Trail of Fraud and Vengeance Leads to Kabul Bank Convictions
By MATTHEW ROSENBERG
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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