UK crisis: Kabul Bank corruption verdict raises questions over British banking credibility

bob-diamond.jpg
Former Barclays chief Bob Diamond was forced to resign over the
Libor scandal but never faced criminal charges in the UK

UK crisis: Kabul Bank corruption verdict raises questions over British banking credibility

by Jamie Mann

Two former leading figures of Kabul Bank, Afghanistan’s oldest private bank, have received five-year prison sentences by a tribunal following an investigation of fraud and embezzlement charges, Al Jazeera reported.

Accused of stealing $810 million of the $935 million fraud, Kabul Bank’s founder Sher Khan Farnood and former Chief Executive Haji Khalil Ferozi were two of the 21 men implicated in the scandal, with 16 bankers in total receiving sentences.

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Both figures vowed to appeal their sentences in the Supreme Court.

However, the verdict caused controversy from many individuals present in the courtroom who believed that an investigation into the fraud, forgery and embezzlement that resulted in the collapse of the country’s first private bank in 2010, was misled.

Ruling judge, Shamsul Rahman Shams concluded that the crime of the two bank leaders was a betrayal of trust worthy of a five-year sentence, rather than the 20 years recommended by the Afghan judicial system for conviction of the array of offences.

“The crime of these men was that the Afghan people entrusted their money to the bank and they betrayed that trust. We could not find any other crime to convict them of," Judge Shams told The Associated Press in an interview.

In addition to jail time, Farnood and Ferozi were ordered to pay back the $810 million stolen through years of corruption, described as a Ponzi scheme by Western investigators.

This is the first major scandal to be unearthed in Afghanistan, joining a long list of countries around the world that have engaged in everything from fraud to funding drug cartels.

As the five-year sentence may be deemed as thin and unjust by many, similar questions arise to the accountability of those responsible for far-reaching scandals such as the London inter-bank lending rate fixing, which saw the manipulation of the benchmark rate in a market worth $300-$500 trillion.

While the greatest ever banking scandal in Afghanistan saw the prosecution of more than 20 people involved, no one has yet been prosecuted for the Libor scandal despite evidence for the widespread corruption mounting from as early as 2005.

UK scandals remain unpunished

Barclays and the Royal Bank of Scotland played central roles in the UK part of Libor rigging, receiving such modest fines in relation to the market they played that observers concluded it was still a profitable business model despite the punishment.

Public blame rests on the heads of a few of the banks’ major figures while a permanent brand of distrust marks the institutions themselves.

RBS last month signed a two-year deferred prosecution agreement with the US Department of Justice and the Financial Services Authority (FSA), after admitting Libor manipulation between 2006 and 2010, with staff based in London, the US, Japan and Singapore.

Today, the FSA – the UK’s financial regulator – justified its own and other British authorities’ failings to notice the deeply rooted corruption with the continuing aftermath of the 2008 financial collapse.

The watchdog missed 26 signals that Libor rates were wrongly set, each of which should have “set alarm bells ringing,” Andrew Tyrie, chairman of the UK Treasury Select Committee, said in an e-mailed statement, according to Bloomberg.

FSA chairman Adair Turner in a statement on Tuesday: “The F.S.A. did not respond rapidly to clues that lowballing might be occurring,”

Like the many other emerging scandals in the UK’s financial sector, true individual accountability for Libor manipulation has been largely absent with unapologetic regulators - and institutions walking away with mere million dollar fines after gaming trillion dollar markets.

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published this page in News 2013-03-05 20:57:54 +0000