WASHINGTON — Afghanistan President Hamid Karzai has banned U.S. Treasury officials from his country's central bank, hampering work amid a growing financial scandal to fight the flow of money to insurgents, a report revealed Wednesday.
The Treasury advisers will not return because working conditions at the bank have become too hostile, said the report from the top U.S. auditor for reconstruction in the war-ravaged nation.
Raising a new alarm over a national banking scandal that has left Afghanistan in financial crisis, the report cites Karzai's move as one of a number of ways in which his government fails to cooperate with costly international efforts to improve the country's financial sector.
"The United States has poured billions of aid dollars into a country plagued by corruption, insurgency and the narcotics trade," acting Special Inspector General for Afghanistan Reconstruction Herbert Richardson said in a statement accompanying his report. "It is essential that we use all tools available to ensure that U.S. dollars are protected from fraud and diversion to the insurgency."
Among his recommendations is that Afghan banks and the U.S. should record serial numbers of the huge bundles of cash that have been flowing into the country as part of a $70 billion American effort since 2002 to improve security and development there.
A spokesman for Karzai referred comment to the central bank.
Emal Ashor, a spokesman for the central bank, said he was not aware of any decision by Karzai to ban unilaterally all U.S. advisers from the bank.
Efforts to track and protect U.S. tax dollars and other international aid are entangled in a web of Afghan banking scandals that have been fast developing in recent weeks:
—The former head of the central bank, Abdul Qadir Fitrat, fled late last month to Northern Virginia amid allegations of failing to act on warnings about widespread corruption at the nation's largest private lender, Kabul Bank. He said he left after receiving death threats, and he was being made a scapegoat while the government refused to charge politically connected individuals.
—Kabul Bank, formerly headed by a world-class poker player, nearly collapsed last year because of mismanagement and questionable lending practices, becoming a symbol for the country's cronyism and deep-rooted corruption. Top officers were not arrested until last month.
—Earlier in June, the International Monetary Fund stopped an expected $70 million reconstruction payment to Afghanistan to show displeasure of international donors, a move that threatens billions of aid to a country reliant on foreign assistance.
The United States has a number of programs to help develop Afghanistan's central bank, regulate the nation's 17 commercial banks and strengthen how U.S. and Afghan law-enforcement authorities monitor the flows of U.S. aid through the economy. As part of that, Treasury had two advisers in the central bank, Richardson's office said.
But "President Karzai banned all U.S. government advisers" at the bank in May, a U.S. Embassy comment in Richardson's report said. "Treasury currently has no plans to re-engage at the central bank as the working conditions there for advisers have become hostile."
U.S. agencies in Kabul also came in for criticism in the report for not working closely enough with each other on what they are doing to protect U.S. cash entering Afghanistan. Among those working there are the Agency for International Development, departments of state, defense, homeland security, treasury and so on.
While agencies have made some progress, they still have limited visibility over the circulation of the money, leaving the money vulnerable to fraud or diversion to insurgents.
"Auditors found that U.S. agencies have not done all they can to safeguard U.S. funds, and the Afghan government has not provided the cooperation needed to build a strong, secure financial system," Richardson said.
The report does not indicate the exact amount of work being done in Afghanistan through cash transactions, but gives an example. It said the U.S. Army's use of cash to pay contractors decreased from about 8.7 percent (almost $21 million) in January 2010 to 5.9 percent (about $19 million) in January 2011. Total U.S. Army payments during the period were about $3.5 billion, and cash payments were almost $235 million.
Other highlights of the report include:
—The Afghan Attorney General's office has not cooperated fully in prosecuting those suspected of financial crimes. Monitoring officials have reported 21 leads to Afghan law enforcement organizations including the Ministry of Interior, the Major Crimes Task Force and the attorney general's office, but the attorney general's office pursued only four of them.
— The U.S. Department of Homeland Security has trained some Afghan law enforcement officials in smuggling and put "bulk cash" counters at Kabul International Airport, making some progress against the huge amounts of cash flowing out of the country. But after the counting machines arrived, their use was delayed for seven months because of a U.S.-Afghan disagreement over where to install them. When use began in April, Afghan customs officials were using them to count cash, but not record serial numbers so the money could be tracked. Additionally, the Afghan government decides the list of VIPs who can bypass customs screenings imposed on other passengers.
Associated Press writer Deb Riechmann in Kabul contributed to this report.