Officials freeze assets of Kabul Bank shareholders, excepting Karzai's brother

By Andrew Higgins
Washington Post Foreign Service
Sunday, September 5, 2010; 10:07 PM

DUBAI, UNITED ARAB EMIRATES - Struggling to contain an escalating crisis at Kabul Bank, Afghan authorities have barred the sale of Kabul properties held by the bank's principal owners.

But the freeze excludes President Hamid Karzai's brother, Kabul Bank's third largest shareholder, who says he does not own property in the Afghan capital.

The Afghan Central Bank ordered the property-sale ban in a letter reviewed by The Washington Post. It was sent to Kabul municipal authorities and it targets five people, including Kabul Bank's two biggest shareholders - who were ousted last Monday as executives of the bank - as well as the brother of Afghanistan's vice president, who is both a shareholder and major borrower.

No restrictions were placed on the president's own brother, Mahmoud Karzai, who has also borrowed money from Kabul Bank, including $6 million that he used to buy a 7 percent stake in the crumbling bank.

"They couldn't freeze my property because I don't have it," Mahmoud Karzai said in a telephone interview from Kabul. "I don't have a single house or parcel of land in my name in Afghanistan."

Afghans frequently register their assets in the names of relatives or trusted friends. Critics of the Karzai family allege that Mahmoud has done this, but others dismiss such claims as a politically motivated smear.

Mahmoud Karzai holds a stake in an Afghan cement factory and is involved in a Kandahar property development, but when in Kabul, he stays in a rented property. He spends much of his time in Dubai, where he lives in a luxury villa purchased for $5.5 million with Kabul Bank funds. His principal asset, he said, is a house in Maryland, which he rents out.

The move to block asset sales comes as Afghan authorities struggle to hold the nation's largest bank together against waves of depositors demanding their money back. Amid reports that bank funds have been stolen in several cities, authorities want to try to stop bank insiders from selling assets purchased with loans that haven't been repaid.

The disarray at Kabul Bank, which still has more than 1 million customers and handles salary payments for soldiers, police and teachers, flows from a tangle of murky loans by shareholders to themselves and from risky investments in Dubai real estate. With so many Afghans' savings, salaries and political fortunes at stake, what began as a financial mess has morphed into a serious challenge to the credibility of President Karzai and his American backers.

Washington has ruled out using any American money for a bailout, despite fears that the collapse of Kabul Bank could leave soldiers unpaid and set back the fight against the Taliban, a struggle in which the United States has already lost more than 1,100 troops and has spent billions of dollars. During their own years in power in Kabul from 1996 to 2001, the Taliban banned private banks.

The central bank letter was signed by Noor Ahmad, head of the general office. It was first obtained by Tolo News, an Afghan 24-hour news channel. Central bank officials could not be reached for comment.

Some Afghan officials want the central bank to seize shares in Kabul Bank that were not paid for in cash. Around half the shares - including those of the president's brother and also of the brother of the vice president - were purchased with Kabul Bank loans. These loans, said Kabul Bank's founder and former chairman Sherkhan Farnood, are all still outstanding. Transferring the shares would lead in effect to the partial nationalization of Kabul Bank.

"I'm not in favor of nationalization," said Mahmoud Karzai, who suggested that the government simply lend Kabul Bank cash "when our money is finished."

The Afghan Central Bank, aided by U.S. Treasury Department advisers, is scrambling to work out a rescue strategy for early next week, when Kabul Bank's money is likely to run out. Since the panic began last week, withdrawals over just three business days have drained more than half of the $500 million Kabul Bank said it had in liquid cash.

On Sunday, armed officers from the country's national security agency surrounded the bank's headquarters in downtown Kabul, ringing its perimeter with concertina wire. The officials parked three pickup trucks in front of the building, including one mounted on the sidewalk by the main entrance, as throngs of depositors again waited to withdraw their cash.

President Karzai on Saturday ordered that police take over guard duties at Kabul Bank's branches across the country. Security had previously been handled by Khurusan Security Services, a company run by the brother of Kabul Bank's former chief executive, Khalilullah Fruzi.

When Masood Ghazi, a senior official at the central bank, took over as Kabul Bank's chief executive last Monday following a Karzai-ordered purge of the previous management, he brought with him his own bodyguards provided by the state.

Abdullah Abdullah, the top challenger to Karzai in last year's fraud-tainted election, on Sunday denounced the government's handling of the crisis during a news conference.

"The government of Afghanistan and the shareholders are responsible for this issue," he said. "If this bank was acting illegally for five years, why didn't the central bank take any action against it?"

Abdullah questioned whether state funds are being used to bailout the bank.

"What money will be channeled to the bank?" he said. "From what sources? These are the big questions and the Afghan people need answers."

An Afghan official said Kabul Bank has already run out of cash and is receiving government money to keep it alive. Others denied this.

Kabul Bank said it still has funds stored with the central bank, though these are shrinking fast.

At the start of the past week, Kabul Bank had around $1.3 billion in money from depositors. But most of this is tied up in loans, often to its own shareholders, and in Dubai real estate, so it cannot be used to pay depositors.

The central bank named four shareholders as barred from selling property in Kabul - Farnood, the ejected chairman; Fruzi, Kabul Bank's former chief executive; Haseen Fahim, the brother of Afghanistan's ailing vice president, Marshal Mohammed Fahim; and Shukrullah Shukran, the bank's deputy chief executive and a relative of Farnood's. The ban also applies to Gas Group, a company controlled by the vice president's brother, as well as an Afghan businessman with extensive debts to Kabul Bank, Abdul Ghafer Dawi.

Correspondent Ernesto Londoño in Kabul contributed to this report.

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