Wednesday, April 4, 2012

Kabul Bank scandal: Hamid Karzai sets up special tribunal

Afghan-president-Hamid-Ka-008 Hamid Karzai is to set up a special prosecutors office and court to tackle a $900m (£567m) banking corruption scandal that threatened funding for his Afghan government, and has demanded all bad loans be repaid within two months.

Diplomats in Kabul were cautiously optimistic about the surprise announcement, which is the first sign for months of serious government action over the Kabul Bank scandal, a case that has become a benchmark for the Karzai administration's willingness to tackle rampant corruption.

Detention terms have also been tightened on the two main suspects, the bank's chairman, Sherkhan Farnood, and CEO, Khalilullah Ferozi, said a source with knowledge of the investigation.

They have officially been under house arrest, with leave to travel in order to identify and transfer assets, but have been seen around Kabul enjoying meals at high-end restaurants and gambling with friends, according to the New York Times.

Kabul Bank, which had ties to the family of Karzai and his first vice-president, nearly collapsed in 2010 and has since been described by western officials as a virtual Ponzi scheme. An initial Afghan investigation found there was no paperwork on loans worth nearly $500m.

Karzai's announcement followed the completion of a months-long independent forensic audit that should give a much clearer idea of who is responsible for what portion of the missing money.

"We look forward to seeing the results of these decisions, especially the return of assets stolen from Kabul Bank and prosecution of those responsible for the crisis," said a US official who declined to be named.

The plan was settled at a meeting packed with most of Afghanistan's top economic and legal officials, including the head of the central bank and the attorney general, suggesting Karzai had marshalled the support of the country's elite.

"It was decided that a special prosecutors office and a special tribunal be set up at the earliest to conduct the investigation and bring to the table those who have illegally taken loans from Kabul Bank and who are involved in the bank's financial crisis," the president's office said in a statement.

Some western officials said the decisions to set up a special court rather than referring cases to the attorney general, and to set a two-month limit for loan returns, suggested political motives behind the move.

The outgoing British ambassador to Kabul, William Patey, said in an interview last month that Britain could withdraw funding for the Afghan security forces if the government fails to tackle rampant corruption, and described the handling of Kabul Bank as a "litmus test".

"Kabul Bank is so symbolic, because it's two people [Farnoon and Ferozi] who have been caught red-handed," he said.

The announcement comes weeks before a Nato conference is expected to agree billions of dollars in long-term funding for Afghanistan's security forces, and shortly before the International Monetary Fund (IMF) is due to check progress on tackling the scandal.

The IMF last year suspended millions of dollars of aid to Afghanistan because it was not satisfied with the government's efforts, and could potentially do so again. "Progress on asset recovery related to Kabul Bank is one of the benchmarks for the upcoming first review of Afghanistan's IMF programme," said the US official.

The Guardian

 
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