Karzai says West had role in bank crisis

KABUL Mon Apr 11, 2011 5:56pm BST

Afghan President Hamid Karzai drinks water during a news conference in Kabul, February 8, 2011. REUTERS/Ahmad Masood

Afghan President Hamid Karzai drinks water during a news conference in Kabul, February 8, 2011.

Credit: Reuters/Ahmad Masood

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KABUL (Reuters) - Afghan President Hamid Karzai accused foreigners on Monday of contributing to a corruption scandal at the country's biggest lender, and vowed to impose Afghan terms on the country's "strategic partnership" with the United States.

Politically well-connected Kabulbank lost hundreds of millions of dollars through fraud, bad loans and mismanagement, and the scandal has jeopardised the country's flow of aid, because of disputes with the International Monetary Fund about how to handle it.

Karzai warned that those responsible for bad loans would have to repay within a month or face trial, and promised tighter regulations of the sector in future. But he also said foreigners helped plunge the private bank into crisis.

"Those who have committed these violations must be prosecuted," Karzai told a news conference in Kabul.

"Foreign advisors, their institutions, with their wrong advice, and also possibly involved in corruption, also contributed to the huge problems at Kabulbank."

Karzai said investigators are now looking into the role of foreign governments and firms, and whether international "entities" encouraged the bank to take money abroad. He warned that anyone tainted by the scandal would face justice.

His comments are likely to rile diplomats in Kabul, who have been at loggerheads with the Afghan government for months over the fate of the bank, and have long rejected any suggestion they had a hand in the collapse of a private institution.

Karzai also pledged to be tough in negotiating a new relationship with the U.S. as foreign soldiers prepare for a gradual security handover to their Afghan counterparts.

"The first condition of this strategic partnership is that they should bring us peace," he said. "We have put forward many conditions and we have tied their hands and feet."

He called for a traditional "jirga" summit, or gathering of community elders, to review strategic ties with the United States, held in around two or three months.

Karzai favours jirgas as a means of gathering wide support around an issue, like his decision to push for negotiations with the Taliban. Critics say they bypass the elected government that should represent the population, but whose members Karzai has often quarrelled with.

KABULBANK POLITICS

Karzai's government has long been plagued by accusations of endemic corruption which have strained ties with his Western backers. The Kabulbank crisis added a banking scandal to Afghanistan's list of troubles, which also include a growing Taliban-led insurgency and political paralysis.

Kabulbank is the conduit for all security forces' salaries, as well as the paycheques of a majority of civil servants, and political ties helped smooth the road to rapid growth.

Among three senior shareholders and former executives of the bank now under investigation is Mohammad Haseen, the brother of Afghanistan's First Vice President Mohammad Qasim Fahim.

The president's brother Mahmoud Karzai is a shareholder too, but is not under investigation in Afghanistan. The president said he would face justice if found to have acted illegally.

"All wrong-doers, whoever has violated the law, if there is a violation of the law, will be dealt with legally and through the legal means of Afghanistan," Karzai said in response to a question about whether his powerful brother could be brought to trial.

Karzai gave few concrete details about plans for stabilising Kabulbank and the banking sector, even though diplomats say Afghanistan has agreed to break-up the lender. He revealed only that a delegation had been to study countries hit by the Asian financial crisis of the 1990s, including South Korea.

He also said the Central Bank would pursue the U.S. and European governments to seek the return of cash sent overseas, although most reports on Kabulbank so far have focussed on money spent in Dubai and Afghanistan.

"We are studying all these areas...(including) the other borrowers, the management itself, how they took money abroad and encouragement from certain international entities to the bank to take money abroad and take it into foreign banks," he said.

Western diplomats have criticised accounting firm PricewaterhouseCoopers' failure to detect anything was amiss at the lender in an audit months before the scandal came to light, but say that was an issue between two private companies.

The Afghan government and central bank have always been responsible for supervising their own financial sector, and aware of that role, a senior U.S. official with knowledge of the Kabulbank issue, told Reuters earlier this year.

International support has also been aimed at the financial sector overall rather than private banks, and focussed on issues like money laundering and capacity building, added the official, who declined to be named because of the sensitivity of the case.

(Reporting by Hamid Shalizi and Emma Graham-Harrison; Editing by Andrew Marshall)

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