August 15, 2022

Afghans Arrest Two Officials Over Kabul Bank Collapse

According to Rahmatullah Nazari, the deputy attorney general, authorities arrested Sherkhan Farnood, the former chairman of Kabul Bank, and Khalilulah Frozi, its former chief executive officer, on Wednesday in connection with what Mr. Nazari said was $900 million in fraudulent loans to bank officers and insiders, many of them politically well connected.

Mr. Nazari declined to specify what charges have been brought against the two but said they were being held at the Kabul Detention Center for further investigation.

He said further arrests were expected in connection with the case, both among Kabul Bank figures and Central Bank officials.

These were the first arrests in the Kabul Bank affair since exposure of the bank’s huge losses last August. The move is likely to be welcomed by Afghanistan’s international backers, which have held up some aid to Afghanistan until government action is taken on Kabul Bank.

Some $900 million in loans were made to insiders with little or no collateral and even no repayment plan in what auditors have described as effectively a massive Ponzi scheme. Among loan recipients was Mahmoud Karzai, the brother of President Hamid Karzai, and Haseen Fahim, brother of First Vice President Muhammad Fahim.

The attorney general also brought charges this week against the governor of Afghanistan’s Central Bank, Abdul Qadir Fitrat, accusing him of taking millions in bribes to overlook the Kabul Bank fraud. Mr. Fitrat fled to the United States just before those charges were brought, saying he feared for his life because of his own efforts to expose the fraud.

The charges against Mr. Fitrat were brought only after Karzai administration officials, as well as Kabul Bank debtors, reacted furiously to an appearance by Mr. Fitrat at the Afghan Parliament, during which he named the prominent people who he said were resisting repayment of their loans.

“The Central Bank officially requested a special prosecution and a special tribunal to try those who have been implicated in fraud, mismanagement, misuse of funds and embezzlement of hundreds of millions of dollars from Kabul Bank,” Mr. Fitrat said, announcing his resignation last Monday. “To date, there is no information of any credible plan to try and prosecute these suspects. There is concern that the powerful individuals involved in this fraud will go unpunished while the Central Bank and its foreign advisors will ultimately be blamed.”

Until he fled Afghanistan, Mr. Fitrat had expressed confidence that the Central Bank would be able to recover much of the $900 million in loans and interest owed to Kabul Bank. On the orders of the Central Bank under Mr. Fitrat, Kabul Bank, the country’s largest, was broken into two entities, one a receivership to recover the bad loans, and the other consisting of performing loans, deposits and bank branches, which would eventually be sold.

The International Monetary Fund has refused to renew its credit program for Afghanistan pending action on Kabul Bank, which has resulted in the loss of $70 million in incentive funds so far and has blocked other aid programs from many donor countries. The I.M.F. wants Afghanistan to repay the bank’s losses out of its general revenues, rather than from donor money, but the losses potentially equal one year of Afghanistan’s total revenues. The agency has also demanded a forensic audit and legal action.

Western diplomats have said arrests and prosecutions of those responsible for looting the Kabul Bank would be a start toward satisfying concerns of the international backers.

Mr. Frozi and Mr. Farnood, both with their cellphones, were seen in a meeting room at the detention center, with some 15 visitors. They refused to talk to a reporter from The New York Times. “You destroyed the bank, now you want to destroy the detainees,” Mr. Frozi said, referring to coverage of the Kabul Bank crisis last summer. “Please leave me alone. Talk to the attorney general’s office, they’re the ones who did this.”

The two prisoners then turned to playing a game of chess.

Sharifullah Sahak contributed reporting.

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