For the past several days, Afghan officials and the
country's former central bank governor have been trading allegations over who
is responsible for the worst financial crisis in Afghan history. Abdul Qadeer
Fitrat, who ran the Afghan Central Bank, fled to the United States this week,
saying his life was in danger after accusing politically powerful people of bearing
responsibility for financial malfeasance at Afghanistan's largest commercial bank,
where last year about $900 million went missing. In turn, Afghan officials issued
an arrest warrant for Fitrat, charging him with fraud and saying that -- as the
country's chief banker -- he failed to oversee and correct the illicit dealings
at Kabul Bank.
The one thing everyone seems to agree on is that nearly $900
million dollars disappeared, the majority of which is not likely to be returned.
Kabul Bank is the largest private bank in the country, responsible for upwards
of 80 percent of the government's payroll,
including the salaries of soldiers and police officers. In September, after the
extent of the fraud was uncovered, a rush on the bank resulted in a panic that
nearly crippled the economy (a long Ramadan holiday weekend may have actually
been what saved it).
Fitrat and others outside Afghanistan allege that the bank operated as a
defacto pyramid scheme, in which politically connected people -- such as President
Hamid Karzai's businessman brother -- were given large, interest-free loans at
the expense of the lowly depositor. Most of that money was then invested
overseas in places like Dubai, where they bought things like expensive villas.
"There was no political will on the part of the Afghan
government to get to the bottom of it," said Andrew Wilder, director of the
Afghanistan and Pakistan program at the United States Institute of Peace.
When the Dubai housing market imploded in 2008, the extent
of the problems at Kabul Bank became clear -- and the United States and the
International Monetary Fund (IMF) pushed the Afghan government to take action.
As a result, the central bank, headed by Fitrat, took over Kabul Bank and fired
its top management.
WHO IS ABDUL QADEER
Depending whom you ask, he's either a hero who stood up to
some of the most powerful people in the country or an incompetent bureaucrat
who idly watched while Afghan's banking system fell into almost into total
financial collapse. The former IMF and World Bank consultant was appointed
governor of Afghan's central bank by Karzai in 2006 with a mission of fighting
corruption and fraud. The central bank is supposed to oversee and supervise all
the private banks in the country -- much like the Federal Reserve in the United
States. Fitrat had the strong backing of the international community, given his
experience in international financial institutions.
In the wake of the scandal at the Kabul Bank, he was pushed to get to the
bottom of it, and ultimately he publicly accused several important Afghan
officials -- including the vice president, Qasim Fahim, and Karzai's brother -- of being involved.
This past Monday, he told reporters he heard from credible
sources his life was in danger and had to flee the country. He landed in the
United States, where he resigned as head of the central bank.
The Afghan government says that it was Fitrat's
responsibility, as governor of the central bank, to oversee financial
institutions and that he failed to respond to the problems at Kabul Bank.
Rumors about the improprieties had been circulating since 2006; but until the
crisis bubbled to the surface, Fitrat did nothing, the government says.
"It would be as if you were the chief of a fire station and
reports came that there was a fire, but you said you couldn't go because I'm
not supposed to be in that neighborhood," Torek Farhadi, a former economic advisor to Karzai and advisor to the central bank, told Foreign Policy. "It was his job to know
something was irregular."
But Fitrat says he didn't know about the irregularities -- and
even if he did, he wouldn't have been able to do anything, since it involved
the most powerful people in the country.
"On the one hand, he's being pressured to investigate
thoroughly and get to the bottom of it," said Wilder. "On the other hand, the
people he's being asked to pursue are among the most politically powerful in
the country. He was stuck between a rock and a hard place and ultimately he
decided northern Virginia was a better place than Kabul."
HOW COULD SO MUCH
MONEY BE LOANED OUT WITHOUT INTEREST AND NO ONE ASKED ANY QUESTIONS?
Critics say it's emblematic of a larger problem of
corruption in Afghanistan.
"The bank was basically taking money and giving it to
political elites and calling them loans," said Wilder. "It was like other
pyramid schemes. They were taking money from the top and had to make sure they
were putting more and more money in."
"Afghanistan used to pay its soldiers and police officers in
cash. That created problems since it would often trickle down through the ranks
and get skimmed before reaching the pockets of the lowly soldier or police
officer," explained Ronald Neumann, a former U.S. ambassador to Kabul from 2005
to 2007. The solution was to pay people by direct deposit. As the nation's
largest commercial financial institution, Kabul Bank handled the majority of
"Kabul Bank early on was one of the brighter spots," Neumann said.
One of the problems in Afghanistan was the absence of banking systems, he said.
They were filling a niche.
But with the influx of money and power, the bank began filling
the pockets of the nation's elites.
There's plenty of blame to go around. Besides Fitrat, the
Afghan government seemed to turn a blind eye until it was too late. And the
United States also had advisors working with the central bank. "It was a system
that took care of everyone in exchange for silence," said Farhadi.
Meanwhile, real estate prices in Dubai kept rising. Many of
the people who took money from the bank said there was no danger. The $20
million dollars they invested would soon be $30 million and they would quietly return
the loans, Farhadi said.
SO WHAT ABOUT THE
MISSING $900 MILLION?
About 5 percent has been returned, Fitrat reported back in
Analysts say it's unlikely much more will be recovered. "No one knows where it
is," Farhadi said. It's very likely a lot of it simply vanished in Dubai's economic
The IMF wants the Afghan government to replenish the bank's
accounts by taking a little out of its budget every year. They've suspended their
credit program with Kabul until
the government takes credible steps to clean up the problem and reform the
system. Without IMF-backing, foreign aid will likely be cut back, causing
problems for the Afghan economy. Already the World Bank, which manages a trust
fund for Afghanistan setup by foreign donors, withheld a $70 million payment.
"Afghanistan needs a credible banking system so investors
will return. If they know the system has irregularities, they won't put their
money into it," said Farhadi. "There is this veil of darkness that needs to be