An independent panel probing Afghanistan's failed Kabul Bank says a few individuals acted with "reckless disregard" in defrauding the bank, while a lack of oversight and enforcement contributed to the loss of hundreds of millions of dollars.

A new report issued Wednesday says $861 million in illicit loans were made to 19 individuals and businesses, including $270 million to the bank’s former chairman.

The committee says senior bank officials told employees to make loans based on fabricated records, and used two sets of accounting books to carry out a “sophisticated operation of fraudulent lending and embezzlement.”

The 87-page report says the scheme utilized new loans to give the impression that money was being repaid, but that true repayments of principal or interest were “extremely rare.”

The committee was created in 2010 to monitor and evaluate anti-corruption efforts, and includes three Afghans and three international appointees.

It says Afghan citizens will bear the cost of the bank’s failure with money that could have been used for education, healthcare, infrastructure or security.

Major bank failure

Kabul Bank was once Afghanistan’s largest private lender and nearly collapsed in 2010. Afghanistan’s central bank stepped in and took control of the bank, which was later split into two.

Wednesday’s report calls Kabul Bank one of the biggest banking failures in the world, and says it will undermine not only public trust in financial and government institutions, but also efforts to rebuild Afghanistan.

The report says bank management gave out $66 million in bank funds used to benefit businesses they controlled. The money bought properties, hundreds of cars and paid salaries to Pamir Airways employees described as “pilots for cash delivery.”

Almost $6 million went to travel expenses that were explained with few details and often no supporting documents.

As of August, $128 million in cash and another $190 million in assets had been recovered.

21 indicted

Afghanistan’s attorney general has indicted 21 people and named several others as persons of interest in connection with criminal activity at Kabul Bank. The report says five people are in custody, but that many of those indicted and considered persons of interest have fled the country.

The Afghan government has called for the United States to extradite the former head of the Afghan central bank, Abdul Qadir Fitrat, who fled to the U.S. last year. Fitrat said he feared for his life after trying to prosecute those who stole from Kabul Bank. Afghan officials say Fitrat played a role in the scandal and want him brought back to Afghanistan to face charges.

The new report criticizes outside political influence on the attorney general’s independent ability to determine what charges should be brought. It cites a committee set up by President Hamid Karzai in 2011 to report on the crisis, which immediately announced the Afghan leader would himself decide whom to prosecute.

Karzai also issued a decree absolving those who paid back the principal of outstanding loans from having to pay interest or face criminal charges.

The panel said there is “great concern” about delays and the manner of the attorney general’s own investigation. The report says “reasonable grounds” for an investigation existed as early as September 2010, but that a formal investigation did not begin until April 2011.

Political ramifications

The panel says some of the bank’s money went toward financing the campaigns of at least one presidential candidate and between 30 and 40 parliamentarians. It recommended Afghanistan adopt political financing regulations that include open reports of who makes political contributions.

The panel also says the attorney general’s office should document its investigations in writing, including “clear rationale” for why it decided to issue or not issue any charges.

The report also calls on a special tribunal set up by Karzai to hear the case to focus its efforts on processing the charges of those already indicted, instead of other activities including those related to recovering funds.

The panel, officially known as the Independent Joint Anti-Corruption Monitoring and Evaluation Committee, asked the Afghan government, the country’s central bank and other affected institutions to respond in 60 days with their intentions to implement the committee’s recommendations.