Havlish Plaintiffs File a Potentially Misleading Brief Claiming Entitlement to Afghan Central Bank Assets

The 2021 return of the Taliban to power in Afghanistan has led to litigation in the United States over the assets of the Afghan Central Bank (“DAB”).  As I explained in an earlier post, an executive order by President Biden froze about $7.0 billion in DAB assets held in New York. A license from the Office of Foreign Assets Control (“OFAC”) allocates about half of the money to go to an unnamed individual (designated by the Secretary of State) to use for the benefit of the people of Afghanistan.  The remaining $3.5 billion remains blocked. A group of plaintiffs who won default judgments against the Taliban, in part for its involvement in the attacks of 9/11, seek to execute against the frozen assets.  Their ability to do so depends upon the Terrorism Risk Insurance Act (TRIA).  If that Act does not apply, all agree that the DAB assets are entitled to immunity under the Foreign Sovereign Immunities Act.

Last Friday, judgment creditors in the Doe v. Taliban and Havlish v. Bin Laden filed a brief (Creditors’ Brief) supporting their claim that the money should be turned over to them. The brief implies, in places, that the political branches have decided that the frozen assets should go to them, which is not true.  It also fails to grapple fully with a key legal issue in the case: whether the DAB is an agency or instrumentality of the Taliban in addition to being an agency or instrumentality of Afghanistan.

The “Policy Decisions Made by the Political Branches”

The Creditors’ Brief was filed in response to several amicus briefs (collected here), arguing that the assets should not be turned over.  Because neither Afghanistan nor the Taliban nor DAB have entered an appearance, these amicus briefs are the only ones arguing that the judgment creditors should lose.  The statement of interest of the U.S. government also presents some arguments against the judgment creditors, but it does not take a formal position in the case.  Under these circumstances, it is important to point out potentially misleading aspects of the Creditors’ Brief. It states on page 7:

In other words, the turnover order required by the law in this case is the result of a careful balance of difficult policy decisions made by the political branches. Those political branches weighed the importance of permitting victims of terrorism to recover on duly-entered judgments against other U.S. foreign policy concerns—and determined the balance between those priorities favored the judgment holders. [footnote omitted] Amici ask this Court to step in and upset that careful balance by imposing an alternative equitable calculation of its own devise. The Court must instead defer to the judgment of the political branches on this fundamental question of policy.

Although Congress has enacted the TRIA, the political branches have not – contrary to what the language quoted above suggests – “determined” that “permitting victims of terrorism to recover on duly-entered judgments” was more important than other “U.S. foreign policy concerns.”  Sometimes Congress acts to designate particular assets – even central bank assets – as recoverable in specific terrorism cases (as in the Iran Threat Reduction and Syria Human Rights Act of 2012), but it has not done so for these creditors.  And the executive branch has not decided that the creditors should recover, either, but instead has said only that the creditors should be permitted to make their case in court. Here is President Biden’s language from his February 11, 2022, executive order:

I also understand that various parties, including representatives of victims of terrorism, have asserted legal claims against certain property of DAB or indicated in public court filings an intent to make such claims. This property is blocked under this order.

That is hardly a decision that those claims should prevail. The Creditors’ Brief does correctly note that they must satisfy the requirements of the TRIA in order to recover, but it also suggests in other places that the government’s policies support their position (see, e.g. pp. 2, 4-5, 24-25).  Instead, as mentioned above, the U.S. government’s own statement in the case presents reasons why the efforts to execute against the Afghan central bank assets may not succeed. Perhaps President Biden allowed the assets to be subject to potential recovery by the judgment creditors fully expecting those efforts at recovery to fail.  Indeed, the government statement makes pellucid that the creditors will fail on part of their claim – they apparently sought to recover for punitive damages, which is explicitly foreclosed by the statute. More generally, President Biden’s executive order gives many reasons to turn half of the assets over to the benefit of Afghan people – and it gives no reasons at all why the victims of terrorism should be entitled to the other half.  Finally, as described below, the executive could make these assets legally recoverable by the creditors, but it has not done so.

If the Havlish turnover efforts are not successful, the assets will remain frozen – out of the hands of Taliban – but also subject to whatever plans the Biden Administration may have (or may in the future create) for them.  Perhaps the Administration would eventually devote those assets to repairing the damage that the Taliban has done to the people in Afghanistan, as amici would like. We do not know. But to suggest that the political branches have decided that the assets should go to victims of terrorism who hold default judgments issued by U.S. courts is simply wrong.

Is the Afghan Central Bank an Agency or Instrumentality of both Afghanistan and the Taliban?

Turning to the merits of the legal argument, a key issue is whether the frozen assets of the DAB qualify as “the blocked assets of [the Taliban].”  Under the TRIA, the Taliban is a “terrorist party” and the creditors have obtained a judgment against them.  The TRIA provides that:

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.

To recover, the creditors must show that the DAB is an “agency or instrumentality” of the Taliban and that the blocked assets are those “of” the agency or instrumentality – as opposed to (or in addition to) those of the government of Afghanistan.

These are Unusual Cases

Before turning to the text of the TRIA, let me note that this case presents an unusual set of facts.  The judgments were entered against the Taliban when it was not in power as the government of Afghanistan. Today the Taliban is in power, but it is not the same entity as the state of Afghanistan nor is it formally the government of Afghanistan. For the creditors to win, the TRIA must be interpreted to mean that the central bank is an agency or instrumentality of a foreign sovereign (not contested) and is also, at the same time, the agency or instrumentality of a foreign political party or unrecognized government.  Note that I have termed the Taliban a “political party” because it is incorrect to characterize the Taliban as the government of Afghanistan (at least for U.S. legal purposes) since the Biden administration has not recognized it as such. Additionally, the debts incurred by the Taliban in these cases are based upon litigation that occurred when it was a private entity, not in power, and without the resources (or the immunity protections) generally associated with foreign states.  Yet its debts are potential being satisfied from the public coffers of the state of Afghanistan.  The drafters of the TRIA likely did not contemplate this unusual situation.

More common is the situation in which the state itself is a terrorist party – if it were, the case for the creditors would be far easier.  Afghanistan is not, however, a “terrorist party” because the executive branch has not designated it as a state sponsor of terrorism.  At the end of the brief, the creditors discuss the many congressional and executive actions taken against the Taliban, apparently to show that because the political branches have taken those other actions, the TRIA should be interpreted to support their claims. But the executive branch has not done the one thing it could do to ensure that the plaintiffs recover: it has not designated Afghanistan as a state sponsor of terrorism.  Nor, for that matter, has the administration filed an amicus brief or a statement of interest in favor of the creditors – an easy step, notably absent.

The Kirschenbaum Test

The creditors argue that Kirschenbaum v. 650 Fifth Ave. & Related Properties is controlling.  That case interpreted the phrase “agency or instrumentality” in the TRIA by creating a test based upon the level of control exercised by the terrorist party over the other entity.  Because the Taliban apparently exercises a high level of control over DAB, the creditors argue that the Kirschenbaum test is met and therefore DAB is an agency or instrumentality of the Taliban.

T0 begin, the TRIA does not define the term “agency or instrumentality.” Instead, the Kirschenbaum test is judicially created, and satisfying that test does not necessarily mean that statute is satisfied.  The Kirschenbaum opinion itself points out one potential example – even if its test is satisfied, an “innocent owner” (a term not found in the TRIA) should not qualify as an “agency or instrumentality.”  These cases may present another scenario in which the test is satisfied but the statute is not. As discussed above, cases like Havlish and Doe involve unprecedented issues involving an unrecognized  government – courts might well conclude that Congress should speak more clearly if it wishes the creditors to recover.

Requiring clearer language from Congress about when (or if) central banks can be agencies or instrumentalities of unrecognized governments would be consistent with other cases that involve the enforcement of terrorism-related judgments. Indeed, the history of litigation involving victims of terrorism includes much fine tuning by Congress – some of which involves even identifying specific assets subject to measures of execution. Denying the turnover orders in this unprecedented case merely returns the issue to Congress to act, as it so often has in the past. In Rubin v. Islamic Republic of Iran, the Supreme Court refused to permit the turnover of assets to plaintiffs holding judgments against terrorist parties reasoning that statutes must “do so expressly.” Although the interpretative questions are different, the same reasoning – require Congress to speak expressly – applies in this case well.

Another reason to require Congress to speak more clearly than the undefined term “agency or instrumentality” is that a court’s decision that Afghanistan’s state assets – such as its foreign currency reserves – should be used to satisfy the private debts of the Taliban would also be in tension with the President’s decision not to recognize the Taliban as Afghanistan’s government. Although the creditors reject this concern, the U.S. government does not – the Statement of Interest notes on page 25, for example, that “[t]o the extent the assets of a foreign central bank represent the foreign state’s reserves, such assets belong necessarily to the foreign state and thus would not be the assets of a private party.”  Other observers, too, note that the creditors’ claims may “fall flat” because they will “have to overcome the fact that their claims are in tension with U.S. recognition policy.”

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The Taliban are truly reprehensible, but the DAB assets will remain frozen even if the creditors lose their turnover efforts.  It is important to keep that in mind in light of the many unfavorable references to the Taliban in the Creditors’ Brief, including to its “illicit agenda” (p. 15), to its use of “Afghan institutions, including DAB, to reimpose its reign of terror over the Afghan people” (p. 2), to the risk that the Taliban’s “control over Afghan territory and DAB risks the establishment of safe havens for terrorists and a never-ending source of financing for them,” (p.3)  and to the Taliban’s past and current support of al Qaeda, which “pav[ed] the way for the deadliest terrorist attacks in modern history” (p.25).  That language is surely warranted in one sense, but the horrible conduct of the Taliban does not necessarily mean the creditors should win.  Even if they lose, the DAB assets remain frozen and not available to the Taliban.

Finally, let me note how unfortunate it is that all aspects of these cases – including the merits – have been litigated in default without a defendant to brief them.  One of the amici (September 11 Families for Peaceful Tomorrows) argues that Afghanistan is an indispensable party under FRCP 19. I have not considered that argument (or many others) in this post, but it captures the basic intuition that the correct parties are not really assembled here to decide this important question about the future of Afghanistan. Denying the creditors’ turnover request does not mean that the creditors would not eventually collect – future action by Congress or the President could easily ensure that they do.  But it does afford more time and more consideration of the many issues involved.