Following the money
After the crisis broke out last August, Kabul Bank’s employees combed through bank records in an effort to document who received Kabul Bank’s money.
After reviewing these records, the Afghan government alleged that Farnood illegally received loans totaling $497.1 million in the name of 163 companies, while Frouzi took $79.6 million associated with 37 companies, according to government documents obtained by The Washington Post. (Farnood said that he did not end up with the vast majority of the money but that bank loans in his name were given to other people.)
To facilitate these transactions, Kabul Bank relied on Shaheen Exchange, a Dubai-based money transfer business that Farnood owned before starting Kabul Bank and that had representatives inside the bank’s headquarters. To skirt regulations about loans to insiders such as shareholders that exceeded legal limits, the bank issued loans in various names and transferred money to Shaheen Exchange, which would then reroute the money back to Afghanistan and keep records of the actual recipients, according to several former bank executives and shareholders.
Among the recipients, the documents show, was Mahmoud Karzai. The documents show that the $22.2 million he borrowed was recorded as 10 separate loans under names such as Abdul Rahim, Dawood and Sultan Mohammad Hafizullah LTD.
Mahmoud Karzai has acknowledged receiving loans, but said that he was unaware of the misleading practices and that he has now paid back all he owes, about one-third of the $22 million. He said he is not responsible for about $14 million because the sum includes a villa in Dubai, United Arab Emirates, owned by Farnood and shares of Kabul Bank that the government has stripped from him.
“They were probably thinking I was not supposed to get a loan so they put in these different names. They did this illegal stuff for all the loans,” Mahmoud Karzai said in an interview.
These lending practices raised red flags within the bank at least two years before the Central Bank takeover last August. Employees in the credit department regularly encountered loan files with missing documents, including absent business licenses and audited financial reports and sent warnings to the leadership about the problems.
Managers ignored the procedures for determining borrowers’ risks. “Whenever I sent any file with a high-risk rating,” one former bank employee recalled, “they’d send it back and say I had to change it to medium or low. So I did that.”
To create a veneer of legitimacy to fictional loans, financial documents were fabricated for front companies, according to two former bank employees.