Two individuals at the center of a $900 million fraud at Kabul Bank were convicted of defrauding the Afghan people on Tuesday, according to a report by the New York Times. Sherkhan Farnood, the founder of Kabul Bank, and Khalilullah Frozi, his chief executive, were sentenced to five years of jail time each, and fined a combined $800 million, according to the Guardian. Nineteen others were also found guilty in connection with the financial crimes.
Investigators now say that Kabul bank operated much like an institutionalized ponzi scheme. When individuals deposited money into the bank, its owners removed it through fraudulent loans using faked corporate information to make them seem like legitimate bank business. They then took the money for themselves, the New York Times reported. As this process continued, an elaborate trail of false financial documents was used to cover up the embezzlement. The scheme collapsed in 2010 when the bank began to fail and a power struggle for control of the financial institution led to the disclosure of the faked loans and the losses.
Those involved in the fraud and the subsequent embezzlement and money laundering used the funds to live lavishly, even buying property in Dubai at the height of the property bubble, according to the Guardian.
In a nation as badly wracked by corruption as Afghanistan -- Transparency International ranked the country 174th in its Corruption Perceptions Index, the worst in the world -- the decision by the court to throw out the most serious of charges against those accused in the Kabul Bank scandal has raised questions. The judge dismissed money laundering charges against the accused; under Afghan law, money laundering convictions would have imposed an “automatic confiscation order” for the stolen funds. The lesser conviction on “breach of trust” will make it more difficult for law enforcement to track down the stolen money, the Guardian reported. "Today was a disappointment for the resolution of issues resulting from the Kabul Bank fraud," Drago Kos, the Slovenian chairman of the joint Afghan and international anti-corruption committee, told the Guardian. "International standards require sanctions that are proportionate, dissuasive, and effective. We feel that this is lacking in the judgment issued today,” he added.
