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What went wrong at Kabulbank?

What went wrong at Kabulbank?

Afghanistan’s main financial institution was thrown into turmoil over a reported $160 million of luxury villas in Dubai. Here’s the situation so far.

September 15, 2010 3:18 by

Problems flared last month when Farnood and Fruzi, who each own 28 percent of the bank, resigned. U.S. media reported that the central bank had taken control of Kabulbank, forced the two men out and ordered Farnood to hand over $160 million worth of luxury villas in Dubai that may have been bought with Kabulbank funds.
The central bank, Karzai and Finance Minister Omar Zakhilwal all denied the reports and said the pair had resigned to comply with new financial regulations preventing shareholders from holding senior bank management positions. Those regulations were outlined in a June statement by the central bank.
The central bank on Sept. 6 ordered Farnood and Fruzi’s assets frozen, as well as those of several other leading shareholders and borrowers.
The crisis triggered jitters among customers, who staged a run on the bank despite assurances from the central bank and government their money was safe.
On Sept 8, National Security Directorate officers beat people with batons outside one Kabul branch. Then on Tuesday, Fitrat said that the central bank had taken control of Kabulbank “for the foreseeable future” because of suspected irregularities. The central bank is seeking help from the United Arab Emirates to freeze the assets of one of the two main shareholders. Fitrat said the bank was still solvent.

The United Nations estimates that Afghans spend $2.5 billion a year — a quarter of GDP — on bribes. Washington fears corruption is boosting the Taliban-led insurgency and complicating efforts to strengthen central government control so U.S. and other foreign troops can leave.
The crisis has flagged concerns about the handling of funds from Western donor countries, channeled through a nascent commercial banking sector that the United States has encouraged Afghanistan to build and which is tied closely to Karzai’s family and members of his inner circle.
A widespread perception among Afghans that Karzai’s government is corrupt will be a major issue at Saturday’s parliamentary election, which the Taliban has vowed to disrupt.

(By Tim Gaynor. Additional reporting by Jonathon Burch; Writing by Tim Gaynor; Editing by Paul Tait and Charles Dick)

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