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In Afghanistan, signs of crony capitalism
The audit officer said Farnood "thinks it is one big pot," but the entities are "legally definitely separate."
A new economy
In some ways, Kabul Bank is a symbol of how much has changed in Afghanistan since 2001, when the country had no private banks and no economy to speak of. Kabul Bank has opened more than 60 branches and recently announced that it will open 250 more, and it claims to have more than $1 billion in deposits from more than a million Afghan customers.
Kabul Bank prospers because Afghanistan, though extremely poor, is in places awash with cash, a result of huge infusions of foreign aid, opium revenue and a legal economy that, against the odds, is growing at about 15 percent a year. The vast majority of this money flows into the hands of a tiny minority -- some of it through legitimate profits, some of it through kickbacks and insider deals that bind the country's political, security and business elites.
The result is that, while anchoring a free-market order as Washington had hoped, financial institutions here sometimes serve as piggy banks for their owners and their political friends. Kabul Bank, for example, helps bankroll a money-losing airline owned by Farnood and fellow bank shareholders that flies three times a day between Kabul and Dubai.
Kabul Bank's executives helped finance President Hamid Karzai's fraud-blighted reelection campaign last year, and the bank is partly owned by Mahmoud Karzai, the Afghan president's older brother, and by Haseen Fahim, the brother of Karzai's vice presidential running mate.
Farnood, who now spends most of his time in Dubai, said he wants to do business in a "normal way" and does not receive favors as a result of his official contacts. He said that putting properties in his name means his bank's money is safe despite a slump in the Dubai property market: He can easily repossess if borrowers run short on cash.
A review of Dubai property data and interviews with current and former executives of Kabul Bank indicate that Farnood and his bank partners have at least $150 million invested in Dubai real estate. Most of their property is on Palm Jumeirah, a man-made island in the shape of a palm tree where the cheapest house costs more than $2 million.
Mirwais Azizi, an estranged business associate of Farnood and the founder of the rival Azizi Bank in Kabul, has also poured money into Dubai real estate, with even more uncertain results. A Dubai company he heads, Azizi Investments, has invested heavily in plots of land on Palm Jebel Ali, a stalled property development. Azizi did not respond to interview requests. His son, Farhad, said Mirwais was busy.
Responsibility for bank supervision in Afghanistan lies with the Afghan central bank, whose duties include preventing foreign property speculation. The United States has spent millions of dollars trying to shore up the central bank. But Afghan and U.S. officials say the bank, though increasingly professional, lacks political clout.
The central bank's governor, Abdul Qadir Fitrat, said his staff had "vigorously investigated" what he called "rumors" of Dubai property deals, but "unfortunately, up until now they have not found anything." Fitrat, who used to live in Washington, last month sent a team of inspectors to Kabul Bank as part of a regular review of the bank's accounts. He acknowledged that Afghan loans are "very difficult to verify" because "we don't know who owns what."
Kabul Bank's dealings with Mahmoud Karzai, the president's brother, help explain why this is so. In interviews, Karzai, who has an Afghan restaurant in Baltimore, initially said he rented a $5.5 million Palm Jumeirah mansion, where he now lives with his family. But later he said he had an informal home-loan agreement with Kabul Bank and pays $7,000 a month in interest.
"It is a very peculiar situation. It is hard to comprehend because this is not the usual way of doing business," said Karzai, whose home is in Farnood's name.