Kabul Bank Was Massive Ponzi Scheme, Audit Report Claims

A new report suggests that Kabul Bank was actually a massive Ponzi scheme. It is already known that fraud ran rampant at the bank, but the audit report suggests just how far the corruption went.

The audit suggests that Kabul Bank’s primary purpose was to provide financial gain for Hamid Karzai insiders, reports Newser.

Among alarming details from the audit report is the fact that the bank, which was seized by officials in 2010, used more than 114 rubber stamps from fake companies on forged documents. The report states that loan books were “almost entirely fraudulent.”

The report, a confidential forensic audit of the bank, stated, “From its very beginning, the bank was a well-concealed Ponzi scheme.”

Kabul bank was promoted for years by Afghan and American officials, who claimed it was a fantastic example of how a Western-style bank can transform a war-ravaged economy, according to The New York Times. But what they did not advertise was how corrupt it actually was.

The audit was prepared for Afghanistan’s central bank this year by the Kroll investigative firm and gives more details than were previously released about hos the bank institutionalized fraud that both brought in hundreds of millions of dollars and obliterated Afghans’ trust when regulators finally seized the bank in August 2010.

The new audit of Kabul Bank is the most extensive so far. It shows that more than 92 percent of the lender’s loan portfolio (about $861 million) went to just 19 related people and companies. Abdul Qadeer Fitrat, who was the governor of the Bank of Afghanistan when the scheme was uncovered, stated:

“… we never imagined that the criminality was as deep as it was, that it was so widespread and that it included high-ranking officials and their relatives. At the beginning , I received information from the U.S. Embassy that maybe $150 million or $200 million is gone in bad loans to powerful people.”

Unfortunately, the original estimate was far too low. The estimated $861 million lost was roughly 5 percent of Afghanistan’s annual economic output in 2012. One of the largest beneficiaries of the Kabul Bank fraud scheme were a brother of President Karzai, and a brother First Vice President Muhammad Qasim Fahim. They both owned stakes in the bank that were bought with loans from the bank.

Despite the reported Ponzi scheme put on by the Kabul Bank, there were some legitimate functions that it carried out. One of those functions was the US paying the salaries of hundreds of thousands of soldiers, police, and teachers through it.