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Kabul Bank Scandal: If At First President Ghani Does Succeed

Kabul Bank Scandal If At First President Ghani Does Succeed

By: Waheed Rahimi

The newly elected Afghan president, Ashraf Ghani has begun his anti-corruption campaign on the first week of his presidency. He is promising to curb fraud in the world’s third most corrupted country. Ghani assured that his administration would be more transparent and accountable than expected by the donor countries. In an interview a few days ago, he emphasized that “I am not corrupt and I am not going to encourage corruption, tolerate it or become the instrument”. He promised that he could lift up Afghanistan to hundred places in the Transparency International corruption index. In a first step to fight corruption, Ashraf Ghani issued a decree to resume the Kabul Bank fraud tribunals. The prosecution of Kabul Bank’s wrongdoers would be a test of Afghanistan’s new president’s commitment to addressing the corruption at high levels and stabilizing the Afghan fragile economy.

Kabul Bank was one of Afghanistan’s largest private financial institutions founded in 2004 by Sherkhan Farnood, who was an international prominent poker player. Khalilullah Fruzi, the former chief executive of the bank, was another key staff, and shareholder of Farnood in Pamir Airways, as well. Mahmood Karzai, brother of the former president, Hamid Karzai, and Haseen Fahim, brother of the former vice-president, Marshal Qasim Fahim, were among those shareholders of the bank who received millions in loans.

Although the bank was functioning increasingly professional with more than $1 billion in deposits from a million of Afghan customers, but the small clique of executives and shareholders that had used the loans under false names for their own amelioration as well as the neglect of the central bank over controlling the private financial institution led the bank to the rim of collapse. The bank was taken over by the government due to fear of its failure and the bail-out cost almost 5-6 per cent of the country’s GDP. After the receivership of the bank, the bank continues to function under a new name, or “New Kabul Bank”.

Unfortunately, Hamid Karzai had failed to prosecute the Kabul Bank’s scam. His reluctance was due to Kabul Bank’s shareholders and the financial supports that Karzai had received in 2009 re-election campaign. Also, the government auditors who had tried to conduct a rigorous inspection were intimidated and harassed by death threat and some of them were being paid handsomely to cover up the fraud. Consequently, it had decreased the integrity of the auditors’ report. For some reasons, the Kabul Bank’s fraud scandal is described as a ‘Ponzi Scheme’.

Ashraf Ghani, a Columbia-trained anthropologist with zero tolerance against corruption, made oath to lift Afghanistan to a better place in the Transparency International corruption index. The fraud case of Kabul Bank would be a big test of Ghani’s principle in fighting the endemic corruption against all those corrupted villains who were enjoying the aggressive political supports of Karzai’s government. The prosecution of Kabul Bank’s wrongdoers would pavé the route for justice and transparency, and it will enhance the people’s trust on Ghani’s commitment. Meanwhile, the public knowledge of their rights and current affairs has been changed greatly and they are assessing Ghani’s administration against his campaign pledge on a day-to-day basis.

If president Ghani does succeed to address corruption at high levels such as the Kabul Bank fraud scandal, it will drive to boost his credibility on anti-corruption campaign and gaining international prestige. If he fails to do so, it would be difficult to achieve success in gaining the public supports for the future plans.

The widespread corruption is a rein toward international financial support; any concrete actions against these grafts would attract further foreign aid and investment on infrastructure and mining sectors. Over the past 13 years, lack of transparency had decreased the effectiveness of the foreign aid. In other words, only 38 per cent of donor aid reached the country, the rest either never existed or fled away through contractors. It appeared that aid spent on Afghanistan is not equal to the aid sent to Afghanistan; it was more like phantom aid. Given that, widening efforts to eliminate corruption in all sectors would retain further foreign and domestic investments and could help drive economic growth and stability.

Waheed Rahimi is a researcher based in Kabul and he can be reached at: OR twitter @wrafg


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