DEATH OF KABUL BANKER WHO NEARLY BROKE AFGHANISTAN
▶ Fraudster Sherkhan Farnood’s bank handled payrolls for troops and civil servants but it was a giant Ponzi scheme
At the height of his powers, Sherkhan Farnood was a free-wheeling poster boy for Afghanistan’s surging economy.
The owner of 16 luxury Dubai properties and a regular fixture at the tables on the international poker circuit, he had come a long way from running an informal “hawala” money transfer from his university dorm.
Yet the former chairman of Afghanistan’s largest private bank last week died in an Afghan prison while serving 15 years for money laundering and embezzlement.
His death marked the end of a rise and fall in which he rode the chaos of post-Soviet Moscow and returned to establish Kabul Bank, before orchestrating a fraud that nearly ruined his homeland.
The demise of Kabul Bank was proportionately one of the largest financial scandals in the country and became symbolic of the West’s frustration at the crony capitalism of Hamid Karzai’s government. The corruption shook US faith in its nation-building ambitions.
Farnood died at the age of 57 from an undisclosed illness after serving three years of a 15-year term in a jail north of Kabul, said Sayed Javed, a spokesman in the Defence Ministry.
The former banker was an Uzbek born in the northern Afghan province of Kunduz who moved to Moscow when the Soviets invaded in 1979.
While studying at the Moscow Textile Institute, he began his own money transfer service between Russia and Kabul. Trade took off in the 1990s chaos of post-Soviet Russia, but Farnood also fell foul of the law.
He fled multiple charges, including illegal banking and later set up the Shaheen Exchange hawala near Dubai’s Gold Souq.
After the US toppled the Taliban from his homeland in 2001, he was quick to seize on opportunities back home.
In the Wild West atmosphere of the Afghan economy, a wanted notice from Interpol apparently did little to stop him picking up a banking licence.
In 2004, Kabul Bank was founded and with a clique of politically connected shareholders – including Mahmoud Karzai, brother of the then president, and Haseen Fahim, brother of the vice president. The bank quickly grew.
Farnood’s connections meant he was able to persuade the government to give Kabul Bank responsibility for western-funded payrolls for soldiers, police and civil servants. Overnight the bank began taking large, regular deposits of cash.
But while the bank was cited as proof the country was recovering with western help from the Taliban rule of the 1990s, it was a giant Ponzi scheme.
Executives were using the deposits to make huge, off-thebooks loans to a small circle of shareholders and political figures. There was little expectation they would be repaid.
Years later, a forensic audit of the bank would reveal the remarkable scale of the fraud.
Staff were ordered to forge documents to create proxy loans under fictional names, or the names of cleaners and drivers. About 92 per cent of the bank’s loan portfolio, or $861 million (Dh3.52 billion), was ultimately made out to only 19 people or companies.
Ten airline pilots were on the payroll to help smuggle vast amounts of cash out of the country through Kabul airport.
Farnood put his own share into Dubai. His properties included several multi-million dollar villas on the Palm Jumeirah and two tower blocks.
The investigation alleged Mahmoud Karzai received $30.5m, although he disputed that and denied wrongdoing.
By 2010, cracks were showing in the huge pyramid of fraudulent loans and the bank was being destabilised by a power struggle. When US officials approached Farnood about a related investigation, the poker player gambled and told all.
As the wrongdoing became public, losses were put at $900m, or 5 per cent of the country’s GDP. There was a run on the bank and it needed a bailout to survive.
If he was expecting leniency, Farnood’s final gamble failed. While his first conviction alongside the bank’s chief executive, Khalilullah Frozi, was a five-year sentence, it was trebled on appeal.
His death this was “a sad end to a sad story”, said Saad Mohseni, who runs Afghanistan’s biggest media group.
“Kabul Bank almost brought Afghanistan to its knees,” Mr Mohseni said.