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Originally published Tuesday, July 26, 2011 at 6:12 AM

Afghanistan disputes US audit report on aid money

The Afghan government on Tuesday disputed findings from a scathing U.S. report that said Kabul officials are thwarting U.S. efforts to protect American aid money from being stolen.

Associated Press

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KABUL, Afghanistan —

The Afghan government on Tuesday disputed findings from a scathing U.S. report that said Kabul officials are thwarting U.S. efforts to protect American aid money from being stolen.

The Finance Ministry said it welcomes American scrutiny of where billions of U.S. reconstruction dollars are being spent but denied a statement by the acting Special Inspector General for Afghanistan Reconstruction, Herbert Richardson, that Afghanistan's central bank was hostile to international advisers.

The exchange is the latest in an increasingly deteriorating relationship between President Hamid Karzai's government and the United States, which has poured more than $70 billion in aid to Afghanistan since it invaded the country to oust the Taliban in late 2001 after the Sept. 11 attacks.

The Afghan ministry said one recommendation from the U.S. report on how to improve the situation in one of Afghanistan's largest private banks, Kabul Bank, would violate Afghan law.

It also acknowledged that the Afghan government's relationship with the U.S. Treasury representative in Afghanistan has been strained during the past year, adding the situation would improve if the American were replaced.

With U.S.-Afghan relations at a new low, Karzai's government has also become increasingly vocal in its criticism of how the war against the Taliban is being carried out by the U.S.-led coalition.

Last week, Richardson's office, known as SIGAR, charged that Karzai had banned U.S. Treasury officials from his country's central bank, hampering work to fight the flow of money to insurgents. SIGAR said two Treasury advisers will not return because working conditions at the bank have become too hostile.

The Finance Ministry said the central bank "refutes that its environment is hostile to international advisers and is actively seeking renewed support to assist it in implementing a series of measures agreed with the International Monetary Fund to strengthen the financial sector."

It added that although the government "counts on the partnership and cooperation of the U.S. Treasury," it acknowledged that over the past year the "relationship with the current U.S. Treasury attache has been strained, and it looks forward to the opportunity to renew its past helpful and professional partnership when an effective partner is identified."

SIGAR said Kabul's move to ban Treasury officials was one of a number of ways in which Karzai's government had failed to cooperate with international efforts to improve the country's financial sector.

Others included a delay in the installation of cash counting machines at Kabul airport to record the serial numbers of huge bundles of cash that have been flowing out of the country, and a delay in the audit of Kabul Bank.

The former head of the central bank, Abdul Qadir Fitrat, fled late last month to the U.S. amid allegations of failing to act on warnings about widespread corruption at Kabul Bank, which nearly collapsed last year because of mismanagement and questionable lending practices.

Last month, the International Monetary Fund stopped an expected $70 million reconstruction payment to Afghanistan to show displeasure of international donors, a move that threatens to choke off billions of aid to Afghanistan.

The Finance Ministry said the cash counting machines had in the meantime been installed at Kabul airport and that the government was supportive of a plan to also install them in commercial banks.

"Afghan law does not place limits on the amount of cash that can be taken out of the country. However, the government recognizes that this flexibility is abused by criminals and is committed to preventing the flow of funds related to illegal activities," the statement said.

It added that a forensic audit currently under way at Kabul Bank was delayed because the U.S. Treasury had insisted it would only assist "if the audit contract was issued by them and the firm reported to them according to terms of reference set in Washington." That, the ministry said, was something it could not allow.

"While the government had a strong desire to obtain information from the audit to strengthen the sector and assist with recoveries, it was not permissible under Afghan law to allow the audit of an Afghan Bank to be led by a foreign government," the ministry said.

The Afghan ministry also said that since 2001, the Afghan government has had the authority to spend only $46 million in discretionary funds - or just 0.07 percent of the $70 billion appropriated by the U.S. Congress. Most American aid is funneled through U.S. or international agencies and organizations.

"Funds that are being misused, or channeled to support the activities of insurgent groups, are not the responsibility of the government," the ministry said.

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