Audit Says Kabul Bank Began as ‘Ponzi Scheme’

- This is how well the ‘nation building’ in Afghanistan is going.   Oh, American tax money well spent!   

- dennis

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KABUL, Afghanistan — Kabul Bank became Afghanistan’s largest financial institution by offering the promise of modern banking to people who had never had a saving or checking account. What it really dealt in was modern theft: “From its very beginning,” according to a confidential forensic audit of Kabul Bank, “the bank was a well-concealed Ponzi scheme.”

Afghan and American officials had for years promoted Kabul Bank as a prime example of how Western-style banking was transforming a war-ravaged economy. But the audit, prepared this year for Afghanistan’s central bank by the Kroll investigative firm, gives new details of how the bank instead was institutionalizing fraud that reached into the hundreds of millions of dollars and obliterated Afghans’ trust after regulators finally seizedthe bank in August 2010 and the theft was revealed.

Going further than previous reports, the audit asserts that Kabul Bank had little reason to exist other than to allow anarrow clique tied to President Hamid Karzai’s government to siphon riches from depositors, who were the bank’s only substantial source of revenue.

At one point, Kroll’s investigators found 114 rubber stamps for fake companies used to give forged documents a more legitimate look. And the auditing firms used by the bank never took issue with loan books that were “almost entirely fraudulent,” Kroll found, recommending that the Afghan government explore suing the last such auditor, A.F. Ferguson & Co., a private Pakistani firm with a franchise under PricewaterhouseCoopers.

When Afghan regulators, aided by American officials, first discovered the extent of the fraud at the bank in the summer of 2010, “we never imagined that the criminality was as deep as it was, that it was so widespread and that it included high-ranking officials and their relatives,” said Abdul Qadeer Fitrat, at the time the governor of the Bank of Afghanistan, the country’s central bank.

“At the beginning, I received information from the U.S. Embassy that maybe $150 million or $200 million is gone in bad loans to powerful people,” he said. The number soon climbed close to $900 million, though “we did not know who took the loans and that they were all tied to a few individuals.”

What Kroll’s audit found is that on Aug. 31, 2010, the day the Bank of Afghanistan seized Kabul Bank, more than 92 percent of the lender’s loan portfolio — $861 million, or roughly 5 percent of Afghanistan’s annual economic output at the time — had gone to 19 related people and companies, according to the audit.

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