[R-G] Karzai's brother financed Dubai property purchases through embattled Kabul Bank

Sid Shniad shniad at gmail.com
Thu Sep 9 14:43:30 MDT 2010


http://www.washingtonpost.com/wp-dyn/content/article/2010/09/07/AR2010090706645.html?sid=ST2010090503127

Washington
Post
                                     September 8, 2010*

**Karzai's brother financed Dubai property purchases through embattled Kabul
Bank*

*Kabul Bank's unorthodox lending practices form part of a skein of
transactions that are under investigation by Afghan authorities as they
struggle to hold together a financial institution critical to the country's
economy and security. Kabul Bank handles salary payments for soldiers,
police and teachers.
*
By Andrew Higgins<http://projects.washingtonpost.com/staff/articles/andrew+higgins/>
Washington Post Foreign Service

DUBAI, UNITED ARAB EMIRATES - The brother of Afghan President Hamid Karzai
made nearly $1 million on a Dubai property deal financed with money from
Kabul Bank, according to a person familiar with the transaction and a
property sales registry.

It was not previously known that the president's brother, Mahmoud Karzai,
had benefited financially from Dubai real estate transactions involving
Afghanistan's<http://www.washingtonpost.com/wp-srv/world/countries/afghanistan.html?nav=el>biggest
but now deeply
troubled bank.<http://www.washingtonpost.com/wp-dyn/content/article/2010/09/06/AR2010090601279.html>Kabul
Bank is at the center of a financial and political crisis in
Afghanistan following a rush by
depositors<http://www.washingtonpost.com/wp-dyn/content/article/2010/09/01/AR2010090101620.html>to
withdraw their money. The bank's disarray has cast a pall over
President
Karzai's administration and his American backers.

Mahmoud Karzai, Kabul Bank's third-biggest shareholder, described himself as
a "passive partner" and said he had no role in Kabul Bank's management
decisions, including those relating to Dubai real estate. He blamed the
bank's sometimes questionable practices on its now-ejected executives. Kabul
Bank, which has built a network of branches and ATMs across Afghanistan, has
done "good things, but also did stupid things," Karzai said.

Karzai bought a villa on Dubai's Palm
Jumeirah<http://www.washingtonpost.com/wp-dyn/content/article/2010/03/04/AR2010030405390.html>,
a high-end property development, for 7 million dirhams in July 2007 and sold
it to an Iranian buyer in April 2008 for 10.4 million dirhams, for a profit
of 3.4 million dirhams, or about $930,000 at current exchange rates.

Karzai said in a telephone interview that he could not recall the details
but that the initial purchase involved a loan handled by Kabul Bank's
now-ousted chairman, Sherkhan
Farnood<http://www.washingtonpost.com/wp-dyn/content/article/2010/09/03/AR2010090304466.html>.
"What is wrong with this? I borrowed money from the bank and made an
investment," he said. He said he made a profit because he "sold at the peak
of the market" but added: "I'm not a rich man."

Karzai became a shareholder in Kabul Bank in March 2007, four months before
purchasing the Dubai property with money from the bank. He acquired his 7
percent stake in Kabul Bank with a loan - still outstanding - from the same
bank, according to Karzai and other shareholders.

Kabul Bank's unorthodox lending practices form part of a skein of
transactions that are under investigation by Afghan authorities as they
struggle to hold together a financial institution critical to the country's
economy and security. Kabul Bank handles salary payments for soldiers,
police and teachers.
Karzai said he purchased his since-sold Palm Jumeirah villa to obtain Dubai
residency status so that his children could attend local schools. He said he
bought it from Farnood, the then-Kabul Bank chairman, who gave him a loan.
This money, said Karzai and a person familiar with the transaction, was
later repaid in full.

Kabul Bank has struggled over the past week to stay afloat in the face of
waves of depositors trying to pull out their savings. The rush, triggered by
news that the Central Bank on Aug. 30 forced Farnood and the bank's chief
executive, Khalilullah Fruzi, to resign, now appears to have slowed.
Depositors withdrew about $67 million Monday, down from the level of last
week, and the withdrawals slowed further Tuesday, the bank said.

Kabul Bank bet heavily on the Dubai real estate market, investing at least
$140 million in property in the Persian Gulf sheikdom, which is part of the
United Arab Emirates. Most of the purchases, including 16 villas and two
apartments, were on Palm Jumeirah, a man-made island in the shape of a palm
tree that juts into the gulf.

Nearly all the Dubai property purchased with Kabul Bank funds is registered
in the name of Farnood, the former chairman, or that of his wife. Mahmoud
Karzai, an American citizen who used to run an Afghan restaurant in Maryland
and still has a house in Glenwood, maintains a residence at one of the
properties registered in Farnood's name, a $5.5 million seafront villa on
Palm Jumeirah. Karzai says he makes a monthly payment on the property.

Farnood, at the request of the Afghan Central Bank, has pledged to transfer
the titles of the real estate to Kabul Bank.

Kabul Bank's liquid assets, which were about $500 million when the crisis
broke, are running dangerously low, but a long holiday that begins Wednesday
will give the bank and the Afghan government breathing space. Afghan banks
are closed from Wednesday through Sunday, first for an Afghan national
holiday and then for the end of Ramadan, the Islamic holy month of fasting
and prayer.

Karzai said Kabul Bank suffered from a "concerted attack" by the American
media, which he said is being given information by U.S. officials hostile to
his brother, the president. The bank, he said, cut corners under the
previous management but built up a successful business from scratch. Its
misdeeds, he added, are nothing next to those of "thieves" in Afghanistan
who are "always stealing."

The Afghan government has vowed that Kabul Bank will not collapse but has so
far balked at providing state funds to help prop it up. Washington has ruled
out any U.S.-funded bailout of the bank.



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