Karzai's brother defends $1m gain from villa sale

Dubai: The brother of Afghan President Hamid Karzai made nearly $1 million (Dh3.6 million) on a property deal financed with money from Kabul Bank, according to a person familiar with the transaction and a property sales registry.

It was not previously known that the president's brother, Mahmoud Karzai, had benefited financially from Dubai real estate transactions involving Afghanistan's biggest but now deeply troubled bank. Kabul Bank is at the centre of a financial and political crisis in Afghanistan following a rush by depositors to withdraw their money.

The bank's disarray has cast a pall over President Karzai's administration and his American backers. Afghan banking rules forbid lending for overseas property deals.

Mahmoud Karzai, Kabul Bank's third-biggest shareholder, described himself as a "passive partner" and said he had no role in Kabul Bank's management decisions, including those relating to the piece of real estate.

Questionable practices

He blamed the bank's sometimes questionable practices on its now-ejected executives. Kabul Bank, which has built a network of branches and ATMs across Afghanistan, has done "good things, but also did stupid things," Karzai said.

Karzai bought a villa on Dubai's Palm Jumeirah, a high-end property development, for Dh7 million in July 2007 and sold it to an Iranian buyer in April 2008 for Dh10.4 million, for a profit of Dh3.4 million, or around $930,000 at current exchange rates. Karzai said in a telephone interview that he could not recall the details but that the initial purchase involved a loan handled by Kabul Bank's now-ousted chairman, Sherkhan Farnood.

"What is wrong with this? I borrowed money from the bank and made an investment," he said. He said he made a profit because he "sold at the peak of the market" but added: "I'm not a rich man."

Karzai became a shareholder in Kabul Bank in March 2007, four months before purchasing the Dubai property with money from the bank.

He acquired his seven per cent stake in Kabul Bank with a loan — still outstanding — from the same bank, according to Karzai and other shareholders.

Kabul Bank's unorthodox lending practices form part of a skein of transactions that are under investigation by Afghan authorities as they struggle to hold together a financial institution critical to the country's economy and security.

Kabul Bank handles salary payments for soldiers, police and teachers. Karzai said he purchased his since-sold Palm Jumeirah villa to obtain Dubai residency status so that his children could attend local schools.

He said he bought it from Farnood, the then-Kabul Bank chairman, who gave him a loan. This money, said Karzai and a person familiar with the transaction, was later repaid in full.

Struggles

Kabul Bank has struggled over the past week to stay afloat in the face of waves of depositors trying to pull out their savings. The rush, triggered by news that the Central Bank last Monday forced Farnood and the bank's chief executive, Khalilullah Fruzi, to resign, now appears to have slowed.

Depositors withdrew about $67 million on Monday, down from the level of last week, and the withdrawals slowed further on Tuesday, the bank said.

Kabul Bank bought heavily on the Dubai real estate market, investing at least $140 million in property in Dubai.

Most of the purchases, including 16 villas and two apartments, were on Palm Jumeirah.