The Afghan government has signed a multimillion-dollar real estate deal with a disgraced former banker who is meant to be behind bars for his role in the $925m (£607m) Kabul Bank scandal.



The grinning presence of Khalilullah Ferozi, the former chief executive of the failed bank, at a glitzy signing ceremony in Kabul was criticised by campaigners as a damning indictment of the government’s failure to tackle corruption, even though an anti-fraud campaign is officially at the heart of their agenda.

Ferozi was sprung from jail on Wednesday to attend, even though he still has several years to serve on two different sentences and owes more than $300m in embezzled funds, interest and fines.

“This latest partnership of the National Unity Government with a convicted criminal is outrageous and a huge step back in the fight against corruption,” said Sayed Ikram Afzali, executive director of Integrity Watch Afghanistan. “It would take [the government] a huge amount of effort to restore the credibility it has lost due to this action.”

The office of president Ashraf Ghani, who campaigned on a promise of clean government, did not respond to requests for comment. But several senior officials at the signing of the $900m real estate project insisted their unorthodox arrangement was in Afghanistan’s best interests, because it would allow Ferozi to repay the government.

“Khalilullah Ferozi will pay his debts through the money he will earn from the project,” said Ahmad Zia Massoud, a special envoy for reforms and good governance.

Another senior official suggested that keeping Ferozi in the country’s notoriously grim prisons or forcing him into exile would be cruel. “If they [defaulters] remain behind the bars or live outside the country, they will be in pain and people’s obligation will remain on them too,” Ghani’s legal adviser, Abdul Ali Mohammadi, told the local Tolo television station, after thanking Ferozi for his investment.

No one in government has publicly questioned why Ferozi can find funds to invest in a major housing development, but according to a US government watchdog he hasrepaid only 2% of what he owes Kabul.

“Afghans and the international community should be demanding answers to serious questions,” said Grant McLeod, former senior policy and legal adviser for a key anti-corruption body in Kabul and author of a 2012 report into the Kabul Bank scandal.

“Where did these criminals get the money to invest? Why weren’t their assets seized under Afghan law? What authority does the government have to absolve debtors of criminal penalties determined by Afghan courts? Unfortunately, the answers appear to demonstrate that it’s just more of the same when it comes to the perpetrators of the Kabul Bank fraud. Justice and the rule of law don’t matter. It’s who you know,” he said.

Kabul Bank was the country’s biggest private lender until it nearly collapsed in 2010, when authorities discovered it had been run as a virtual piggy bank for the country’s elite.

The web of connections that helped founder Sherkhan Farnood to ignore an Interpol warrant for financial fraud in Europe as he plundered his own country also protected key players from all but the lightest punishment.

The two men were sentenced to five years in jail and ordered to repay hundreds of millions that they stole. But they had faced watered down charges, which made it harder for accountants to claw back the missing cash.

Ghani had said bringing the men to account would be a key priority for his government and late last year, after Ferozi failed to come up with his share of the money, he was given another 15-year sentence.

It appeared to be more symbolic than practical, however, and he is serving that time only outside office hours. “I work in [the] office until 4pm, then go to the National Directorate of Security to serve my sentence,” he told the New York Times, adding that he had been on the ad hoc day-release scheme for more than a month.