Two Indians Involved in Kabul Bank Fraud Case

New Delhi: Fraudulent lending and embezzlement by officials, including by at least two Indian citizens, led to failure of Afghanistan's Kabul Bank resulting in misuse of about $935 million Afghan public money, according to an independent report. As per the report, the bank's controlling shareholders, key supervisors and managers led a sophisticated operation of fraudulent lending and embezzlement, mainly through a loan-book scheme.

"This resulted in Kabul Bank being deprived of approximately $935 million funded mostly from customer's deposits," it said.

Further, the report stated that shareholders, related individuals and companies as well as "politically exposed people" were the ultimate beneficiaries of the fraud.

In September 2010, Kabul Bank ran into trouble and was later taken over by the Afghanistan's central bank.

"On September 5, 2010, the ex-Governor wrote to the Ministry of the Interior to seek a travel ban for Kabul Bank's Internal Audit Manager and Credit Manager who are citizens of India.

"A letter was also sent that day to Kabul Airport headquarters informing the airport authority that the two were attempting to flee. They were later arrested," the report said.

However, specific details about the executives or their current status were not disclosed.

It was found that the bank's Credit Department opened loan accounts for proxy borrowers on instruction from senior management and also forged supporting documents such as applications and financial statements. Moreover, fake business stamps were used to "lend authenticity to the documents".

About $861 million -- over 92 per cent of the bank's loan book -- has been extended to 19 related individuals and businesses, including a $270.3 million liability for the ex-Chairman, a $94.3 million liability for the ex-Chief Executive Officer and two politically exposed people with liabilities of $74.1 million, the report said.

Going by the report, Attorney General's office has sent letters to jurisdictions including India seeking mutual legal assistance regarding assets of the bank that are likely to be held or through which funds are laundered.

"Letters were only recently sent out in September 2012 to Switzerland, France, the United Kingdom and India requesting assistance pursuant to the United Nations Convention Against Transnational Organised Crime and the United Nations Convention Against Corruption," the report said.

In late 2009, the Financial Transactions and Reports Analysis Centre of Afghanistan was advised that Kabul Bank was "moving money through food trays on Pamir Airway flights, which is supported by a Kabul Bank account that paid 10 Pamir Airways pilots for cash shipments", the report said.

"Kabul Bank was nothing but a fraud perpetrated against depositors, and ultimately all Afghans  and weak institutions and political realities in Afghanistan offered the perfect environment to operate," the report added.

British daily Financial Times has reported that as much as $900 million, a majority derived from loan schemes,? was moved out of Afghanistan through electronic transfers between March 2007 and April 2011.

Quoting an official, the report said that the amount "ended up in bank accounts in 28 countries, including the United Arab Emirates, Latvia, China, Turkmenistan, Britain, Kazakhstan, South Korea, Turkey, Russia, the U.S. and Switzerland".