The Karzai government has been badly tainted by the bank scandal, which has shaken public and investor confidence in Afghanistan’s fledgling financial sector and exposed a culture of cronyism and questionable banking practices among the country’s small political and financial elite. A brother of Karzai, who is a shareholder of the bank, is on the list of questionable insider loan recipients.
In a brief interview Thursday night, Attorney General Mohammed Ishaq Aloko said the evidence against Farnood and Frozi is “quite clear. They were involved in corruption, fraud and misusing people’s money. I myself gave the order to imprison them because we have enough evidence and reason against these people.”
Aloko said the arrested men had invested the bank’s money improperly in an airline, a television station and other businesses. He said Farnood had set up a money exchange business in Dubai, known as Shaheen Exchange, through which he had transferred more than $450 million.
“We have begun an investigation and we will put them on trial,” he said. “We will thoroughly and precisely investigate anyone inside or outside of Afghanistan who is involved in this case.”
Rahmatullah Nazari, the deputy attorney general, said Farnood and Frozi were being held at the prosecutor’s headquarters in the capital. He said they would “be with us for interrogation for a month, and after that we will refer the case to the court.”
Nazari did not say what charges might be filed against the men.
Both Farnood, the bank’s flamboyant ex-chairman, and Frozi, its former chief executive, have been under house arrest in Kabul for months. Both officials were reported to have used large amounts of bank deposits for personal business ventures or property investments.
The announcement came several days after another dramatic development in the Kabul Bank scandal. The chairman of Afghanistan’s Central Bank, Abdul Qadir Fitrat, fled to Virginia and declared that his life was in danger because he had revealed the names of prominent loan recipients.
Afghan prosecutors denied Fitrat was under threat and said he had fled to avoid being implicated in the bank’s mismanagement. They said they had issued an arrest warrant for him with Interpol. Fitrat is a permanent legal resident of the United States and said he intends to remain there.
Nazari said Fitrat’s flight to the United States had prompted authorities to detain Farnood and Frozi for fear they, too, would leave the country.
Kabul Bank’s troubles erupted last year after revelations of massive insider loans to prominent bank shareholders that had not been repaid or properly secured, creating potential bank losses of nearly $1 billion. The revelations provoked a run on bank deposits by panicked Afghans.
Late last year, the bank was taken over by the Central Bank. But its continued problems and central role in state finances have made the International Monetary Fund wary of extending new credit to Afghanistan. U.S. and other Western officials say the IMF has refused to approve $70 million in funding, including money to pay Afghan civil servants, until Afghanistan addresses concerns about its financial system.
Afghan officials said Thursday that they plan to make further arrests based on the findings of the investigating commission. Nazari said those likely to face arrest and charges included current Kabul Bank officials, officers of the Central Bank and individuals who had borrowed money based on forged documents.
In April, Fitrat testified before the Afghan parliament and said that a group of powerful Afghans, including Karzai’s brother Mahmoud, a business developer, and a brother of First Vice President Mohammed Qasim Fahim, had received questionable loans from the institution, where they were both shareholders.
Fitrat said Monday in Northern Virginia that he had received death threats because of his disclosures and that his life in Afghanistan had become “completely endangered.”
Two weeks ago, central bank officials announced that more than $900 million was missing from Kabul Bank because of improper loans to shareholders. Borrowers had pledged to repay $483 million, officials said, but only $62 million had been recovered.