By Hamid Shalizi and Jessica Donati
KABUL (Reuters) - An Afghan judge tripled the jail sentences of two former heads of Kabul Bank to 15 years on Tuesday at the end of a re-opened court case into the bank's collapse in 2010, which followed allegations of fraud and triggered a financial crisis.
Afghanistan's new President Ashraf Ghani announced on Oct. 1 that he would re-open the inquiry into the theft of almost $1 billion from the bank, fulfilling a campaign promise to make fighting corruption a priority.
The case also involved Mahmoud Karzai, the brother of Ghani's predecessor president Hamid Karzai. Mahmoud Karzai, a shareholder in the bank, has so far been spared jail but the judge on Tuesday ordered that his assets be frozen, along with those of others, until all the funds stolen from the bank have been returned. They face prosecution if the funds are not repaid.
The Afghan government was forced to bail out the country's then biggest bank after a run on deposits in 2010. It was later re-launched as the state-run New Kabul Bank, but confidence in the banking sector has yet to fully recover.
Only about a third of the $935 million stolen has been recovered, according to the receivers.
The two former heads of the bank, founder Sher Khan Fernod and former Chief Executive Haji Khalil Ferozi, had been convicted in the initial inquiry of taking $810 million of the stolen money and were both sentenced to jail for five years. Their jail terms were tripled on Tuesday.
"The court sentences you both, Sher Khan Fernod and Haji Khalil Ferozi to terms of 15 years in jail for embezzlement and money laundering of the Kabul Bank money," the judge, Mehrajuddin Hamidi, said, adding that they could appeal against the verdict.
Foreign donors, whom the Afghan government relies on to pay its bills, have welcomed Ghani's decision to re-open the inquiry. The Afghan Attorney General's office had said the initial sentences were too lenient given the amount of money stolen.
Mahmoud Karzai was spared a jail sentence after the initial inquiry, conducted when his brother was still president, thanks to a presidential decree that granted immunity from prosecution to those who returned funds.
However, while Karzai said he had returned funds that he owed the bank, Afghanistan's anti-corruption watchdog said last month that Karzai was among individuals and companies that still owed the bank a total of $633 million.
"Their properties are to be identified and frozen. If they do not return the money, they will be prosecuted," Judge Hamidi said on Tuesday.
Karzai was listed by the watchdog as having owed $22.2 million in loans from the bank and having paid back only $13.4 million.
He has denied that he still owes money and said last month that he had paid back all his loans with interest and had done no wrong.
On Tuesday, Karzai said the court's verdict would not affect him as he did not owe any money.
"I don't owe them any money, so it's irrelevant. In fact, I made an overpayment (and) I am going to serve the Attorney General's office tomorrow with orders to refund me the $450,000 I overpaid," Karzai told Reuters.
The problems at Kabul Bank are adding to a fiscal crisis, which along with fighting the Taliban insurgency, is one of the most urgent challenges facing President Ghani, who was sworn in just over six weeks ago after months of turmoil over who had won the election.
Afghanistan relies on aid for most of its income and, despite receiving billions of dollars in aid each year, was forced to delay payments to civil servants last month because it had run out of cash.
(Reporting by Hamid Shalizi and Jessica Donati; Editing by Susan Fenton)