But the halting and often obstructed investigation he helped fuel that day culminated on Tuesday with the first convictions in the Kabul Bank fraud scandal, a spectacular implosion of corruption that has undermined the credibility of the Afghan government and its Western benefactors.
Mr. Farnood was one of 21 people found guilty on Tuesday. But it was specifically his conviction and that of his chief executive and former bodyguard, Khalilullah Frozi, that American and European officials had warned would be necessary if billions of dollars of international aid was to continue to flow to Afghanistan. The two masterminds were convicted of a crime akin to fraud, sentenced to five years in prison and fined hundreds of millions of dollars, considerably lesser results than prosecutors had sought.
The path to those verdicts had been laid out in dozens of interviews since Kabul Bank nearly collapsed in 2010, with the main players offering details of the fraud scheme and their decision-making, including Mr. Farnood, shareholders and Afghan, American and European officials.
In the summer of 2010, Mr. Farnood stood atop a huge pyramid of fraudulent loans and kickbacks. But things were beginning to crumble, threatened by a perilously overstretched balance sheet and a power struggle for control of the bank among Mr. Farnood, Mr. Frozi and two other major shareholders.
Mr. Farnood was losing.
The enmity had become so great that Mr. Farnood was telling friends that he would rather bring down the bank than let his rivals have it.
In July, he got his chance when two American law enforcement agents investigating the mysterious flight of billions of dollars in cash from Afghanistan walked through the doors of his office in Dubai. Kabul Bank appeared to play only a tangential role in the cash smuggling. But the investigators had heard about the power struggle at the bank. They had a hunch that Mr. Farnood might talk.
He did more. Mr. Farnood, who had once won an event at the World Series of Poker Europe, went all in.
Within days, he was telling the Americans how the bank was basically a Ponzi scheme. Depositors put in money, and its owners took it out through fraudulent loans, lining the pockets of a narrow clique tied to President Hamid Karzai and his first vice president, Muhammad Qasim Fahim.
He told them how Mahmood Karzai, the president’s brother, had bought a 7 percent stake in Kabul Bank with a loan from the bank. He told them how Haseen Fahim, the first vice president’s brother, had taken millions of dollars deposited by Afghans to finance his own businesses, at least one of which won business from the American-led coalition. He told them about how millions in deposits had been used to finance President Karzai’s re-election campaign the year before.
He even told the investigators about the luxury villas he had bought in Dubai in his own name. How did he and his partners cover up a nearly $900 million fraud for so many years? Very simply, he explained: among their more creative ploys was to create fake letterheads and rubber stamps needed to make legitimate-looking paper trails for fictitious companies that were used to siphon money from the bank.
“I knew that this could be potentially huge,” said one American official familiar with the investigation, “when we found out there had been almost no capital ever invested in the bank.” The capital infusions in the bank’s records were financed with its own loans.
By midsummer in 2010, the Americans had warned the Afghan central bank about fraud at Kabul Bank. Regulators seized it that August.
By then, 92 percent of Kabul Bank’s loan portfolio — roughly $861 million, or about 5 percent of Afghanistan’s annual economic output at the time — had gone to 19 people or companies, according to an audit by Kroll Associates, an investigative firm.
Azam Ahmed, Habib Zahori and Sangar Rahimi contributed reporting.
Article source: http://www.nytimes.com/2013/03/06/world/asia/afghanistan-convicts-21-in-kabul-bank-scandal.html?partner=rss&emc=rss