Havlish v. Taliban—Second Circuit Affirms that Afghanistan Central Bank Assets are Immune from Attachment

Photo by Derbelo546  licensed under the Creative Commons Attribution  4.0 International license.

The Second Circuit has finally decided whether frozen Afghan central bank assets can be attached or turned over to satisfy judgments against the Taliban for acts of terrorism against U.S. citizens. The court answered “no” in Havlish v. Taliban over one partial dissent. The case presents complex and important issues, and although both the majority and dissenting opinions offer thoughtful and careful analysis, neither one is fully convincing.

Background

When the Taliban seized control of Afghanistan for the second time in 2021, the central bank of Afghanistan, De Afghanistan Bank (DAB), held about $7 billion in the Federal Reserve Bank of New York (FRBNY). Former president Biden immediately issued Executive Order 14064 freezing DAB assets held in the United States. The Office of Foreign Assets Control (“OFAC”) licensed half of that money to be used to benefit the people of Afghanistan and those funds were eventually turned over to a Swiss organization called the “Afghan Fund.” The Afghan Fund has not disbursed any money to DAB. The U.S. government has said that it may not do so until the bank demonstrates independence from political influence and interference—meaning distance from the Taliban.

The remaining $3.5 billion, still blocked in the United States, is the subject of the Havlish litigation. Victims of the 9/1l terrorism with default judgments against the Taliban moved to execute their judgments against the blocked assets, as previously covered on TLB. In separate litigation, other victims recently brought suit against the Taliban for its alleged role in embassy bombings in August 1998. These plaintiffs also moved for prejudgment attachment of the assets. District court judges George B. Daniels and Valerie  E. Caproni, respectively, denied the motions in both cases, holding that the DAB assets were immune from attachment under the Foreign Sovereign Immunities Act (“FSIA”), and that § 201 of the Terrorism Risk Insurance Act of 2002 (“TRIA”), which abrogates immunity granted by the FSIA in some situations, does not do so here. The cases were consolidated for appeal.

The questions for the Second Circuit included: (1) whether the DAB funds are not immune from attachment under the FSIA because Afghanistan is not a “foreign state” within the meaning of that statute; and (2) whether the TRIA abrogates any immunity to which the assets are otherwise entitled so that the 9/11 judgment creditors can execute against them.

Is Afghanistan a Foreign State Under the FSIA?

Plaintiffs argued that the DAB assets were not immune from attachment under the FSIA because Afghanistan is not a foreign state for the purposes of the FSIA. Relying on Zivotovsky v. Kerry (2015), two of the Second Circuit judges reasoned that the executive has the exclusive power to recognize foreign states—a power that, in their view, includes determining whether a state qualifies as a “foreign state” for the purposes of foreign sovereign immunity. Afghanistan is a foreign state that is recognized as such by the U.S. State Department and thus, according to the majority opinion, is a “foreign state” under the FSIA. Note that the recognition of states and governments are distinct. Although the United States recognizes Afghanistan as a state, it does not formally recognize the Taliban as its government.

In a concurring opinion, Judge Sullivan wrote that the majority misread Zivotofsky. To this extent, Judge Sullivan is right. Zivotofsky says that the executive—not Congress—has the exclusive power to formally recognize a foreign state as a diplomatic matter, but it had nothing to do with the FSIA. Whether Afghanistan is a “foreign state” for the purposes of the FSIA is a standard question of statutory interpretation for the courts to answer. Courts may choose to defer in various ways to the executive branch as they decide whether Afghanistan is a foreign state. That the United States does not recognize the government of Afghanistan might be relevant, for example, but deferring to the executive branch to make such decisions is different from allowing the executive branch to dictate that interpretation of the statute.

Judge Sullivan erred, however, by concluding that Afghanistan is not a “foreign state” under the FSIA. To reach this conclusion, he applied the Second Circuit’s test for determining what qualifies a “foreign state” under the FSIA as set out in Klinghoffer v. S.N.C. Achille Lauro Ed Altri-Gestione Motonave Achille Lauro in Amministrazione Straordinaria (1992). He reasoned that Afghanistan is not a foreign state under the FSIA because the country is is no longer under control of its own government (meaning the government ousted in 2021), the United States does not recognize the Taliban as the government of Afghanistan, and Afghanistan no longer engages in or has the capacity to engage in formal relations. “At present,” Judge Sullivan concluded, “Afghanistan is more akin to a failed state.”

Even accepting that Klinghoffer provides the correct standard (and I do not think that it does), Afghanistan still qualifies as a “foreign state.” Afghanistan is a member of the United Nations and is recognized as a country by the United States, Afghanistan engages in foreign relations with countries that include Russia and China, and the Taliban controls its territory. That is enough. Courts interpreting the FSIA should not engage in a fine-grained analysis of whether any particular state qualifies as “failed.”

Does the TRIA Permit Attachment of the DAB Assets?

Even if the FSIA is a foreign state and the assets of DAB are presumptively entitled to immunity, the judgment-creditors argued that the TRIA abrogates that immunity and permits attachment. The defendants countered that the district court lacked subject matter jurisdiction over the case under the FSIA and that, in any event, the TRIA does not apply to DAB’s assets because DAB is not an agency or instrumentality of a terrorist organization.

Section 201 of the TRIA says:

Notwithstanding any other provision of law, and except as provided in subsection (b), in every case in which a person has obtained a judgment against a terrorist party on a claim based upon an act of terrorism . . . the blocked assets of that terrorist party (including the blocked assets of any agency or instrumentality of that terrorist party) shall be subject to execution or attachment in aid of execution in order to satisfy such judgment to the extent of any compensatory damages for which such terrorist party has been adjudged liable.

Judge Daniels reasoned that the phrase “[n]otwithstanding any other provision of law” in Section 201 abrogates any immunity conferred by the FSIA—if such immunity is in conflict with the TRIA. The TRIA conflicts with the FSIA’s language on attachment, the district court found, so that the TRIA overrides the FSIA’s language conferring immunity from execution. But the TRIA does not override the FSIA’s provisions conferring immunity from jurisdiction, the district court held, leaving it with no subject matter jurisdiction. Relying on its earlier decision in Weinstein v. Islamic Republic of Iran (2016), the Second Circuit held that the TRIA abrogates both kinds of immunity, based in part Section 201’s opening language: “[n]otwithstanding any other provision of law.” The majority also found that the TRIA confers independent subject matter jurisdiction in the cases to which it applies.

The TRIA only applies, however, if the blocked assets sought by the judgment creditors are those of a terrorist organization or its agency or instrumentality. The Taliban qualifies as a terrorist organization, but the assets are those of DAB, not the Taliban. The TRIA thus only applies if DAB is an “agency or instrumentality” of the Taliban itself (and not just an agency or instrumentality of Afghanistan). The majority reasoned that status as an “agency or instrumentality” (a term left undefined by the TRIA) must be determined at the time the assets were blocked. That occurred on August 15, 2021, right as Kabul fell, but before the Taliban had exercised control over DAB. At that time, DAB was not an agency or instrumentality of the Taliban.

Here too, Judge Sullivan disagreed. He argued that nowhere does the text of the statute say that blocked assets are only attachable based on agency and instrumentality status at the time they were blocked. He also cited the purpose of the statute: to maximize assets available to victims of terrorism. Limiting the assets based on the status of the parties at the time of the attachment provides fewer options for judgment creditors in terrorism cases and thus arguably runs counter to this purpose.

The problem with Judge Sullivan’s position is that the TRIA itself is very circumscribed in identifying assets available for execution, suggesting that Congress was seeking to achieve multiple objectives—not merely to provide as much compensation to victims as possible. For its part, the majority reasoned that determining what an entity’s status “in relation to a given terrorist  party  at  the  time  those  assets  were  blocked” serves the purposes of the statute because “[if] an  entity  becomes  an  agency  or  instrumentality  of  a  terrorist  party  after that entity’s  property  is  blocked,  those  blocked  assets cannot  have  been  utilized to further the mission of the terrorist party.”

Conclusion

It seems unlikely that Congress intended that a central bank could be both an “agency or instrumentality” of a foreign state and an “agency or instrumentality” of a terrorist party that is not itself the foreign state. If the foreign state in question is designated as a state sponsor of terrorism, then the foreign state is a terrorist party, and its central bank is an agency or instrumentality of a terrorist party, and its assets are subject to execution. Iran and Bank Melli serve as examples.

The President could designate Afghanistan as a state sponsor of terrorism, in which case DAB’s assets would not be immune under the TRIA. If we take the majority’s approach and consider agency and instrumentality status when the assets were frozen, then the subsequent designation would not alone make the assets attachable. Presumably, however, the U.S. government could lift and immediately re-instate the attachment. If the U.S. government really wanted to make DAB’s assets available for execution, it could do so. Absent a clearer mandate from Congress, courts should not step in and do this. Finally, it seems ill-advised for courts to try to gauge the level of control a government exercises over its central bank in applying the TRIA—better just to conclude that DAB is an agency or instrumentality of