September 1, 2010 in Nation/World

Afghan officials take over bank

Karzai’s brother part owner of country’s largest private financial institution
Joshua Partlow Washington Post
 

KABUL, Afghanistan – Afghanistan’s Central Bank has taken control of Kabul Bank, a politically potent financial institution partly owned by President Hamid Karzai’s brother, and ordered its chairman to hand over $160 million worth of luxury villas and other property purchased in Dubai for well-connected insiders, according to Afghan bankers and officials.

The Central Bank’s intervention aims to shore up Afghanistan’s largest private bank, whose faltering finances threatened to wreak both economic and political havoc. Kabul Bank handles salary payments for Afghan soldiers, police and teachers, and has taken in more than $1 billion in deposits from ordinary Afghans.

U.S. officials have long worried that trouble at Kabul Bank could trigger financial mayhem, a prospect that would leave Afghan security forces without pay, threaten unrest by angry – and often armed – depositors, and gravely undermine President Obama’s entire Afghan strategy.

The decision to move on Kabul Bank was made by Karzai after evidence was presented to him about the bank’s illicit dealings by the Central Bank governor, Abdul Qadir Fitrat, at a meeting about a month ago. Top U.S. commander Gen. David Petraeus was present for the meeting, according to Kabul Bank insiders.

Some Afghan businessmen said they considered Karzai’s decision to confront Kabul Bank as his first significant move in the fight against corruption in Afghanistan.

In an effort to head off a possibly catastrophic financial meltdown, the Central Bank summoned Kabul Bank’s top management, including chairman Sherkhan Farnood and chief executive Khalilullah Fruzi, to its Kabul offices on Monday and ordered them to resign. In place of Fruzi, a former gem trader, authorities installed a Central Bank official, Masood Ghazi, to take charge of Kabul Bank’s day-to-day operations and to untangle a large portfolio of hidden, off-the-books loans, said people familiar with the discussions.

The bank had previously been shielded by the political clout of its shareholders, who include Mahmoud Karzai, the president’s brother, and Haseen Fahim, the brother of Vice President Mohammad Qasim Fahim, who is hospitalized for heart surgery in Germany, according to sources close to the situation. Kabul Bank also contributed to President Karzai’s fraud-tainted re-election campaign last year.

The Central Bank has not taken ownership of Kabul Bank, which has scores of branches across the country, only taken over its management. The new acting chief executive is expected to be in place for three months until the Central Bank can recruit independent management.

Murky transactions by Kabul Bank, first detailed by the Washington Post this year, include large property purchases in Dubai with bank money. The properties include 16 multimillion-dollar villas on Palm Jumeirah, a luxury development in the Persian Gulf, and two towers still under construction. All were registered in the name of the bank’s chairman, Farnood, a world-class poker player, and that of his wife.

Farnood stepped down as chairman Monday at the Central Bank’s request and agreed to transfer the titles to the Dubai properties to Kabul Bank. Several of the Palm Jumeirah waterfront villas, each with a swimming pool, are occupied by prominent Afghans including Mahmood Karzai, and the family of former vice president Ahmad Zia Massoud.

The precise state of Kabul Bank’s finances will not be clear until authorities complete a full review of its books, and the bank’s future will depend in part on the Dubai property market, where the price of real estate purchased with cash from the bank has slumped and created big losses, at least on paper.


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