Afghanistan tribunal sentences perpetrators of Kabul Bank fraud

[JURIST] A special court in Afghanistan on Tuesday sentenced 20 men to four to five years in prison for their involvement in the USD $935 million fraud that led to the 2010 collapse of Kabul Bank. Founder and former chairman Sherkhan Farnood and former chief executive officer Khalilullah Ferozi were each given five-year sentences [Guardian report] and ordered to pay back USD $279 million and $531 million respectively. Although the prosecution brought money laundering and embezzlement charges warranting 20 years in prison, the former executives were actually convicted on the lesser charge of breach of trust through the misappropriation of funds. There are no provisions in the verdict for the government to seize property or funds should the money fail to be repaid. Fraud at the bank reportedly began in 2006, two years after its founding. Then the largest bank in Afghanistan, Kabul Bank's collapse in 2010 triggered a financial crisis that threatened the entirety of the fragile Afghan economy [Reuters report], and the government was forced to bail it out. The bank has since been relaunched as the state-run New Kabul Bank [corporate website]. Farnood and Ferozi have indicated that they intend to appeal their sentences. The three-judge tribunal specifically created to prosecute the fraud deliberated for only ten minutes before returning its verdict. It appears to be the first major bank fraud trial in Afghan history.

The five-year prison terms handed down over the Kabul Bank fraud have been criticized as too lenient [AP report]. By comparison, in the US the disgraced financier Bernard Madoff [JURIST news archive] was sentenced in June 2009 to 150 years in prison after he pleaded guilty to 11 counts [JURIST reports] of securities fraud stemming from his Ponzi scheme believed to have defrauded investors of over $65 billion. While the $900 million fraud in Kabul pales in contrast to the multi-billion-dollar Madoff figures, the Kabul Bank collapse represented as much as five percent of Afghanistan's gross domestic product, imperiling the nation's entire economy. Furthermore, the Afghan government is largely funded by foreign donors, many of whom may limit or cancel their financing should they perceive that the government is not adequately prosecuting fraud such as that at Kabul Bank.

 

About Paper Chase

Paper Chase is JURIST's real-time legal news service, powered by a team of 30 law student reporters and editors led by law professor Bernard Hibbitts at the University of Pittsburgh School of Law. As an educational service, Paper Chase is dedicated to presenting important legal news and materials rapidly, objectively and intelligibly in an accessible format.

© Copyright JURIST Legal News and Research Services, Inc., 2013.