The brother of Afghanistan’s president said on Wednesday he made at least US$800,000 by buying and then quickly reselling a high-end Dubai villa using a loan provided by the chairman of troubled Kabul Bank.
Mahmood Karzai’s comments point to a pattern of insider wheeling and dealing that has helped plunge Afghanistan’s largest bank into crisis. Nervous customers rushed to withdraw millions last week following reports of unorthodox lending practices and the resignation of the bank’s top two executives.
The bank has invested heavily in property in Dubai, where prices have since plummeted.
There is no indication that Karzai’s property deal was illegal.
However, revelations about the transaction come amid a renewed focus on allegations of corruption within his brother Afghan President Hamid Karzai’s administration, and questions about Kabul Bank’s ties to the nation’s political elite.
Speaking by telephone from Dubai, Mahmood Karzai acknowledged buying the house on the city-state’s Palm Jumeirah island for just under US$2 million in July 2007.
Karzai, who has not been accused of any wrongdoing, said the villa sale and the loan to cover for it were organized by former Kabul Bank chairman Sherkhan Farnood, though it was listed in his name. He said he was uncertain about the terms of the loan — or even if bank funds were involved.
Details surrounding the sale were reported earlier on Wednesday by Emirati daily the National, which cited records reviewed by the government-owned paper.
Since 2007, an estimated US$3 billion in cash has flowed out of Afghanistan through the country’s two major airports, most of it to Dubai, where a great deal was invested in the once booming real estate market, according to Afghan police and intelligence officials.
While taking large amounts of money is not illegal under Afghan law, the scope of the transfers has alarmed US and other international officials because they don’t know whether it could be diverted aid funds, drug money or Taliban cash.
Kabul Bank’s woes underscore entrenched cronyism and corruption in Afghanistan, with millions of dollars allegedly loaned to relatives and friends of the ruling elite to amass fortunes. The bank also handles pay for public services, soldiers and the police.
The Afghan Central Bank said Farnood and Khalilullah Ferozi, former chief executive officer, resigned because under new rules only banking professionals can hold top operating positions at banks. Ferozi and Farnood, a world-class poker player who raised money for Karzai’s re-election campaign, each own 28 percent of the bank’s shares.
Mahmood Karzai owns a 7 percent stake in the bank, making him the third-largest shareholder. Another shareholder, Haseen Fahim, is the brother of Afghan First Vice President Mohammad Qasim Fahim.
The central bank has ordered Farnood to hand over US$155 million in real estate holdings in Dubai. That includes 18 Palm Jumeirah villas and two business properties.
Mahmood Karzai on Wednesday criticized Farnood’s handling of the company, and vowed to remain involved in the bank as it works “to clean the house ... and start fresh.”
In the meantime, Mahmood Karzai continues to live not far from his former house on the Palm Jumeirah, in a villa he says is owned by Farnood.
Many foreigners raced into the Dubai property market until late 2008, when the global financial crisis slammed the brakes on the frenzied buying and selling. Those like Mahmood Karzai who got out in time walked away with hefty profits. Those who didn’t have watched the value of their investments plunge.
Real estate consultancy Colliers International estimates prices have dropped by half from their peak in the second part of 2008. A glut of new homes and few available mortgage options means prices are unlikely to rebound soon.
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