03
Sep
10

TOO CORRUPT TO FAIL?

by Amy Davidson

This article was originally published by The New Yorker. Click here for the link.

The Wall Street Journal, in a follow-up, described “a massive portfolio of off-the-books loans by the bank’s chairman to himself and to other politically connected Afghans.” The bank has also, according to the Journal, used hawala, a less-than-regulated money-exchange system, “to clandestinely transfer almost $1 billion out of Afghanistan in the past few years.” It was mixed up with New Ansari, a firm that, as the Journal put it, “allegedly helped Afghan politicians, drug barons and even the Taliban move billions of dollars out of the country.” (Karzai recently intervened to get one of his aides, who was accused of taking a bribe to stop an investigation of Al Ansari, out of jail.) The Times said that Kabul Bank and its chairman, Sherkhan Farnood, were “at the heart of the political and economic nexus that sustains—and is sustained by—the government of President Hamid Karzai” and “provided millions to Mr. Karzai’s campaign.” Then there are its business dealings:

First among the beneficiaries was Mr. Farnood himself, the officials said. He invested about $140 million of the bank’s money in the real estate market in Dubai in the United Arab Emirates, said Mahmoud Karzai, the president’s brother and a Kabul Bank shareholder. Among those properties were more than a dozen multimillion-dollar villas in Mr. Farnood’s name, some of them on Palm Jumeria, an island off Dubai’s coast, Mr. Karzai said.

A lot of that value was lost when the Dubai real-estate market fell (assuming, of course, that the transactions were real). More from the Times:

It is not clear what Mr. Farnood did with all the properties he purchased, but he made at least some of them available to his friends and allies. One of them was Mahmoud Karzai, who owns about 7 percent of the bank. Speaking in an interview from Dubai, Mr. Karzai said he had rented one of Mr. Farnood’s villas for the past year and a half.Mr. Karzai said the bank’s troubles—and Mr. Farnood’s opaque dealings—had made him decide to vacate soon.

“I want to move to a different house,” Mr. Karzai said. “I want to cut this out.”

So President Karzai’s brother has been living in a villa in the Emirates that constitutes a questionable investment by the bank he partially owns; but he might move. The Wall Street Journal said that a U.S. official had tried to make the case that the removal of bank officials was “a sign” that Karzai was getting a little bit serious about corruption. But, the Journal noted,

An Afghan banker with knowledge of the situation offered a less optimistic view, saying the move may have more to do with shifting political and business alliances among the country’s small, clubby elite.Mahmood Karzai, for example, has recently forged stronger links with the owners of Afghan United Bank, a competitor of Kabul Bank. Afghan United Bank’s chairman owns a 20% stake in a housing development that Mahmood Karzai is building outside the southern city of Kandahar, where U.S. forces are making a major push against the Taliban.

So what is Mahmoud Karzai’s new preferred bank like?

Afghan United Bank is owned by the founders of New Ansari, the hawala that is being investigated. U.S. officials say the bank’s owners still control the hawala, although the bank’s owners say they have cut ties to the money-transfer business.

Moving the money from one bank to another, or the President’s dubiously wealthy brother moving himself from one villa to another, doesn’t really count as doing something about corruption. Or, if it does, then we have a long way to go in Afghanistan. It’s a bit like moving soldiers from one war to another, and calling it victory.

Amy Davidson is a senior editor at The New Yorker.

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