Document Friday: USAID Attempts to Make Report on its Failure During the Kabul Bank Collapse Disappear

A "foundation for private sector growth in a market economy?"

The US Agency for International Development is attempting to make this Inspector General’s Report on  corruption within the Afghan banking system disappear.  The Afghan Central Bank regulates all private banks in Afghanistan, sets monetary policy for the country, and was responsible for overseeing Kabul Bank which lost as much as $850 million due to “fraud and mismanagement.”  (Steve Aftergood at Secrecy News originally broke this gem of a story.)

This IG report summarized the causes of the Kabul Bank crisis –which further destabilized the unstable situation in Afghanistan– and issued recommendations to prevent further banking crises in Afghanistan.  In short, it was a well written report that provided Americans with the facts behind the $850 million dollar collapse of a bank, which their tax dollars had largely funded.  USAID’s decision to attempt to remove this unclassified report from the public domain was a poor one.

According to the report, US Embassy officials were concerned that the US accounting firm Deloitte –which was awarded a “$92 million task order” to “develop and implement sound economic and regulatory policies” and “provide the foundation for private sector growth in a market economy” — had been negligent in their failure to prevent the near collapse of Kabul bank, the largest bank in Afghanistan in late 2010.

Don't read this!

Before the IG report was surreptitiously removed from the USAID website, readers could read that the run on and near collapse of the Kabul Bank was the result of vast fraud and abuse throughout the Afghan banking system.

• In November 2008, a US examination advisor received two death threats relating to his attempted examination of Kabul Bank.
• In a 2009 training class, officials from Central Afghan Bank –which nominally controlled the Kabul Bank– informed trainers that, in reality, the Afghan Central Bank could not fire Kabul bank officials.  The Central Afghan Bank officers explained the opposite was actually true; the powerful Kabul Bank management could use their connections to fire the Central Afghan Bank officers were supposed to “oversee” them.  Hardly a good “foundation” for a market economy.
• The management of Kabul bank was improperly using investors funds to purchase real estate in Dubai.  
• The Kabul Bank violated banking regulations and best practices which could have prevented “money laundering and terrorist financing.”
• Most troubling, USAID staff and Deloitte auditors the did not learn of this fraud through their audits, but rather through a 22 February 2010 Washington Post article!!

According to the USAIG IG report, there was much confusion between Deloitte, US AID and the US Department of Treasury over conducting a forensic audit to determine the depth and nature of corruption within the Afghan banking system.  “Recollections of responsible officials differ over what role USAID was supposed to take in responding to the allegations about Kabul Bank.  USAID officials indicate they were told that Treasury would take the lead; Treasury officials indicate that they could no persuade USAID to be more engaged.”

Deloitte did not provide “hands-on assistance to find evidence of the fraud that seemingly everyone believ[ed] exist[ed]” at Kabul Bank.  Deloitte also provided no warning of possible failures at Kabul Bank.  In August 2010, reports of corruption and fraud at Kabul Bank caused a run on the bank and forced it to be placed in receivership.  This near failure cost an estimated $850 million dollars, much of which was paid by the US government.

So why doesn’t USAID want the US public to see this report?  After a close read of this report, I think that the only information that it reveals that could “harm” US national security is the information that shows that our presence in Afghanistan may be wasteful, futile, and possibly harmful to US interests.  Of course, President Obama instructed agencies that, “The Government should not keep information confidential merely because public officials might be embarrassed by disclosure, [or] because errors and failures might be revealed.”  This instruction appears to have been ignored by officials at USAID.

A USAID official told Steve Aftergood that, “At the time our report was issued, it was written utilizing information from non-classified sources…After our report had been issued, USAID subsequently classified two documents that were cited in our report.  This action resulted in the report becoming classified and we removed it from the web site.”

Of course, as Aftergood points out, “the classification of information that has already been officially released into the public domain is either discouraged or prohibited, not to mention futile.”  According to Executive Order 13526, “declassified information that has already been released can only be reclassified with the written approval of the agency head.  Unclassified information that has been formally released and is no longer under U.S. government control is supposed to be beyond the reach of the classification system altogether.”  This report was originally unclassified.

But quibbling over obscure classification law misses the point.  The bottom line is that USAID appears to be abusing the classification system so that it can prevent Americans from reading that USAID had virtually no leverage over the corrupt and fraudulent Afghan banking system.  These are facts –inconvenient or not– that Americans deserve to see.