NOV. 4, 2015
Afghan Businessman Convicted in Kabul Bank Fraud Is Still Free to Make Money
By MUJIB MASHAL
KABUL, Afghanistan -- In a big day for development here, a notable Afghan businessman stood with top government officials on Wednesday as he signed the contract for a new township: 8,800 homes across 33 acres of prime real estate in the heart of the capital, with an initial investment of at least $95 million.
There was just one problem: The businessman, Khalilullah Frozi, is supposed to be serving a 15-year prison sentence  for his role in defrauding Kabul Bank  of nearly $1 billion of depositors' money. The scheme brought Afghanistan's biggest bank, where Mr. Frozi was listed as chief executive, near collapse in 2010, and it deeply shook trust in the Western-backed financial system here.
But Mr. Frozi, it seems, will be spending his days making money while he serves his sentence at night.
Five years after the banking scandal, the apparent unwillingness of the Afghan authorities to deal firmly with the perpetrators is perhaps one of the most glaring examples of Western impotence in the fight to clean up a system that the United States, chiefly, built and paid for.
At the very least, the lenient treatment is likely to be a new source of frustration for international donors and the International Monetary Fund, which had made the prosecution of Mr. Frozi and his partners a precondition for continued aid to a government that has shown halting progress in tackling corruption.
"Clearly, this is very odd," said a senior Western official, speaking on the condition of anonymity because he had been surprised by the development and had yet to gather full details. "The message it sends is that if you have stolen enough money, you can get away with it."
President Ashraf Ghani took office last year on a pledge of curbing the endemic corruption within the Afghan government and righting the country's troubled economy. Just a few months ago, he revived the Kabul Bank case,  reopening many prosecutions and advocating harsher sentences for Mr. Frozi and his colleagues.
But now his government is teaming with Mr. Frozi, hoping for a badly needed investment influx as the economy suffers amid Taliban offensives and an exodus of Afghans  fearful that their country is once again teetering.
The mixed message sent by Mr. Frozi's re-emergence is another sign of trouble for Mr. Ghani, who is caught in a risky quandary over corruption: He alienated many powerful Afghan figures with a series of reform dictates early in his term, but still faces criticism for not doing enough.
Drago Kos, the chief international corruption watchdog in Afghanistan, resigned two weeks ago, saying he did not think the government was serious in its efforts.
"With the exception of some sporadic activities, in one year since the new president and the C.E.O. took positions, I could not see any systemic action against endemic corruption in the country," said Mr. Kos, who was a member of the Independent Joint Anti-Corruption Monitoring and Evaluation Committee. "All we've needed was some good political will and support, which never came and in such circumstances, I did not see the point to go on."
Anti-corruption campaigners said the Afghan government's partnership with Mr. Frozi on such a major project amounted to a public joke.
"It sends a very negative political signal to the Afghan people and the world: that anyone can loot, but if they invest in Afghanistan, no one will question the legitimacy of the investment," said Yama Torabi, a member of the anticorruption committee. "It perpetuates the culture of impunity."
At the ceremony opening for Mr. Frozi's project, called Smart City, Mr. Ghani's legal adviser, Abdul Ali Mohammadi, thanked the businessman for his investment. He acknowledged that the presence of Mr. Frozi "here and not in Pul-i-Charkhi prison" had raised many questions.
"The aim is not to keep Kabul Bank debtors imprisoned, but the aim is to return the government and the people's money," Mr. Mohammadi said, describing what he called his government's "mechanism of encouragement."
He added, "As long as these individuals remain imprisoned in jails, or on the run abroad, not only do they suffer but what they owe the people also remains."
Still, efforts have lagged in reclaiming about $988 million in embezzled funds in the Kabul Bank fraud case, with less than half recovered as of August.
In addition to his 15-year sentence, Mr. Frozi was ordered by the courts to pay back $137 million. In a telephone interview on Wednesday, he said that his new venture was part of an agreement he had reached with the government.
Under the deal, he would serve his sentence at night, but would come to his office during the day to invest in projects that would eventually generate enough money to pay back what he owes.
In addition, he said, he had paid back 17 percent of his debt upfront, with the rest to be paid in installments over seven years.
His latest investment, he says, will allow him to pay his debts off much sooner, and make a large profit in the process.
"I will make $300 million in profits in this project," he said. "It will pay what I owe the government in 13 or 14 months, and the project will bring the government an additional $75 million in taxes."
He said that for more than a month now, "I work in office until 4 p.m., then go to the National Directorate of Security to serve my sentence."
Kabul Bank was established in 2004 as the country's first private bank. But, according to auditors, it was a veritable Ponzi scheme from the beginning.
It quickly turned into a piggy bank of sorts for the country's elite, who borrowed freely from depositors' money to invest in their own projects without repaying their loans.
While the founders were Mr. Frozi and Sherkhan Farnood, a money exchanger with a long trail of Interpol and Russian government warrants out for his arrest, the list of shareholders included a brother of former President Hamid Karzai and also a brother of his vice president, Muhammad Qasim Fahim. 
One shareholder, a nephew of Mr. Fahim who had a 3 percent stake, was "probably 7 years old," according to the minutes of a government meeting held after the bank ran into trouble.
But the shareholders were borrowers, too. Hundreds of millions of dollars in depositors' money was given to them and transferred to Dubai for investment in real estate.
Customers' savings also went into purchasing an airline; the founding of a major liquid gas distribution company; the purchase of the country's oldest cement factory; the construction of a resplendent mall and residential complex in Kabul; and numerous other businesses.
The bank's popularity grew largely because of the enticements it offered to struggling Afghans in one of the world's poorest countries.
Each month, the bank held a televised lottery in which customers with as little as $100 in their accounts were eligible to play. Apartments, cars, and large cash prizes were given away.
But it was later revealed that the hundreds of apartments given away were properties sold to the bank by Mr. Frozi and Mr. Farnood at prices three to four times their actual value, earning them substantial profits.
It was not immediately clear whether Mr. Farnood, who is also serving a 15-year sentence, had negotiated a similar deal with the government.
But Mr. Frozi's latest tactic has raised a host of questions. Why, if he still has enough money to play with, has the government not been able to recover what he owes in full already? Why has it not seized the property he intends to build on, which he still owns? And why are the business partners in his new venture undeterred by his reputation?
The answer, many analysts say, lies in the connections Mr. Frozi accumulated during his time in charge of Kabul Bank, when he doled out cash to an influential elite and political strongmen, who remain in his thrall.
Mr. Ghani's coalition government depends on many of the same players, and could do little more now than to reach a compromise with Mr. Frozi, the analysts say.
Mr. Frozi's enduring influence ensured him luxury even in jail, from where he was reportedly released regularly to watch his soccer team, Ferozi F.C.
On a daily basis, Mr. Frozi posted photographs and poems on his Facebook page from his cell, which was specially furnished with cushions and maroon Persian rugs, its walls painted a pale yellow.
Among the images is one of him with his children lounging on the cushions during family visit day. There is even a photograph of Mr. Frozi in the prison yard, hanging out with Taliban prisoners.
"In Pul-i-Charkhi prison, with the political opponents of the National Unity Government," the caption reads, in reference to Mr. Ghani's coalition that he just signed a partnership with.