Whistleblower or fraudster? Afghan bank chief flees to America

Kabul issues arrest warrant as corruption scandal deepens

Rupert Cornwell
Wednesday 29 June 2011 00:00

Officials in Kabul yesterday issued an arrest warrant for Afghanistan's former central bank governor who has taken refuge in the United States, amid a deepening corruption scandal that is jeopardising international aid for the Asian country and putting a new strain on already-frayed relations with its key ally.

The warrant was issued hours after Abdul Qadir Fitrat announced his resignation to Afghan radio stations and Western news agencies from a hotel in the Virginia suburbs of Washington – he claimed his life was in danger.

In a letter to reporters, Mr Fitrat accused the government of President Hamid Karzai of hindering and intimidating central bank staff in an investigation of the Kabul Bank, Afghanistan's largest private bank which came close to collapse in September 2010. As details have emerged about the scale of the fraud, the Kabul Bank – founded in 2004 by an international poker player, Sherkhan Farnood, but through which most government salaries are paid – has become an emblem of the corruption and cronyism at the heart of the regime. Some senior figures, including the brothers of Mr Karzai and his Vice-President, allegedly treated it like a personal piggy bank, claims which they deny.

When a run on the bank forced the authorities to step in, up to $900m (£565m) of dubious loans were discovered, some of them without collateral, interest or repayment schedules – in other words, outright gifts. Efforts to clean the bank up have became a litmus test of the sincerity of Mr Karzai's promises to fight corruption.

And the scandal could jeopardise foreign aid for the country. The International Monetary Fund withdrew its assistance programme last year, through which countries donate money to Afghanistan.

But the latest events have made a murky picture even murkier. Mr Fitrat said in interviews on Monday that he first asked the Karzai government last autumn to prosecute those involved in the fraud. Instead, "high-level political authorities" interfered, weakening the central bank's regulatory and supervisory functions. Two months ago, Mr Fitrat's position became even more precarious when the ex-governor went before parliament to name names.

At that point, the Kabul government launched a "counter-offensive", refusing to support the investigation and "using law-enforcement agencies against the staff of the central bank", Mr Fitrat said.

Mr Fitrat arrived recently in the US and said he left Afghanistan after "credible sources" warned him that his life would be in danger if he stayed. The arrest warrant appears to be a further escalation of the counter-offensive.

Azizullah Ludin, who was appointed by Mr Karzai to lead the government's anti-corruption taskforce, told The New York Times on Monday that Mr Fitrat was himself involved in the fraud and that charges had been brought against Mr Fitrat. "Mr Fitrat is the root of the problem and he knew everything," Mr Ludin said.

One thing at least seems sure: the former governor will not be returning to Afghanistan soon. The US State Department says it has received no request for asylum. But that would not even be necessary, because Mr Fitrat already has permanent-resident status in the US.

Everything else appears to be less certain about the matter. According to a State Department spokeswoman, Washington intends to keep up pressure on the Afghan government to mend its ways if there is a change at the helm of the central bank. But the circumstances of Mr Fitrat's departure make it unlikely that Mr Karzai will clean his house or that the suspect "loans" will be repaid.

In the meantime, the IMF and World Bank aid programmes will remain on hold, at least until a new central bank governor is appointed. The episode will also not do anything to ease tensions between Washington and Kabul; if anything, it will be used to bolster the case for a faster withdrawal from Afghanistan than the one Barack Obama announced earlier this month. His plan calls for 33,000 US troops to come home by September 2012, ahead of a full handover to Afghan security forces at some point in 2014.

Even so, come January 2013, there will still be some 68,000 American soldiers in Afghanistan.

Many in Congress – mostly Democrats but some Republicans as well – already argue that with Osama bin Laden dead and al-Qa'ida weakened, a larger and speedier pullout is in order.

The debacle of Mr Fitrat's departure will only add opposition to "nation-building" in Afghanistan, where American blood and treasure, to all appearances, are being used to prop up a corrupt and rapacious regime.

Corruption and aid

* The watchdog Transparency International ranks Afghanistan as one of the world's most corrupt nations, with only Somalia and Burma faring worse.

Billions of dollars for aid and reconstruction have been pumped into the country in the past 10 years, much of it disappearing. Last year, The Wall Street Journal alleged that more than $3bn (£2bn), much of it foreign aid, had been flown out of Afghanistan, possibly to safe havens overseas. A US diplomatic cable unearthed by WikiLeaks highlighted the staggering extent of the corruption, with an official writing that in a proposed new cabinet line-up the Agriculture Minister alone "appears to be the only minister ... about whom no allegations of bribery exist".

Despite Western pressure, President Hamid Karzai has struggled to crack down on corruption and few government officials have faced the courts.

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