Corruption permeates Afghanistan

In my last post, February 6, 2011, I commented on and referred to articles that document how tens of billions of dollars in US and UK development funds have been squandered or just vanished in a maze of official and unofficial corruption in Afghanistan. The corruption doesn’t stop with the misuse of “development” funds. Indeed, Afghanistan is rated by Transparency International in their “Corruption Perceptions Index 2010” as the second most corrupt country in a list of 178 countries. Afghanistan is tied with Myanmar for second, just ahead of Somalia, viewed as the most corrupt, and just below Iraq the fourth most corrupt country.

When corruption is widespread and explicitly or implicitly sanctioned by powerful governing groups in a society, it follows that there is little true “democracy.” Corruption requires secrecy among networks of beneficiaries who nefariously steal or divert the people’s taxes, foreign aid, and some of the profits from foreign investment into their own pockets or the pockets of their cronies instead of into programs that are publicly beneficial. Corruption may also involve bureaucrats and police who compel people to pay bribes for services that in law or by convention are considered rights. It may involve kickbacks from foreign or domestic companies to government officials that want government contracts. It may involve the income and profits that come from the production and distribution of illegal drugs, which is particularly true of Afghanistan. Corruption in it various manifestations is inherently anti-democratic, self-serving, favors inequality, works against sustainable development, and requires secrecy and authoritarian and/or plutocratic government to thrive.
Consider some examples of the evidence.
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A year ago, Daniel Schulman examined a UN study on drugs and bribery in Afghanistan in an article for the Mother Jones magazine. His article refers to the massive costs of bribes, kickbacks, and the opium trade. [See full citation after quotes.]

“Earlier this month [Jan 2011], Afghan President Hamid Karzai [1] fought back against allegations of pervasive graft [2] within his government, telling [3] Al Jazeera that ‘the Western media has blown corruption totally out of all proportion in Afghanistan.’

“Perhaps Karzai should have a conversation with Antonio Maria Costa, the United Nations' drug and crime czar. His office released a report [4]on Tuesday concluding that in the past year Afghans paid out $2.5 billion in bribes and kickbacks—the equivalent of 23 percent of the country's gross domestic product. The income generated by corruption is exceeded only by the booming opium trade [5], which brings in an estimated $2.8 billion annually. ‘In other words, this is shocking, drugs and bribes are the two largest income generators in Afghanistan,’ writes Costa, who heads the UN's Office on Drugs and Crime (UNODC), in the preface of the study.
The report, based on interviews with 7,600 Afghans, is yet another indicator that any US policy on Afghanistan that is predicated on cooperation with the government is threatened by endemic graft. As it stands, writes Costa, ‘It is almost impossible to obtain a public service in Afghanistan without greasing a palm: bribing authorities is a way of life.’

“The average payoff, according to UNODC, was $159—a modest sum in Western terms, but a massive expenditure in a country with a per-capita income of $425. This, Costa says, amounts to a ‘crippling tax on people who are already among the world's poorest.’ And he notes that the massive influx of aid funding coupled with soaring drug revenues ‘have created a new cast [sic] of rich and powerful individuals who operate outside the traditional power/tribal structures and bid the cost of favours and loyalty to levels not compatible with the under-developed nature of the country.’

“According to the study, 59 percent of Afghans identified corruption as their biggest concern—more worrisome even than the deteriorating security situation and widespread unemployment.
[….]

“….Presently, says Costa, members of the Afghan government are not doing their part to fight graft. That's not entirely surprising, since Afghan officials—on both the local and national level—appear to be the ones profiting most handsomely from bribes and kickbacks.”
Source: http://motherjones.com/politics/2010/01/corruption-afghanistan-its-even-worse-you-think#
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Since last summer, there have been spates of articles focused on an particularly egregious example of corruption, namely, the people who stole from billions from Da Kabul Bank, the state bank, and caused it to collapse.

CORRUPTION AT THE HIGHEST LEVELS OF THE FINANCIAL INDUSTRY AND THE GOVERNMENT MEAN THAT OUR SOLDIERS ARE DYING FOR A LOST CAUSE

On his blog Informed Comment (Sept, 3, 2010), the title of Juan Cole’s article reflects the thrust of his analysis - “Collapse of Kabul Banks Points to Fatal Corruption of Karzai Government.” I quote from the article.

“I [Juan Cole] write in anger. Not blind rage, mind you. A cool, searing, steady anger. I think it is a righteous anger. It is not consequential, but it is my reality. I am angry about the 1,172 US troops dead in the Afghanistan War, and all the other brave NATO and Afghan soldiers who gave their lives for a new Afghanistan. Because they haven’t gotten a new Afghanistan. They have paid the ultimate sacrifice for a ponzi scheme masquerading as a reformist government. And, as usual, you and I may well get stuck with the bill for the economic damage done by the fraud.

“The house of cards that is the Hamid Karzai government in Kabul may be falling before our eyes, as vast, globe-spanning webs of corruption, formerly hidden in shadows, have suddenly had a spotlight thrown on them. The crisis raises the severest questions about whether the Obama administration can plausibly hope to stand up a stable government in Afghanistan before US troops depart.

“As with the second phase of the Great Depression in the United States, the crisis begins with a run on Da Kabul Bank. Depositors took out $85 million on Wednesday, after a damning story appeared in the Washington Post. They took out another $70 million on Thursday. The bank, which owes $300 million, may now have as little as $120 million left in the kitty, though it had once been worth over a billion. But the problem is not just a run on one bank. Can Afghanistan’s whole financial system and economy emerge unscathed?

“Pajhwok News Service reports,

‘The immediate concern was that news of the bank’s financial irregularities, already spreading through the capital, would prompt a run on the bank itself and that the panic would spread to other financial institutions. Bank deposits in Afghanistan are not guaranteed by the central government, officials here said. “This could be catastrophic for the country,” a senior Afghan banking official said. “The next few days are critical. I am worried.” ‘
[….]

“The story begins with Sherkhan Farnood, a financier who founded Da Kabul Bank after the fall of the Taliban. Over the years he appears to have used the institution for patronage for politicians and their families. Farnood gave millions to the presidential campaign of Hamid Karzai last summer, a campaign that Karzai was accused of only winning through substantial ballot fraud. (Hint: a vote wouldn’t cost much to buy in Afghanistan, and ‘millions’ would buy a lot). The other top executive at the bank, Khalilu’llah Frozi, was a campaign adviser to Karzai. Hamid Karzai’s brother Mahmoud has a 9% share in the bank.
[….]

“Farnood often gave out loans without proper collateral or other formalities. He loaned $100 million to Haseen Fahim, the brother of Marshal Mohammad Fahim (an old-time Northern Alliance warlord whom Karzai brought back into government as his vice-presidential running mate in summer of 2009). Haseen Fahim has substantial investments in Afghanistan’s small natural gas sector.

Farnood also apparently loaned himself $140 million to invest in real estate in Dubai, including in villas on the world islands off Jumeirah.
[….]

With the world economic downturn and real estate crash of 2008-2009, the Dubai world project largely fell apart, with investors going bankrupt in droves.
[….]

“So Farnood’s $140 million investment was suddenly not worth anything at all, and his bank began spiraling down. The details of his other bad investments have not yet emerged. The bank went from having over $1 billion in capital to now having only $120 million and owing $300 million.

“President Hamid Karzai is notorious for running interference for his corrupt cronies, and that Farnood and Frozi were out of control appears to have been known for some time but nothing was allowed to be done about it. The two have now been forced out, but the question is whether it is in time to save not only the bank (doubtful) but also the entire Afghan financial system, rebuilt after the fall of the Taliban.

“The Karzai government is corrupt and rotten to the core. Not a single US soldier should die to prop it up. The lie that we are fighting “al-Qaeda” in Afghanistan needs to be exposed. The US and NATO are fighting four or five groups of Pashtun insurgents, some of them until fairly recently US allies. The goal of the fighting is to keep the Karzai government from falling to the guerrillas and to train up an army and police force that could go on defending Kabul. The Afghanistan National Army from all accounts has poor morale. No wonder. What Afghan soldier
[….]

http://www.juancole.com/2010/09/collapse-of-kabul-bank-points-to-terminal-corruption-of-karzai-government.html
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STEAL WHAT YOU CAN BECAUSE THE COUNTRY DOES NOT HAVE A FUTURE

Julius Cavendish provides an updated report (Feb 2, 2011) on the bank failure in an article for The Independent titled “Afghan elite 'plundered $900m' from leading bank.”

“A coterie of well-connected Afghan businessmen and politicians may have plundered as much as $900m from the country's biggest commercial bank, three times the amount of earlier estimates, and the equivalent of about 7 per cent of Afghanistan's total gross domestic product.

“Kabul Bank's funds were treated like personal accounts, it is claimed by several well-known members of Afghan society. Mahmoud Karzai, a brother of the Afghan President and prominent shareholder in Kabul Bank, told The New York Times that the bank's former chairman lent himself about $98m (£62m) to buy one of Afghanistan's airlines, and then used deposits to subsidise the carrier in an attempt to drive rivals out of business. Yet so difficult has the hunt for the missing millions become that the very same man, Sherkhan Farnood, had been brought in to help trace the missing cash.

“Officials say the value of questionable outstanding loans written by the bank is far greater than originally thought – and auditors pouring over the lender's books think up to $800m is potentially unrecoverable.

“The crisis is so severe – with fears that a run on the embattled Kabul Bank could lead to its collapse – that Afghanistan's central bank chief, Abdul Qadir Fitrat, was forced yesterday to deny reports that the embattled lender was close to failure.
[….]

“The case is acutely embarrassing both for President Hamid Karzai, whose tenure has seen Afghanistan turn into a mafia state, and the Obama administration, which has adopted a policy of ignoring institutionalised corruption after several bitter diplomatic spats with Mr Karzai got it nowhere.

“In an account of goings-on at Kabul Bank that is devastating in its detail, the New Yorker magazine records how ‘Kabul Bank's largesse included members of parliament and almost anyone whose silence would allow bank executives to embark on a spree of buying, lending and looting.

"In addition, some former and current Afghan officials say, Kabul Bank became an unofficial arm of the Karzai government, bribing parliamentarians in order to secure votes for its legislative agenda,’ it reports.

"Dozens of Afghan leaders and businessmen... collectively, accepted tens of millions of dollars in gifts and bribes – some sources say as much as a hundred million dollars – from executives at Kabul Bank."
[….]

“American investigators say many of Mr Karzai's closest advisers, some with regulatory responsibilities over the Afghan financial system, are implicated in the scandal.
[….]

“It's a meticulous account of the workings of kleptocracy, but from a Western perspective perhaps the most terrifying part of the tale is the motive. The businessmen, politicians and officials – the cream of Afghan society – are milking Afghanistan for all they can. Why? Because they don't believe their country has a future.”

Source: http://www.independent.co.uk/news/world/asia/afghan-elite-plundered-900m-from-leading-bank-2200176.html#
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Another source: Dexter Filkins, “The Afghan Bank Heist,” The New Yorker, Feb 14, 2011 – http://www.newyorker.com/reporting/2011/02/14/110214fa_fact_filkins?currentPage=all