$1bn fraud at Kabul Bank puts UK's Afghan pull-out in peril

IMF and Britain's foreign aid department both withhold money for reconstruction

Coalition plans to pull out of Afghanistan are being hampered by theft and fraud totalling nearly $1bn,
The Independent on Sunday can reveal. Hopes of a timely withdrawal of British troops from the region have been dealt a critical blow by revelations about massive bank frauds which have forced donors to suspend vital international aid.

The Department for International Development (DfID) confirmed last night that it had followed the lead of the International Monetary Fund (IMF) in withholding contributions to bankroll hundreds of "nation-building" projects in Afghanistan.

The move, to "protect taxpayers' money", came as the full extent of the scandal at Kabul Bank – described as the biggest fraud in modern times – became clear. A secret US government report into the debacle "indicates that insiders at Kabul Bank used fraudulent loans to misappropriate $850m (£525m), representing 94 per cent of outstanding loans".

The document points the finger at the former chairman and the former chief executive of Kabul Bank, and criticises the top accountancy firm Deloitte for not doing enough in response to allegations of corruption at the bank. It also highlights how auditors from PricewaterhouseCoopers (PwC) failed to spot any signs of fraud.

The IMF is now refusing to extend any more credit to the war-torn country unless an agreement can be reached on preventing future loans from being stolen.

General Sir Richard Dannatt, former head of the British Army, warned yesterday that the scandal has damaged the chances of an early exit from Afghanistan. He said: "Unless better governance and the rule of law can be firmly established from Kabul downwards, then the whole effort to persuade the Afghan people to back their own government, and not support the Taliban, will continue to be undermined, and any hopes of an early exit by us from Afghanistan will be dashed."

The impact of the corruption at the bank was revealed last night ahead of President Barack Obama's state visit to the UK, during which he is expected to underline the coalition strategy to pacify Afghanistan and withdraw forces by 2014.

The DfID confirmed it had withheld a payment of more than £80m to the Afghanistan Reconstruction Trust Fund. The fund pays for fundamental work and projects, including reform of the justice system, strengthening higher education and stimulating agriculture – all seen as vital to the country's chances of functioning as a stable democracy.

A DfID spokesman said yesterday that the International Development Secretary, Andrew Mitchell, had blocked the contribution in the wake of the corruption scandal "until he is satisfied British taxpayers' money can be properly protected".

Sherkhan Farnood, the bank's former chairman, took more than half a billion dollars in loans. Mahmud Karzai, brother of the Afghan President, received $22m. They are among 10 prominent officials to have taken huge loans who were named last month by Afghanistan's central bank president, Abdol Qadir Fetrat, in the Afghan parliament.

US government documents, part of a recently released report that has now been classified, reveals how US officials are in no doubt as to the extent of the losses, and who is to blame.

The memorandum from USAid, part of a report into the Kabul Bank by the government watchdog the Office of Inspector General, says: "The massive fraud was a criminal act by the chairman of the board and the CEO, aided and abetted by other senior managers and board members."

Faked loan documents were created for fictitious companies registered at the Afghan Investment Support Agency, with funds "diverted to these individuals for their personal use", it alleges.

And it notes that, in addition to oversights by Deloitte, which failed to spot and report warning signs of fraud, a team from PwC didn't identify any fraud at Kabul Bank and gave it "a clean bill of health" – something that "may have acted to delay understanding of the gravity of Kabul Bank's true financial condition both among the examination staff and the international community", according to the document.

President Obama has told President Karzai that US funds will not be used to bail out the bank, according to a US State Department official. Neither the Afghan government nor Kabul Bank responded to requests for comment. PwC did not comment on the audit. And in a statement, Deloitte insisted it has "acted appropriately and performed consistent with its contractual obligations".

Start your day with The Independent, sign up for daily news emails
News
newsAnother week, another dress controversy on the internet
Life and Style
Scientist have developed a test which predicts whether you'll live for another ten years
health
Life and Style
Marie had fake ID, in the name of Johanna Koch, after she evaded capture by the Nazis in wartime Berlin
historyOne woman's secret life as a Jew in wartime Berlin
News
news... and what your reaction to the creatures above says about you
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Telesales & Customer Service Executive - Call Centre Jobs

£7 - £9 per hour: Recruitment Genius: Are you outgoing? Do you want to work in...

Ashdown Group: Finance Manager - Covent Garden, central London - £45k - £55k

£45000 - £55000 per annum + 30 days holiday: Ashdown Group: Finance Manager - ...

Ashdown Group: Systems Administrator - Lancashire - £30,000

£28000 - £30000 per annum: Ashdown Group: 3rd Line Support Engineer / Network ...

Recruitment Genius: Graduate Web Developer

£26000 - £33000 per annum: Recruitment Genius: A Web Developer is required to ...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn