The Fate of the Afghan Central Bank Assets – State of Play
December 8, 2022
Afghanistan is experiencing a humanitarian and economic crisis following the Taliban’s return to power in the wake of the U.S. withdrawal of forces in August 2021. As previously covered on TLB (and on Lawfare), the U.S. government has frozen roughly $7 billion in assets held by Afghanistan’s central bank, Da Afghanistan Bank (DAB), that were located in New York. At the time of writing, none of that money has been dispersed. To whom it should be allocated and for what purposes remains controversial and raises serious questions about central bank immunity.
The Office of Foreign Assets Control (“OFAC”) licensed half of the money to an unnamed individual designated by the Secretary of State in order to benefit the people of Afghanistan. That money was subsequently turned over to a Swiss organization called the “Afghan Fund.” The remaining $3.5 billion is still blocked. Victims of terrorism with default judgments against the Taliban have moved to execute their judgments against those blocked assets – meaning that a portion of the Afghan central bank funds could still go to U.S. victims of terrorism.
The Afghan Fund
Recognizing the humanitarian and economic imperatives in Afghanistan, as well as the need to keep assets out of the hands of the Taliban, the U.S. Treasury, State Department, and Swiss Government announced the establishment of the “Afghan Fund” in September 2022. The Fund will “protect, preserve, and make targeted disbursements” of the $3.5 billion to “help provide greater stability to the Afghan economy.” The Fund’s board of trustees met for the first time on November 21, 2022. The Board can set disbursement and compensation policies, delegate authority to managers or other bodies such as an advisory committee, and amend or adopt bylaws. The board has been criticized for lack of diversity.
In accordance with OFAC’s license, the State Department certified two U.S.-based Afghan finance professionals – Anwar Ul Haq Ahady and Shah Mehrabi – with joint control over the property in DAB’s accounts. They co-founded the Afghan Fund in Switzerland and serve on its Board of Trustees along with the U.S. Ambassador to Switzerland, Scott C. Miller, and others.
Disbursements require a unanimous decision of the board and could be used to stabilize the foreign exchange rate and the prices of critical imports like electricity, to keep Afghanistan current on debt service obligations (thus allowing the country to remain eligible for foreign aid and funding from international institutions), and to pay for essential central banking services such as SWIFT. The unanimity requirement has been criticized for creating potential for gridlock and for giving the U.S. veto power over any decisions.
The freezing of Afghan central bank assets did not implicate foreign sovereign immunity because it is not a measure that is related to the exercise of judicial power, as I have explained at length. Unlike the freezing of assets, dispersing funds will entail a permanent change in ownership, one that could be characterized as confiscation rather than a freeze. The Afghan Fund appears likely (although that it is not entirely clear) to disperse money without a court order or judicial action, meaning that central bank immunity is still not in play. That result is perhaps best understood as a function of the recognition power, which is largely unregulated under international law. In other words, the allocation of money through the Afghan Fund could be understood a decision by the United States to “recognise” the Fund as the government of Afghanistan for the limited purpose of dispersing central bank assets for the benefit of the Afghan people. [Update: An astute reader notes that it might be more accurate to say that the two designated individuals have been “recognised.”] Central bank immunity is generally not implicated when a country decides whom to recognise as the government of the foreign country that has central bank assets deposited in its banks, even if that decision has the effect of changing who actually owns and controls those assets.
Treasury emphasizes that there are “robust safeguards” in place to prevent the Taliban from accessing the Fund’s assets, which are held in an account with the Bank for International Settlements (“BIS”) in Switzerland. The Fund could transfer money to public Afghan financial institutions such as DAB, a move the United States would support only if DAB demonstrates that it is independent from political interference, that it has instituted anti-money laundering and countering-the-financing-of-terrorism controls (AML/CFT controls), and if it hires a reputable third-party monitor. Unsurprisingly, the Taliban immediately rejected the Fund as “unacceptable” and a “violation of international norms,” claiming that the Taliban had indicated a readiness to implement the third-party AML/CFT controls demanded by the United States. DAB’s top leadership still apparently consists primarily of senior Taliban members. Optimistically, one can view the Fund as a temporary fix until the money can be returned to DAB—a fix one that could be used for macroeconomic management, but that ultimately will neither correct the liquidity restraints weakening the Afghan economy nor resolve issues within the Afghan banking system.
The Remaining $3.5 Billion and the Execution of Terrorism Judgments
As discussed previously on TLB, plaintiffs with default judgments against the Taliban seek to execute their judgments against the $3.5 billion in DAB assets that were not transferred to the Fund. Several groups of creditors have asked Judge George Daniels (SDNY) to enforce the compensatory portions of their judgments against the Taliban. Those groups include (among others) the Havlish v. Bin Laden plaintiffs who secured a $6.8 billion default judgment against the Taliban in 2012 for its involvement in 9/11; the Doe v. Taliban plaintiffs who secured a $138 million default judgment against the Taliban in 2012 for its involvement in a 2016 terrorist attack in Afghanistan; and insurance companies that suffered losses from the attacks and hold compensatory judgments of approximately $14 billion.
On April 27, 2022, creditors filed a brief arguing that the remaining $3.5 billion should be turned over to them. On August 26, 2022, the magistrate judge recommended denial the creditors’ motion because DAB is immune from jurisdiction as a central bank, because only the president may recognize foreign governments, and because Terrorism Risk Insurance Act of 2002 (TRIA) § 201(a) requires an agency relationship in order to execute assets. On November 10, 2022, judgment creditors filed objections to the magistrate judge’s recommendation to deny turnover of the funds. The objections run almost 80 pages; I focus here on two important issues: congressional intent and recognition.
In earlier briefing the creditors misleadingly argued that the “political branches” had determined that they were entitled to the frozen $3.5 billion to execute their terrorism-related judgments. That position was not correct, as I explained, and fortunately the creditors do not make that argument in this round of briefing. They do, however, refer repeatedly to the legislative history of the TRIA, which was enacted in 2002, and the general desire of Congress to compensate victims of terrorism in the wake of 9/11. Here, for example:
At the time of TRIA’s passage, the Havlish and Smith actions had already been filed against the Taliban. Congress was aware that victims seeking to impose civil liability on the Taliban were heading to the courthouse – and wanted those victims to be able to enforce their judgments. See, e.g., 148 Cong. Rec. 16397 (2002) (statement of Rep. Vito Fossella) (“[T]housands of Americans and their families are considering and have joined the class action lawsuit aimed at recovering and undermining the ability of these groups to perpetuate their acts of evil.”).
The TRIA was passed in late 2002 – long after November 9, 2001, when the Taliban had lost control of the government of Afghanistan and of the DAB. The creditors emphasise that Congress wanted the victims of terrorism to be able to enforce judgments against assets that would otherwise be immune under the Foreign Sovereign Immunities Act (FSIA). But enforcing judgments against the Taliban by executing against Afghan central bank assets was apparently not what Congress had in mind because the Taliban did not control Afghan central bank assets when the TRIA was deliberated and passed by the House and the Senate and signed into law by the President. Indeed, the Taliban would not control those Afghan central bank assets for another twenty years when the U.S. withdrew from power. And even when the U.S. withdrew, the hope was that the Taliban would not return to power. The specific type of recovery at issue here, depending as it does on Taliban control of DAB, gains nothing from the legislative history and general intentions of Congress to compensate victims of terrorism upon which the brief relies so heavily.
The creditors’ argument that the DAB is an agency or instrumentality of the Taliban under the TRIA would mean that the DAB is an agency or instrumentality of both Afghanistan and separately of the Taliban as a distinct legal entity. That reading is not consistent with the way we typically understand central banks – U.S. central bank assets may not be used to pay the debts of the Republican or Democratic parties, for example, even if they are used to pay the debts of the United States. The strained reading of the statute – and the complicated policy implications of their position – lead the creditors to rely heavily on general legislative intent. But as already discussed, the creditors’ reading of the statute does not correspond to the facts on the ground when the TRIA was debated and enacted because the Taliban was out of power and did not exercise any form control over the central bank. And the Supreme Court has already rejected the argument that uncertainty about the FSIA should be resolved in favor of victims of terrorism based merely upon the general intention of Congress to remove “obstacles to terrorism judgment enforcement.”
The magistrate judge also recommended denying the judgment plaintiffs’ efforts to order the turnover of DAB assets because of the President’s exclusive recognition power. The creditors disagree with magistrate judge’s reasoning, and so do I. The judge reasoned that “[c]ourts may not extend” recognition “either directly or by implication,” and that recognition “would be inescapably implied if this Court found that the DAB is being controlled and used by the Taliban such that the Taliban may use DAB’s assets (ultimately the assets of the sovereign state of Afghanistan) to pay its legal bills.” But if Congress decided that immunity depended upon whether DAB was controlled by the Taliban (and upon the other factual assertions in the judge’s reasoning), courts could rule on those factual issues without unconstitutionally usurping the President’s constitutional authority. Applying a federal statute that governs the immunity of foreign states – even to states with contested or unrecognized governments – is not extending recognition “by implication.”
The Supreme Court struggled to answer an analogous question in Zivotofsky v. Kerry. The Court first determined that the President had the “exclusive recognition power” which encompasses “the authority to acknowledge, in a formal sense, the legitimacy of other states and governments, including their territorial bounds.” It then had to decide whether the passport statute under review conflicted with that power. The statute required “the President, through the Secretary, to identify citizens born in Jerusalem who so request as being born in Israel. But according to the President, those citizens were not born in Israel.” Although the recording of the place of birth did not, the Court acknowledged, “constitute a formal act of recognition,” the statute was unconstitutional because it indirectly undermined the President’s recognition power.
The same might be said of a direction by Congress that Afghan central bank assets be used to pay the debts of the Taliban. But Zivotofsky does not extend that far. The passport designation at issue in Zivotofsky was a political communication directed at foreign countries – and the purpose of the statute was to communicate something specific about recognition, Israel, and the contested territory of Jerusalem. The TRIA has no comparable purpose. Moreover, even in Zivotofsky, three Justices dissented vigorously on the grounds that recognition is a formal legal act and the statute has “nothing to do with recognition” because it “does not require the Secretary to make a formal declaration about Israel’s sovereignty over Jerusalem.”
The magistrate judge’s reasoning about recognition thus goes too far – at least to the extent that it suggests the TRIA is unconstitutional if it is interpreted to allow the creditors to collect against Afghan central bank assets. But where the statute is not clear, as in this case, courts should avoid an interpretation that is in tension with the President’s recognition decision. Statutes should also be interpreted to avoid a conflict with international law; under most circumstances, turning over central bank assets to satisfy terrorism-related judgments likely violates customary international law that protects central bank assets from measures of execution.
The magistrate judge reached the right result, however, for reasons discussed here and here. It is an important policy step to take billions of dollars of central bank assets from a desperately poor country and turn those assets over to U.S. citizens – even very deserving victims of terrorist attacks – to compensate them for judgments not against Afghanistan, but instead against political party in Afghanistan (even one that is also a terrorist organisation). Doing so in this case requires an odd and novel interpretation of the statute, one that counterintuitively requires the central bank to be an agency or instrumentality of both Afghanistan and the Taliban. Courts should – as they have done in many other terrorism cases, including those against Iran – require clearer language from Congress or clearer direction from the President before taking that step.