The first official analysis of the “Kabul Bank Crisis” of 2010 reveals an urgent need for reform in the international banking system, said Global Witness today [28th November 2012].
The “Report of the Public Inquiry into the Kabul Bank Crisis”, [ http://mec.af/files/knpir-final.pdf ] published today by Afghanistan’s Independent Joint Anti-Corruption Monitoring and Evaluation Committee (MEC) shows how the perpetrators behind the fraud were able to repeatedly bypass the checks and balances of regulators, donors, auditors and international banks, and steal enough money to incur a bailout costing approximately 6 percent of Afghanistan’s GDP.
- “This is a story of a nascent financial sector in a conflict zone in which crooks were able to loot a major bank over the course of multiple years because of the apparent failure of the regulators, donors, auditors and the international anti-money laundering framework,” said Gavin Hayman, Director of Campaigns for Global Witness.
According to the report, Kabul Bank engaged in fraudulent lending and embezzlement that led to a loss of approximately $935 million. Electronic wire transfers and food carts stuffed with cash and loaded onto Pamir Airways flights were used to funnel millions of dollars out of the country.
- “This is quite possibly the largest banking failure of all time” said Hayman.
- “For years to come, the Afghan people will be paying for this massive fraud rather than for much needed essential social services, security and infrastructure.”
The report findings are based on expert research and extensive discussions with anti-money laundering experts but they have yet to be proven in a court of law.
The report demonstrates:
- Afghanistan was unable to implement and enforce its anti-money laundering laws due to widespread corruption and lack of capacity in its fledgling banking sector.
- International donors, who have provided millions of dollars of aid, failed to build the capacity of the banking sector and protect the economy from this type of fraud.
- International auditors appear to have done the bare minimum and gave Kabul Bank a clean audit opinion even though the central bank consistently noted issues with compliance.
- The international anti-money laundering regime failed to stop millions of dollars from leaving Afghanistan and ending up in banks around the world.
The report shows how shareholders, individuals and companies related to the bank, and politically exposed persons1 appear to have been the main beneficiaries of the fraudulent schemes. The MEC report details 19 related parties, including companies with hidden ownership that appear to be connected to individuals at the bank, benefited from over 92 percent of the fraudulent lending.
- “Donors, auditors and the international banks involved in this scandal all have questions to answer,” said Hayman.
- ”Which banks accepted corrupt money from Kabul Bank shareholders or politically exposed persons? What measures did they take to assure themselves that the funds were not the proceeds of corruption? The answers to these questions are necessary to understand why so much corrupt money was able to flood the international financial system, to facilitate the recovery of stolen assets, and to ensure that it doesn’t happen again.”
Global Witness added that countries with assets from Kabul Bank, including the United Arab Emirates, the United States and Switzerland must freeze and return the assets stashed in their private banks, and launch inquiries into how the money ended up within their borders.
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