Poker, Drug-Running and Illicit Deals at the Kabul Bank

by GARY H. JOHNSON, JR. July 5, 2011
 
Sherkhan Farnood was placed under arrest by Afghanistan authorities on June 30, 2011 for his connection with over $900 million in fraudulent lending activities. These activities took place at the Kabul Bank, an institution founded and formerly co-chaired by Farnood. He was arrested along with the bank's former CEO Khalilullah Fruzi for what Afghanistan Attorney General Mohammed Ishaq Aloko referred to as clear evidence of “corruption, fraud and misusing people's money.” Farnood and Fruzi are now undergoing a month-long interrogation at the prosecutor's headquarters in Kabul.  
 
For those backing Afghan President Hamid Karzai against the Taliban insurgency, the near-collapse of the Kabul Bank exposes some uncomfortable truths. Sherkhan M. Farnood, the Founder and former chairman of the Kabul Bank, is none other than the wanted fugitive, Sherkhan Mohammad Morad. This individual is the chief architect of a Russian hawala syndicate that has served the unique needs of the opium smugglers and heroin warlords of Afghanistan and Pakistan for decades.
 
 
The evidence of Sherkhan Farnood's alternate identity as crime lord Sherkhan Mohammad Morad is overwhelming. Sherkhan Farnood is a licensed owner of a Dubai-based hawala, known as the Shaheen Exchange. Farnood is also a prominent poker payer. In 2008, though a wanted fugitive, he won a European World Series of Poker bracelet in the HORSE competition.
 
Hawalas have operated in the Middle East, North Africa and South Asia for over a millennium. According to the U.S. Treasury, “Hawala works by transferring money without actually moving it.” The hawala “underground” system of informal banking is considered illegal in countries like Russia and America due, primarily, to its association with money laundering. 
 
Andrew Higgins identified Sherkhan Farnood's ties to “illegal banking” in Russia in his February 22, 2010 article “In Afghanistan, signs of crony capitalism.” Higgins wrote:
 
The roots of Kabul Bank stretch back to the Soviet Union. Both Fruzi and Farnood got their education and their start in business there after Moscow invaded Afghanistan in 1979.
While in Moscow, Farnood set up a successful hawala money-transfer outfit to move funds between Russia and Kabul. Russian court documents show that 10 of Farnood's employees were arrested in 1998 and later convicted of illegal banking activity. Fearful of arrest in Russia and also in Taliban-ruled Afghanistan, Farnood shifted his focus to Dubai.
 
Western journalists and academics have so far failed to investigate the Shaheen Currency Exchange's relations with the Central Bank of the United Arab Emirates. To date, investigations by multiple auditing committees of the Central Bank of Afghanistan show that the Kabul Bank- housed branch office of Shaheen Currency Exchange provided Sherkhan Farnood over $500 million in “irregular” loans. The money likely passed through the Dubai-based business Shaheen Money Exchange, LLC (pdf link), one of 73 licensed money changers in Dubai.
 
Following the purge of Farnood Sherkhan from his post at Kabul Bank in 2009, the Central Bank of the United Arab Emirates published a list of moneychangers operating in the UAE as of December 2009. Shaheen Money Exchange, LLC is listed as money changer #66. The “founders” of Shaheen Money Exchange, LLC are listed as “Rashid Moh'd Sultan Al Suwaidi” with a 60% stake and “Sherkhan Farnood s/o Moh'd Morad” with a 40% share. 
 
On November 29, 1992 the UAE's Central Bank issued Resolution No. 123/7/1992, which set new regulations for money changers. According to the resolution, licensing for the money changing industry in the United Arab Emirates is only granted to institutions and companies that are established under commercial companies' law.   According to the Emirates Free Zone website, two key citizenship clauses in the 1992 Resolution regulate who can attain and retain a money changer license in the UAE:
 
The resolution also requires that the natural person be a UAE national of not less than 21 years of age. In case of companies, the national shareholding should not be less than 60% of the total paid-up capital. The regulation set the minimum capital at AED once [sic] million or AED two million depending on the scope of activities the applicant wishes to undertake.
 
Andrew Higgins’ assertion that Sherkhan Farnood's Russian associates were arrested in 1998 by Russian authorities and “later convicted of illegal banking activities” infers that Farnood fled to Dubai in or around 1998. The biography of Dr. Fraidoon Noorzad, Chairman-elect and Managing Director of Maiwand Bank in Afghanistan confirms that the Shaheen Exchange in Dubai was already established by 1998:
 
After a successful professional career in the field of medical, he shifted himself into business of money exchange in the year 1997 and in 1998 he became a partner in Shaheen Exchange, Dubai. With the beginning of the new Government in Afghanistan, he started concentrating in the business opportunities and began his association with Kabul Exchange and later on joined as Dy. CEO with Kabul Bank, one of the leading and fastest growing private bank in Kabul. During this tenure with Kabul Bank, he acquainted himself with banking laws and regulations and proved as dynamic leader. He then was picked up by the management of Azizi bank and offered with the position of Dy. CEO. He also got [sic] a long association with the Afghanistan International Chamber of Commerce
 
By 1998, then, Sherkhan Farnood's operations in the Dubai-based Shaheen Money Exchange LLP had a new player. This man was UAE national named Rashid Mohammad Sultan Al Suwaidi, who held a 60% share in the exchange. Farnood also had at least one partner, Dr. Noorzad (who now holds a 50% stake in the Maiwand Bank of Afghanistan). 
 
The opaque nature of hawala exchanges renders it unclear whether or not Dr. Noorzad's partnership with the Shaheen Exchange was ever officially dissolved. The nature of Rashid Al Suwaidi's role in the affair is also unclear at present. 
 
 
Virtually every report on the Kabul Bank crisis indicates that Sherkhan Farnood's interests in the United Arab Emirates extend beyond the Shaheen Exchange and into the luxury Real Estate Market on the man-made beaches of Dubai. On September 5, 2010 France24's Leela Jacinto released the news that Farnood would relinquish control of his properties at Palm Jumeirah (the palm-shaped development at Dubai):
 
Farnood has pledged to hand over to Kabul Bank the titles of prime Dubai real estate purchased with bank money but registered until now in his and his wife’s name. He has estimated that the properties are worth about $160 million.
 
Whether or not Farnood is planning to arrange the transfer of interest in Farida Farnood's Business Bay investments is unclear. In an article from June 16, 2011, Jon Boone recounted some Farnood-led corruptions. He also shed a touch of light on the wreckage of the once promising Dubai development:
 
Less well known is Business Bay, perhaps Dubai's most catastrophic property development, where property developers and speculators flipped off-plan properties during the Emirate's real estate bubble. What was meant to be home to 240 towers is now a ghostly wasteland of half-finished buildings. On the edge of this empty quarter are two massive holes in the ground – the planned sites for 20-storey apartment complexes. Victims of the real estate crash...
 
The former Kabul Bank CEO, Khalilullah Fruzi, informed Boone that each of these pits swallowed $20 million of Bank Kabul money. 
 
These massive money holes have names according to the Dutch Foundation: Dolphin Tower and Waves Tower. The registry of the two projects lists the Dubai-based Arab Experts Engg. Consultants (AREX) as the “Consultant” for the jobs. The clients for both projects are listed as “Farida Farnood/Sherkhan Farnood General Trading Co.” The true nature of the Sherkhan Farnood General Trading LLC is difficult to ascertain, though the UAE yellow pages provides a number of contact options for the company's Dubai Head Office.
 
The Saudi Foundations & Concrete Processing Company, partly owned by the Dutch Foundation, has released a PDF file with its completed and ongoing projects. The Dolphin Tower entry lists the project as “...for M/s. Farida Farnood,” while the Waves Tower is listed as “...for M/s. Sherkhan Farnood S/o Mohammad Murad/Farida Farnood.” 
 
The reference to Mohammad Murad by Saudi Foundations is a slight alteration from the Shaheen Exchange version of the same “Moh'd Morad.”
 
Tracking New Ansari's Hawalas
 
Leela Jacinto of France24, in the first week of the Kabul Bank panic last September, following up on Andrew Higgins' revelations of Sherkhan Farnood's association with a Russian hawala, reported that Farnood's business tentacles stretch to “the New Ansari Exchange.”
 
It may be premature to assert with complete certainty that Sherkhan Farnood is a player in the New Ansari Exchange. Investigations are ongoing. Leela Jacinto's estimate is likely derived from Dexter Filkins' New York Times piece from August 31, 2010 which revealed an unnamed shareholder's view of Kabul Bank's New Ansari connections:
 
Investigators and bank regulators say Kabul Bank is also tied to the inquiry into New Ansari, the money-transfer firm, or hawala, that is suspected of moving billions of dollars out of the country for Afghan politicians, drug traffickers and insurgents. Kabul Bank used the firm, whose dealings are nearly impossible to track, to transfer at least $60 million out of the country, a bank shareholder said.
 
On February 18, 2011, nearly a year after Andrew Higgins discovered “signs of crony capitalism” in Afghanistan, the U.S. Treasury Department designated the New Ansari Exchange and 15 other individuals and entities under the Kingpin Act. The Treasury press release named two Dubai-based Hawalas as subsidiaries:
 
The New Ansari Money Exchange is at the center of an unofficial network of individuals, money exchange houses and other businesses operating throughout Afghanistan and in the United Arab Emirates. Between 2007 and 2010, the New Ansari Money Exchange used the billions of dollars it transferred in and out of Afghanistan to conceal illicit narcotics proceeds. The New Ansari Money Exchange transfers money to its Dubai subsidiaries, Green Leaf General Trading LLC and Al Adal Exchange, also designated today, which then transfer money through the U.S. and international financial systems.
 
A U.S. Treasury chart of the New Ansari Network reveals a third Dubai-based Hawala link: Connect Telecom General Trading LLC.
 
The “General Trading LLC” in both Green Leaf and Connect Telecom lend weight to the notion that the Business Bay dealings of Sherkhan Farnood General Trading LLC represent the tracks of a low-key Farnood Hawala operation.
 
Notably, the December 2009 Money Changer registry of the Central Bank of the United Arab Emirates does not include the three hawalas linked by the U.S. Treasury Department to the New Ansari Network. The Central Bank's 2010 Annual Report (p. 24) records 270 branches of the 73 licensed Hawala Exchanges operating in Dubai.   Four new money changers in Abu Dhabi were given licenses in 2010 by the UAE's Central Bank, but none of the names fully correspond to the new New Ansari affiliates.
 
A Federal Register (vol.6, no.38) of the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), dated Friday, February 25, 2011, settles the confusing issue of licensing relatively well. The Al Adal Exchange operates under Trade License No. 172133, an Afghanistan license. Connect Telecom General Trading LLC operates as the bearer of Dubai Chamber of Commerce Membership No. 123076. Green Leaf General Trading LLC, too, holds a DCC Membership – No. 42988. 
 
The two Afghanistan-based hawala associate groups designated by the U.S. Treasury Department in the New Ansari Exchange include: (1) Ahmad Shah Money Exchange, which holds Afghanistan Trade License No. 101016; and, (2) Mushtaq Shaheen Construction and Roadmaking, which is listed in Afghanistan as Commercial Registry No. 31225.
 
The New Ansari Money Exchange operates an exchange in Dubai, but does not hold a license to practice Hawala in Dubai. The fact that New Ansari holds a Tax ID Number (004800015) begs the question, which Afghanistan institution issued a license to the criminal racket? To follow this teaser, OFAC does not list any distinguishing codes to isolate and disrupt the activities of New Ansari LTD.
 
A Lucky Break
 
The reason Andrew Higgins was so far ahead of the pack was likely due his awareness of the decision by the United States Drug Enforcement Agency to cultivate and strengthen ties with its Russian counterparts at the Federal Drug Control Service of the Russian Federation in February of 2010.  
 
The ties were solidified following a February 5, 2010 meeting between three U.S. DEA heads, including DEA Chief of Operations Thomas Harrigan and DEA Regional Director Mark Destito, and seven members of a Russian delegation led by the Deputy Director of the Russian Federal Drug Control Service (FSKN), Nikolay Aulov. 
 
Evidence of this meeting exists in a publicly released Wikileaks document dated February 10, 2010. 
 
On June 30, 2011, the day the Attorney General of Afghanistan arrested and detained Sherkhan Farnood and Khalilullah Fruzi, the Wikileaks document was reclassified as a “DEA Sensitive SIPDIS” file. SIPDIS stands for “Security Information Publicly Disseminated.” 
 
The lengthy, 34 point rendering detailed that on February 4, 2010 the DEA Operations Chief Harrigan and Regional Director Destito met with Gil Kerlikowske, Director of the Office of National Drug Control Policy (ONDCP), and FSKN Director Viktor Ivanov in a “U.S.-Russia Bilateral Presidential Commission, Drug Trafficking Working Group.” 
 
A February 4, 2010 ONDCP press release qualified the meeting as the second bi-lateral Working Group meeting. The first meeting of the U.S.-Russia Bilateral Presidential Commission was held on September 24, 2009. The Drug Trafficking Working Group was chartered during the July 2009 summit between President Obama and President Medvedev. The release announced the signing of the Presidential Commission's Member Rules and Committee architecture:
 
We have signed the framework documents including the Rules, Membership, and Topics and Sub-Groups. The Russian Federation and the United States share the belief that solving this problem requires the efforts of the Governments of both countries. The joint work must extend beyond just law enforcement to include prevention, treatment, financial controls, international best practices, and information and personnel exchanges. As such, today's meeting included several government agencies from throughout the Russian and American governments. 
 
In a display of unity in purpose and mutual trust, information about sensitive clandestine operations and investigations was shared between the U.S. and Russian drug enforcement ministries.
 
As part of this cooperative atmosphere, the Drug Enforcement Administration shared a list of potential joint investigation targets with the FSKN. The FSKN has provided information on drug shipments seized in Russia that can be used to improve interdiction efforts in Afghanistan and Central Asia.
 
The Wikileaks breakdown of the February 5th follow-on round of bi-lateral talks broaches the Russian officials' desires for the United States to seek “full-fledged” member status in the Central Asian Region Information and Coordination Center (CARICC).   Russo-American strategic interests in combating the illicit drug trade, include two primary aims: (1) coordinating a crackdown on the cocaine smuggling corridor from South America to Russia; and (2) shutting down the opium ratlines running from Afghanistan through Iran to Azerbaijan and Russia.
 
An “Agent's Note” within the minutes of the Working Group delivered a strong indication that tracking the movements of money would figure prominently in the effort to disrupt the drug traffickers:
 
“Agent's Note: A new trend that FSKN in [sic] seeing is that drug proceeds are now being sent directly to Afghanistan instead of being sent to third countries (i.e. UAE, Europe, and Central Asia).  During the US-Russia bilateral Presidential Commission, Drug Trafficking Working Group meeting, Deputy Director Aulov presented a PowerPoint presentation XXXXXXXXXXXX. 
 
Deputy Director Aulov supplied a hard copy of his PowerPoint Presentation to OC Harrigan. This hard copy is written in the Russian language. The Moscow CO will translate the hard copy into the English language.” 
 
The puzzling redaction of a portion of the discussion led me to believe that the PowerPoint presentation might yield the Russian perspective of the Hawala networks running from the Afghanistan-Pakistan region into Russia. The Agent's Note led me to believe that the house arrest of Sherkhan Farnood may have led to a reversal of money flows from their normal patterns. It seemed plausible that this “new trend” could be the result of Farnood's expulsion from his Shaheen Money Exchange office of Kabul Bank. To that end, I made a fortuitous mistake in my research along the Sherkhan Farnood hawala trail. 
 
While attempting to trace the new alias of Farnood, Mohammad Morad, in an inadvertent missed key stroke I omitted the letter “k” in my efforts. As a result, my searches of “Sherhan Mohammad Morad” led me to an Interpol wanted list and a February 4, 2010 Power Point Presentation by Nikolay Aulov of FSKN, (Russia’s Federal Drug Control Service or FDCS). If the link is not available, a slideshow of the document can be downloaded here.
 
 
Sherhan Mohammad Morad aka Farnood. On the left he is shown in a Russian FDCS document, and on the right from a poker website.
 
To my disappointment the Interpol wanted list's Sherhan vitals did not provide a photo of the fugitive; however, the Nikolay Aulov presentation provided photographic proof that Sherkhan Farnood and Sherkhan Mohammad Morad were indeed the same man. By the fourth slide I was hooked, by the fifth my research into the Shaheen Exchange came to a new starting point. 
 
By 1996, Russian investigations into the underground hawala smuggling and laundering rackets of drug-dealing groups established that “...the [hawala] system had been created by Afghans by order for the purpose of quick anonymous money transferring between different countries.” The slide show identified the “creator” of the hawala corridor from Afghanistan through Tajikistan to Russia as “Sherhan Mohammad Morad.”
 
The fifth slide revealed that Russian law enforcement suppressed the activities of “Sherkhan Bank” and successfully prosecuted the ring for “illegal banking and currency operations.” Unfortunately, the complete unraveling of the Sherkhan Bank's drug smuggling connections did not come to pass, limiting the scope of the prosecutions; and, the hawala's “...main leader Sherkhan Mohammad Morad wasn't arrested.” Also, the international announcement of Sherkhan Mohammad Morad's fugitive status and a global manhunt have not yet led to his capture. 
 
The following caption sat next to the photo of a young Sherkhan Farnood.
 
Sherkhan Mohammad Morad, wanted by Russian law enforcement agencies for crimes commitment including illegal banking activities, money laundering, organization of criminal society. This person can currently use an ID with the name of Sherkhan Mohammad Farnood.
 
In light of this overwhelming evidence, it may be time for Interpol to update its records on the wanted fugitive Mohammad Morad Sherhan with a photo or two. Mohammad Morad Sherhan, Interpol’s wanted fugitive, is Sherkhan Mohammad Morad, the Russian federal authorities’ fugitive. This same fugitive from justice is currently sitting in a Kabul detention center. The western world knows him as Sherkhan Mohammad Farnood. 
 
Family Security Matters Contributing Editor Gary H. Johnson, Jr. is the Senior Advisor for International Security Affairs at the Victory Institute. He also heads the foreign affairs desk of the Tea Party Tribune.
 

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