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Today's Top News
Audit: Kabul Bank's Crony Capitalism a 'Ponzi Scheme'
'The United States brought crony capitalism, not free markets, to Afghanistan'
Afghanistan's failed Kabul Bank was from its very beginning, "a well-concealed Ponzi scheme" that funneled almost $900 million into the pockets of a small number of the political elite, an independent auditors' report says.
Kabul Bank had been hailed by many as proof of progress and modernization in Afghanistan. American officials claimed it showed how a Western-style bank can transform a war-ravaged economy.
The audit asserts that Kabul Bank had little reason to exist other than to allow a narrow clique tied to President Hamid Karzai’s government to siphon riches from depositors.
Details of the audit were revealed in a leaked copy of the audit seen by the New York Times.
For many Afghans, the scandal surrounding Kabul Bank, a linchpin of the economic order established here by Americans and their allies, has cemented the opinion that the United States brought crony capitalism, not free markets, to Afghanistan.The UK Telegraph reports:
Staff were ordered to forge documents to create proxy loans under fictional names, or the names of cleaners and drivers. Millions were also plundered by shareholders in fraudulent expenses, rent and purchases.
At the same time 10 airline pilots were on the payroll, apparently to help smuggle vast sums of cash out of the country to Dubai via Kabul airport.
New details of the scale of fraud have been disclosed in a forensic audit of the bank, which needed a bail-out to survive when the wrongdoing emerged in 2010.
The bank's near collapse triggered a financial crisis and became emblematic of the rampant crony capitalism which has undermined the Afghan state since 2001.
The United States used the Kabul Bank to pay the salaries of hundreds of thousands of soldiers, police and teachers through it.
From the New York Times article:
For many Afghans, the scandal surrounding Kabul Bank, a linchpin of the economic order established here by Americans and their allies, has cemented the opinion that the United States brought crony capitalism, not free markets, to Afghanistan. The audit is likely to reinforce that view while raising potentially troubling questions about who is being prosecuted here in connection with the scandal, and who is not.
The United States and its allies have pressed hard for prosecutions, threatening to cut aid if no action was taken... But there are questions about the charges brought by Afghan prosecutors against a few officials at Afghanistan’s central bank. Western officials, speaking on condition of anonymity, expressed worries that those cases appeared to be intended to end further investigation into Kabul Bank.
The US and its allies have threatened to cut aid to Afghanistan unless those responsible are prosecuted.
In the wake of the US financial disaster in 2008, there were no prosecutions of those responsible. In fact, under the Obama Administration, federal prosecutions of US financial crimes are at a 20-year low.
The New York Times editorialized in August 2012:
When the Justice Department recently closed its criminal investigation of Goldman Sachs, it became all but certain that no major American banks or their top executives would ever face criminal charges for their role in the financial crisis.
Justice officials and even President Obama have defended the lack of prosecutions, saying that even though greed and other moral lapses were evident in the run-up to the crisis, the conduct was not necessarily illegal.
But that characterization of the financial industry’s actions has always defied common sense — and all the more so now that a fuller picture is emerging of the range of banks’ reckless and lawless activities, including interest-rate rigging, money laundering, securities fraud and excessive speculation.
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