South Asia

Afghanistan: Kabul Bank chiefs arrested in fraud probe

Afghans walk past a branch of the Kabul Bank (file photo)
Image caption The bank crisis threatens the salaries of thousands of teachers, police and soldiers

Two former executives of the failed Kabul Bank have been arrested over huge fraud that led to its near collapse.

Deputy Attorney General Rahmatullah Nazari said the bank's founder and its former chairman Sherkhan Farnood and ex-CEO Khalilullah Ferozi were being held on embezzlement charges.

He told Reuters news agency both men would go on trial within a month.

Revelations of fraud, bad loans and mismanagement prompted a run on the bank last September.

It was bailed out by the central bank as part of efforts to prevent it from collapsing.

In April, it was split into a "good" and "bad" bank, and President Hamid Karzai vowed to take action against those responsible for the crisis.

'Flight risk'

Mr Farnood and Mr Ferozi, who both owned large stakes in the bank, were placed under house arrest at the time trouble hit, though they were reportedly able to move freely around Kabul nonetheless.

"We had to make arrests because Haji Khalil [Ferozi] and Sherkhan are the kind of people who can easily slip away from the country," Mr Nazari said, Reuters reported.

"Both are responsible for millions of dollars of losses in Kabul Bank and they must appear in court before they go too far from our hands," he said.

Hundreds of millions of dollars have gone missing from the bank - much in undocumented, unsecured loans.

Earlier this week Afghan authorities issued a warrant for the arrest of the former governor of the Afghan central bank, Abdul Qadeer Fitrat, saying he was being investigated in connection with the fraud at Kabul Bank.

But he had already fled to the US, saying his life was in danger for exposing fraud.

In April, Mr Fitrat himself had accused several key Afghan officials - including President Hamid Karzai's brother Mahmoud Karzai and Vice-President Qasim Fahim - of involvement. Both deny the charges.

So far the International Monetary Fund has rejected requests to inject funds into the bank, citing fears that abuses may continue.

The salaries of many civil service workers - including teachers, police and the army - who the government pays through the bank may be at risk.

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