Run on Afghan Bank’s Deposits Reported

Financial panic could spread through country and derail U.S. war effort

Michael Isikoff

National investigative correspondent

August 2, 2010

WASHINGTON — About $155 million in deposits have been withdrawn from Afghanistan’s largest bank in just the last two days, spurring fresh concerns among U.S. and Afghan officials that a financial panic could spread through the country and derail the U.S. war effort, according to bank insiders and U.S. officials.

Mahmood Karzai, the brother of Afghanistan’s president and one of the principal shareholders in the troubled Kabul Bank, told NBC News in a telephone interview that panicky depositors withdrew $70 million from the bank on Thursday. This is on top of an estimated $85 million taken out on Wednesday, he said.

Amid reports that Afghan government employees, including teachers, soldiers and policemen, were lining up outside Kabul Bank’s branches throughout the country to demand their money, Afghanistan’s Finance Ministry issued a statement Thursday declaring the bank was “reliable” and that deposits would be guaranteed.

But Karzai urged the U.S. government to take steps to calm the situation as well, saying continuing withdrawals could create a panic that might cause the bank to collapse and destroy Afghanistan’s fragile financial system.

“If this collapses, there will be a meltdown,” Karzai said.

According to him, the Kabul Bank had more than $1.3 billion in assets and about $500 million in cash on hand before the crisis began.

The prospect of a spreading financial crisis was triggered by new disclosures by Afghan officials and media reports this week that the Kabul Bank had allegedly violated the country’s banking laws by providing hundreds of millions of dollars in loans to influential insiders, including Karzai and others with close ties to President Hamid Karzai’s government.

In addition, the bank’s chairman, Sherkhan Farnood, a world-class poker player who is known for flying around the world to play in card tournaments, acknowledged in an interview with NBC that the bank had invested more than $160 million of the bank’s assets to purchase luxury villas and two residential towers in Dubai. Most of the multimillion-dollar villas with swimming pools were acquired at Palm Jumeirah, a fabulously opulent man-made island that juts out into the Persian Gulf in the shape of a giant palm tree and has been dubbed by its developers “the eighth wonder of the world.”

An aerial view shows the Palm Jumeirah development in Dubai in December. Villas purchased in the development are part of the Afghanistan bank scandal. (Photo credit: Matthias Seifert / Reuters)

Farnood and Mahmood Karzai both confirmed that the homes were acquired in Farnood’s name using bank funds and then turned over for the use of major bank shareholders, such as Karzai, who owns about 9 percent of the bank, and Haseen Fahim, the brother of Muhammed Fahim, Afghanistan’s first vice president. Asked why he put the bank-acquired homes in his own name, Farnood said: “It was easier” to do it that way.

U.S. officials have described the Palm Jumeirah properties as a galling symbol of the massive movement of capital out of Afghanistan by the country’s wealthy elite as well as the cronyism and corruption that plagues Karzai’s government. …

Mahmoud Karzai said he still has hopes the situation can be stabilized. So do U.S. officials: The Kabul bank is heavily used by the U.S. Embassy and by the Afghan government to pay the salaries of Afghan police officers and soldiers who are critical to the war effort.

Karzai, who lives in one of the Palm Jumeirah properties that he leases from the bank, defended his own activities, saying his business profits — which include investments in a cement company, restaurants and a major housing complex in Kandahar that had been financed with U.S.-backed loans — were being reinvested in Afghanistan. But he acknowleged that his luxurious Palm Jumeirah home had created public relations problems. “I’m going to move,” he said.

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9/5/10 Update

Afghans continue pulling money from troubled bank

Afghan men wait to enter the Kabul Bank to withdraw money, in Kabul, Afghanistan, Saturday, Sept. 4, 2010. Crowds gathered at Kabul Bank branches around the capital to withdraw dollar and Afghan currency savings, with customers saying they had lost faith in the bank’s solvency following a change in leadership and reports that tens of millions of dollars had been lent to political elites for risky real estate investments. (Photo credit: Ahmad Massoud /AP)

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6/28/11 Update

Afghan Central Banker Resigns, Fears for Life

Flees to U.S. after role in investigating Kabulbank scandal

Abdul Qadir Fitrat, the governor of Afghanistan’s central bank holds up a certificate to journalists as he briefs them in April on the Kabulbank crisis during a press conference in Kabul. (Photo credit: S. Sabawoon / EPA file)

By Doug Palmer

June 27, 2011

CHANTILLY, Va. — Afghanistan central bank Governor Adbul Qadir Fitrat said on Monday he has resigned his post because he feared for his life following his role in investigating a scandal surrounding Kabulbank. …

Corruption, bad loans and mismanagement cost the politically well-connected Kabulbank, Afghanistan’s biggest private lender, hundreds of millions of dollars in what Western officials in Afghanistan openly call a classic Ponzi scheme.

Fitrat also said “high political authorities” in Kabul had undermined the central bank’s effort to investigate Kabulbank. …

Asked if he was referring to Afghanistan President Hamid Karzai, Fitrat answered: “I just refer to high political authorities of the country.” …

Waheed Omer, the chief spokesman for Karzai, told Reuters in Kabul that Fitrat was on a list of people the attorney general’s office planned to prosecute over the scandal.

“This is not a resignation, this is treason to the Afghan people and a very irresponsible act,” Omer said. …

Kabulbank doled out nearly half a billion dollars in unsecured, undocumented loans to a roster of Kabul’s elite, including ministers, relatives of Karzai and a vice president, and a powerful former warlord, anti-corruption officials say. …

The bespectacled, balding U.S.-trained economist was accompanied by two friends and appeared at ease, despite his concern for his safety. He booked a room at a mid-price hotel near Dulles International Airport to announce his resignation but only Reuters and an Afghan news agency showed up. …

The scandal has endangered future support for Afghanistan through the International Monetary Fund. …

IMF backing is a crucial seal of approval for many international donors before they pledge assistance to aid-reliant Afghanistan. Tens of millions of dollars in scheduled aid payments have been delayed over the past three months because of the impasse between Kabul and the IMF. …

Fitrat took over as head of the central bank in 2007 after being nominated by Karzai. He also held the position briefly in 1996, the year the Taliban came to power in Afghanistan.

He served as an economic consultant to the IMF in Washington in the late 1990s, was in private banking in Northern Virginia after 2000 and then served as an adviser to the World Bank until 2007.

Fitrat, who has a so-called “green card,” which allows him to live in the United States, said he has no future plans yet.

Full story

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Related report on this site

Breathtaking Afghan Corruption (Dec. 2, 2010)

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AFGHANISTAN WAR UPDATE

Chaplain is 1st Killed in Action Since ’70

Capt. Dale Goetz

NBC News’ Jim Miklaszewski and The Associated Press via MSNBC.com
September 2, 2010

KABUL, Afghanistan — A chaplain who died in Afghanistan this week was the first Army clergyman killed in action since Vietnam, military officials said Thursday.

Army Capt. Dale Goetz of the 4th Infantry Division was among five U.S. soldiers killed when their armored vehicle was hit by a roadside bomb in southern Afghanistan on Monday. Goetz was in a convoy traveling from one forward operating base to another, where he counseled soldiers. Witnesses said the vehicle was a Humvee.

Before Goetz, the last Army chaplain to die in action was Phillip Nichols, who was killed by a concealed enemy explosive in Vietnam in October of 1970, said Chaplain Carleton Birch, a spokesman for the Army chief of chaplains.

However, Army Chaplain Tim Vacok was gravely injured by a roadside bomb in Iraq in 2006 and died in 2009 from a fall at a Minnesota nursing home, where he was being cared for because of his war injuries.

The Air Force said none of its chaplains were killed later than 1970. A spokesman for the Navy Chaplain Corps, which also provides clergy to the Marines, didn’t immediately return a phone call.

Goetz, 43, is survived by his wife and three sons, all under the age of 10, all from White, S.D. The family is currently residing at Fort Carson, Colo.

Geotz was the pastor at the First Baptist Church in White before joining the Army in 2000.

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FROM THE ARCHIVES: One Year Ago — September 2, 2009

Bachmann: “Slit Our Wrists”

One year ago today, I reported that U.S. Rep. Michele Bachmann, in a fiery speech at an Independence Institute fundraiser in Denver that at times sounded more like the plot of a slasher movie, railed against the dangers of health care reform and other Democratic initiatives, warning the proposals “have the strength to destroy this country forever” and calling on her audience to “make a covenant, to slit our wrists, be blood brothers on this thing.”

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FROM THE ARCHIVES: Two Years Ago — September 2, 2008

On the Campaign Trail: Day 50

Two years ago today, on the 50th day of my 2008 campaign against U.S. Rep. Michele Bachmann in Minnesota’s 6th Congressional District, I reminded voters that there was just one week left until the September 9, 2008 Minnesota state open primary election, which offered disaffected Republicans, independents, and Democrats an opportunity to join forces and vote Rep. Bachmann out of office in the Republican primary.