forwarded its findings privately to the government. The chairman of Afghanistan’s Central Bank, Abdul Qadir Fitrat, fled to Virginia this week and declared that his life was in danger because he had revealed the names of prominent loan recipients.
Frouzi could not be reached for comment for this article. But in an interview in May in Kabul Bank headquarters, Farnood called himself a “scapegoat” for a broader conspiracy of government and business leaders in which, he said, Frouzi had played a big part. Farnood, a world-class poker player, acknowledged that the bank had gone to extraordinary lengths to prevent Afghanistan’s Central Bank from discovering the extent of the unsecured insider lending.