Afghan president issues Deloitte, PwC threats

by Vault Consulting Editors | April 12, 2011

Afghan president Hamid Karzai today pointed the finger at several of the world's biggest consulting firms for failing to adequately fulfill their roles as auditors and advisers to the country's biggest bank. Karzai specifically implicated PricewaterhouseCoopers, Deloitte and BearingPoint as partly responsible for Kabul Bank's corruption woes and promised that "whoever was involved in leading the bank into crisis, all of those people will be brought to justice."

The trouble stems from widespread corruption at both Kabul Bank and Da Afghanistan, commonly referred to as the country's Central Bank. At Kabul Bank alone, Bloomberg reports, US investigators concluded that fraudulent loans had made up as much as 94 percent of the bank's outgoing loans—amounting to a staggering $850 million. Suspect loans have flowed out of both institutions with alarming ease, the publication suggests, leading to allegations of rampant nepotism among financial sector leaders and severe cash shortages for legitimate loan-seekers. Karzai has given recipients of illegal loans one month to repay the appropriate sums or face prosecution.

Also facing the specter of legal prosecution in Afghanistan is the trio of firms Karzai named in today's speech. "International organizations and foreign entities, who have been recruited and paid hundreds of millions of dollars of Afghanistan’s money to improve Afghanistan’s banking system, perform strong audits, and improve and build capacity for us, have not done their job," the president asserted. "They provided the Central Bank with inaccurate information, and they deceived Afghanistan’s government and its economic and financial regulatory bodies," he continued.  Serious accusations indeed.

Karzai has stern words for Western consultancies, but is his bark worse than his bite?

Here's a breakdown of what each firm was working on:

BearingPoint and Deloitte were contracted by the US Agency for International Development (USAID) to advise the Central Bank (Bloomberg says the pair as brought on to "help build its capacity to develop the financial sector and regulate commercial lenders.") The government had previously criticized Deloitte's work in the country, a process that ultimately led USAID—Deloitte's official boss on Kabul Bank project—to cancel the firm's lucrative consulting contract with Afghanistan's largest lender (despite USAID admitting that Deloitte "could not have stopped the massive fraud" at the bank).

Meanwhile, PwC was tasked with performing an audit on Kabul Bank. Among Karzai's allegations today was that PwC, which he called "the most prestigious American audit firm," (Karzai is clearly an avid Vault reader) had only recently passed Kabul Bank as fit and functioning properly despite clear encountering evidence to the contrary. The New York Times says that some Western officials are worried that employees at A.F. Ferguson, PwC's Pakistan-based affiliate that executed the audit, were bribed to ignore obvious discretions at the bank.

The controversy surrounding Afghanistan's ruinous financial sector has become something of a wedge issue between Afghan diplomats and their Western counterparts. While the latter wants to see Kabul Bank dismantled and sold (including the IMF, which cut off lucrative funding for Afghan banks earlier this year), Afghan leaders haven't hesitated to lay the blame at the feet of the American corporations working in the country on behalf of the US government. The Times quotes a European official calling the Karzai administration's allegations part of a "dangerous game." Western nations have grown tired of the forces' presence in the Middle Eastern country, the diplomat said, warning that further provocation would only heighten the sense of apprehension at home.

Representatives from PwC, BearingPoint and Deloitte have all rejected claims that their work in Afghanistan was inadequate or biased in any way.

For more information:
Bloomberg
NYT

Photo: Musadeq Sadeq, AP

Filed Under: Consulting


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