Saturday, March 9, 2013

KABUL, Afghanistan

March 5, 2013/NYTIMES

Trail of Fraud and Vengeance Leads to Kabul Bank Convictions

KABUL, Afghanistan — If Kabul Bank’s founder, Sherkhan Farnood, had not decided on a summer day three years ago that revenge was worth self-incrimination, he might never have seen the inside of a courtroom.

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.



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