Corrupted Private Bank Puts Deloitte’s Contract to a Halt
The United States Agency for International Development (USAID) has suspended on March 15, 2010 the ongoing contract of consulting and accounting firm Deloitte with a private bank in Afghanistan following an investigation sponsored by USAID inspector general that showed ommission over a massive corruption leading to Kabul Bank’s collapse.
Deloitte is the second firm from the Big Four auditing companies accused of overlooking the almost systemic corruption in Afghanistan’s largest private bank, next only to PricewaterhouseCoopers which has been tagged by Afghan and US officials in an “erroneous” audit that allegedly sparked the banking crisis in the country. The private bank was reported to have lost approximately $900 million.
However, a spokesman from USAID told the Wall Sreet Journal that Deloitte is unlikely to be held liable for the massive fraud in Afghan’s private bank. A spokesman from Deloitte also insisted that the firm has complied with the terms of the contract.
The contract started on August 2009 that had put the responsibility on Deloitte’s shoulders to provide technical assistance to the deteriorating financial regulation in Afghan banking sector.
But reports began to come out bringing to the open some malpractices committed by shareholders who allegedly filed for loans that were not backed by collateral. This has prompted the USAID to review Deloitte’s performance of its task.
In addition, President Hamid Karzai has appointed the Central Bank to regulate the private bank after reports claimed that one of his brothers engaged in such loan malpractice involving hundreds of millions of dollars. The amount was allegedly used for real estate investments in Dubai and other questionable projects.
As a result, the International Monetary Fund (IMF) decided to cut its financial aid for Afghanistan upon seeing a poor handling by its authorities over the politically-connected private bank. The IMF’s withdrawal of support has led foreign governments to worry over their financial aid for Afghanistan.
For instance, the UK government said last week that the IMF’s lack of support for Afghanistan has forced it to suspend the $137.6 million worth of aid for the country.
Whether Deloitte has foreseen the private bank’s resulting crisis and has taken the necessary steps to alert authorities remain unconfirmed.
Deloitte spokesman Jonathan Gandal stressed that the firm was not Kabul Bank’s independent auditor and that its services excluded the supervision and examination of the private bank before it was put into conservatorship in September last year.
Although its engagement with the private bank was suspended, Deloitte’s other existing contracts with the USAID remain active according to the agency’s spokesman.