What’s Happening with Afghanistan’s Assets?

Last Friday, the Biden administration announced what may be the most significant change in U.S. policy towards Afghanistan since the fall of Kabul. For more than six months, the lack of a recognized Afghan government has left billions of dollars in assets owned by Afghanistan’s central bank, Da Afghanistan Bank (DAB), sitting idle within U.S. financial institutions. These assets have in turn become the subject of litigation, as U.S. victims of the September 11th attacks have sought to attach and seize them in satisfaction of outstanding judgments against the Taliban. In response, the Biden administration has put forward a plan that would transfer approximately half of these assets into a third-party trust where they could be used for the benefit of the people of Afghanistan while leaving the remainder in place until the ongoing litigation is resolved.

The White House framed this proposal as a way to “preserve certain Afghanistan central bank assets for the people of Afghanistan.” But others have received it as something quite different. Media accounts have repeatedly described the plan as “splitting” the assets between Afghans and U.S. victims of terrorism, suggesting an intent to give each an equal portion. Critics have in turn accused the Biden administration of “stealing Afghanistan’s money” or even pursuing actions “tantamount to mass murder.” And Afghans are understandably outraged at what appears to be the expropriation of their national property, at a time when they are facing a severe economic and humanitarian crisis.

There are very valid reasons to object to the idea that Afghan assets may be diverted away from the real needs of Afghans to compensate U.S. victims of terrorism. But these criticisms fundamentally misunderstand the Biden administration’s new policy. The U.S. legal system allows victims of terrorism to pursue assets through processes that Congress has placed beyond the executive branch’s control. Nothing the Biden administration is proposing will make the September 11th plaintiffs any more likely to succeed in these efforts. To the contrary, the administration’s plan would insulate nearly half of the Afghan assets at issue from these attachment efforts and preserve them for any number of possible public policy uses in the future. It also advances legal arguments that may well help the rest of the assets remain with the central bank. At the end of the day, however, both elements of this plan hinge on receiving favorable rulings from the federal courts, a fact that underscores just how little control over the situation the Biden administration really has.

The State of Afghanistan’s Assets

Afghanistan’s central bank is believed to hold more than $9 billion in assets overseas as part of Afghanistan’s foreign exchange reserves. Countries use foreign exchange reserves to facilitate foreign trade and back up the value of their own currency, among other purposes. More than $7 billion of the $9 billion in total assets are held by U.S. financial institutions. Most are at the Federal Reserve Bank of New York (FRBNY), a popular depository for many countries’ foreign exchange reserves. 

The fall of Kabul in August 2021 put these assets in an uncertain legal position. As the U.S.-backed government of the Islamic Republic of Afghanistan collapsed, it rapidly became unclear who, if anyone, could direct how they should be used. The conquering Taliban quickly asserted control over the country and its governmental institutions, including the DAB. But neither the United States nor any other country has been willing to recognize the Taliban as the country’s new government or to lift the extensive sanctions that the group has been under for more than two decades due to its ties to terrorism. After the fall of Kabul, the Biden administration instead quickly notified U.S. financial institutions that it did not recognize the Taliban as having any authority over the central bank assets, a view that federal law obligates those institutions to comply with. As a result, all DAB assets in the United States were effectively put in a state of suspended animation with no one able to direct their use—even as Afghanistan spiraled into an increasingly severe economic and humanitarian crisis.

While unsuccessful at securing control over the DAB, the Taliban’s initial claims to its assets in Aug. 2021 did create an opportunity for certain litigants within the United States. For more than two decades, thousands of victims of the September 11th terrorist attacks—including individuals who were themselves injured, the estates and family members of individuals killed, property owners and insurance companies—have pursued lawsuits against an array of defendants they argue are responsible for the attacks, including the Taliban. The Taliban has in turn refused to defend itself in these cases. Because it wouldn’t show up to court, judges have awarded numerous uncontested default judgments against the group for substantial damages in these cases. The plaintiffs in Havlish v. Bin-Laden, for example, secured a default judgment for a staggering $6.8 billion. Countless other plaintiffs have received similar judgments. But as the Taliban did not have any meaningful assets in the United States, the plaintiffs holding these judgments had no way to collect on them—until the Taliban asserted control over the DAB and its overseas holdings.

In August 2021, just days after the fall of Kabul, a set of September 11th plaintiffs who received a judgment in the matter of John Does 1 through 7 v. The Taliban filed an emergency motion for a writ of execution seeking to attach approximately $138 million plus interest of the DAB fund in the FRBNY. A month later, the plaintiffs in the aforementioned Havlish matter secured and served their own writ of attachment against the same assets for approximately $7 billion. In their filings, both sets of plaintiffs make clear that their claims hinge on the fact that the Taliban, in the words of the Doe plaintiffs, “has taken over [DAB]” and “tak[en] ownership and control of it and its assets.”  Countless other judgment holders are reportedly working to prepare similar actions against the FRBNY assets and other DAB assets around the country, to the point that some are now engaged in their own internal dispute over who should be able to pursue attachment and in what priority. (Notably, some September 11th victims involved in these lawsuits are reported to have opted out of these efforts to pursue Afghan assets.)

By contrast, no one from either the now-deposed Afghan government or the Taliban has stepped up in U.S. federal court to represent Afghanistan or the DAB’s own interest in these assets. Whether this is a deliberate policy on the part of the Taliban or simply reflects a lack of capacity when it comes to managing foreign litigation for the institutions it claims to control is unclear. But either way, it suggests that the argument over the writs is once again at risk of being one-sided, to the detriment of Afghanistan and the DAB.

The U.S. Department of Justice, however, did opt to intervene. Following a series of extensions, the final due date for the U.S. statement of interest was this past Friday, February 11th. This deadline is no doubt one factor that prompted the Biden administration’s decision to move forward with its plan for the DAB’s assets when it did. 

The Biden Administration’s Plan

The plan that the Biden administration unveiled last Friday is, to say the least, a complicated one consisting of a number of moving parts that traverse several complex areas of law. Despite this, no one document released by the White House captures the plan in its entirety. Instead, to understand what the administration is doing, one must review not just the barebones fact sheet released by the White House but press statements by senior administration officials, the executive order and related measures actually implementing the policies, and the statement of interest ultimately filed by the Justice Department in advance of its February 11th deadline. This failure in communication no doubt contributed to the confusion that has followed the White House’s announcement, to the Biden administration’s detriment. And more recent efforts to correct the ensuing narrative can only do so much to correct the narrative already underway. Nonetheless, if one takes the time to piece together the various pieces of the Biden administration’s plan, it does reveal a fuller picture of what the Biden administration intends that does not align with many accounts of it in the media.

The White House’s rollout focused on the only concrete step that the Biden administration has taken to execute its plan thus far: the issuance of Executive Order 14064, which declares that the “widespread humanitarian crisis” and “deepening economic collapse” in Afghanistan presents a national emergency for the United States. Using related authorities provided by the International Emergency Economic Powers Act (“IEEPA”), it responds by directing U.S. financial institutions holding DAB assets around the country to transfer those assets into a single consolidated account at the FRBNY and then blocks any further transactions involving those assets absent a license from the executive branch. 

The main purpose of this move is to preserve the status quo; blocking any further transactions prevents plaintiffs from collecting on any writs of attachment without the executive branch having an opportunity to intervene. In addition, bringing the DAB’s various assets together into the FRBNY, a federally run institution, helps U.S. officials monitor any activity. And it ensures that any ensuing litigation over the assets will be consolidated within the jurisdiction of the U.S. Court of Appeals for the Second Circuit, which hears the largest volume of cases involving foreign central bank assets and thus has the most well-developed case law on relevant legal issues.

The more controversial part of the plan is what comes next. As described by senior administration officials, the Biden administration intends to “facilitate access to $3.5 billion of [DAB] assets” by transferring it to “a third-party trust fund” that will “administer the [funds] and ensure that that money is used for the benefit of the Afghan people.” The remaining assets, however, will “remain in the United States … subject to ongoing litigation by U.S. victims of terrorism[,]” ensuring that they have “a full opportunity to have their claims heard in U.S. courts.” Both prongs of this plan have proven controversial. But neither is as straightforward as it may seem.

Transfer to a Third-Party Trust

Despite its central billing in White House press statements, the $3.5 billion transfer is not actually addressed or authorized by Executive Order 14064. Instead, the legal framework for that transfer is set out in a related license issued by the Treasury Department’s Office of Foreign Assets Control (OFAC). This license directs FRBNY to segregate $3.5 billion of the DAB’s consolidated assets into a separate FRBNY account in the DAB’s name and then pre-authorizes the FRBNY to transfer those funds “[u]pon instructions from the individual(s) certified by the Secretary of State pursuant to Section 25B of the Federal Reserve Act as having authority to receive, control, or dispose of property from or for the account of [the DAB].” In other words, as soon as the Secretary of State certifies someone as having authority over the DAB’s assets, that person can direct the transfer of the $3.5 billion.

The keystone of this process is section 25B of the Federal Reserve Act, a statutory provision that instructs federal reserve banks to defer to determinations made by the Secretary of State when deciding who has the lawful authority to represent a foreign government or foreign central bank. In many ways, section 25B is a statutory codification of the president’s own constitutional authority over international recognition, which allows him to determine which regimes the United States acknowledges as foreign governments. In this context, section 25B allows the Secretary of State to determine who has the authority to direct the transfer of any central bank assets held in a federal reserve bank, including the FRBNY. Using this authority to transfer control over a foreign state’s assets to someone without any valid claim to them could give rise to both legal claims and diplomatic consequences. But where the proper foreign official is unclear, this authority allows the Secretary of State to play the decisive role in determining who gets to decide how a foreign central bank’s assets are handled.

It’s not yet clear who the designees for the DAB will be. The Biden administration has suggested that the designation process is still ongoing and has only indicated that the designees will “not be representatives (or members) of the Taliban.” The most likely candidates are holdover officials from the deposed Islamic Republic of Afghanistan government. While President Ashraf Ghani appeared to resign as he fled the country, many of his subordinates—including his first vice president and diplomatic representatives he appointed in New York and Washington, D.C.—claim to still represent the legally elected government from exile. Other officials—including the last acting governor of the DAB prior to the Taliban’s takeover—have not openly made such assertions but may yet be persuaded to play such a role. The ideal candidate would likely be someone who had some authority over the DAB or responsibility for representing Afghanistan overseas before the government’s collapse. But the Biden administration may be willing to accept other officials who can make some credible claim of authority over DAB assets.

Once selected, these designees will be responsible for authorizing any transfer of the $3.5 billion. No doubt the Biden administration will do its due diligence to ensure that whoever is selected as a designee is onboard with their general plan for the $3.5 billion. FRBNY supervision also most likely means that the Biden administration will be able to intervene and rescind its license if the designees attempt any transfers with which it disagrees. But by withholding their authorization for the transfer, the designees may also be able to exercise an effective veto over the recipients of the funds and the conditions under which they are transferred. For this reason, choosing someone who will be seen as a credible steward of Afghan interests may help alleviate some concerns over the third-party arrangement. That said, other factors, including security concerns for the individual involved or their family, may prevent the Biden administration from identifying the designee publicly.

The Biden administration has conceded that it is “still working through the modalities of th[e] trust fund and [its] governance structure … as well as the specific uses of the funds[.]” The OFAC license suggests that some or all of the segregated $3.5 billion may be transferred “to an international financing mechanism … or to a United Nations fund, programme, specialized agency, or other entity.” But the Biden administration has indicated that no decision will be made until after consultations “with our international partners and allies, and with experts on Afghanistan, [on] how to appropriately use those funds[.]”

In this sense, criticisms of what the Biden administration might do with the funds are, at a minimum, premature. The manner in which the $3.5 billion will be managed and used has not yet been decided, and the consultations the Biden administration intends to undertake provide an opportunity for further advocacy. While some assets may ultimately be used to pay for humanitarian assistance in Afghanistan, more recent statements by U.S. officials have suggested this will not be the focus. Instead, concerns over Afghanistan’s macroeconomic collapse might lead the third-party trust to try and play some of the roles of a functioning central bank, either on its own or in coordination with partner financial institutions. Or it may just hold the assets to make sure they are there to recapitalize the DAB once the risk of attachment has been resolved. There are many sound policy proposals out there for addressing Afghanistan’s economic crisis and, thus far, the Biden administration’s plan hasn’t ruled any of them out.

The only aspect of the plan that is firmly established is arguably the most important and the most controversial: the fact that the $3.5 billion will be transferred to the custody of a third-party trust, and no longer held by the Afghan government. For some, this arrangement raises concerns of paternalism and appropriation, as it would seem to take the Afghan people’s property away from the institutions that represent them. But so long as the Taliban claims control over Afghanistan’s governmental institutions, moving control of the assets to a third party is the only way to ensure they are not made subject to attachment proceedings. Putting the third-party trust under the control of individuals who can credibly claim to represent Afghan interests may help alleviate some of these concerns. But keeping the assets in the hands of Afghan institutions controlled by the Taliban will only leave them in peril.

Regardless, the Biden administration’s statements make clear that the $3.5 billion transfer will not take place until the federal court in New York that is currently manning the litigation over the September 11th plaintiffs’ writs of attachment “issue[s] a further decision regarding the scope of those writs and … authorize[s] any transfer of the funds….” This process, a senior administration official posited, will likely take “months” of litigation—time that policymakers will use to hold consultations and figure out the details of the third-party trust arrangement. 

Among other consequences, this delay means that none of the funds being transferred will become available for use before the end of Afghanistan’s brutal winter, which has severely aggravated the humanitarian crisis there. It also means that it will be some time before the $3.5 billion can be used to alleviate some of the economic reactions to the Biden administration’s actions, such as sharp withdrawal limits at private Afghan banks—a fact that may necessitate intervention on a much narrower timeframe. But perhaps most importantly, it shows the extent to which the fate of the $3.5 billion being transferred to the third-party trust remains intimately tied up with the remaining more than $3.5 billion in funds that are the subject of the other prong of the Biden administration’s plan.

Litigation by U.S. Victims of Terrorism

The most controversial element of the Biden administration’s plan is how it handles the attachment efforts being pursued by the September 11th plaintiffs. Despite some reporting to the contrary, the Biden administration has given no signs that it intends to transfer any DAB assets to U.S. victims of terrorism. But it has said that the “more than $3.5 billion in DAB assets” that aren’t set aside for transfer to the third-party trust will “remain in the United States and [be] subject to ongoing litigation by U.S. victims of terrorism.” This means that these plaintiffs will be able to continue to try and attach these assets through the same legal processes that they are already pursuing.

Whether the plaintiffs will succeed, however, is far from clear. The Foreign Sovereign Immunities Act (FSIA) normally provides foreign central bank assets with a robust set of immunities from attachment. But a 2002 law called the Terrorism Risk Insurance Act (TRIA) put an exception in place for plaintiffs who are seeking to enforce terrorism-related judgments for compensatory damages against “the blocked assets of [any] terrorist party[,]” which it defines to mean “a terrorist, a terrorist organization, … or a foreign state designated as a state sponsor of terrorism.” Hence, to be able to attach the DAB’s assets, the plaintiffs will have to make the case that they fit within this exception. And that is far from self-evident. Afghanistan is not and never has been a designated state sponsor of terrorism. Nor does the Taliban’s claim that it now governs Afghanistan necessarily give the Taliban ownership over the DAB’s assets or make the DAB itself part of any “terrorist organization”.

The plaintiffs will also have to overcome the fact that their claims are in tension with U.S. recognition policy. The plaintiffs’ argue that the court should take the Taliban’s claim of control and ownership over Afghanistan’s government at face value. But the Biden administration has thus far rejected these claims as a matter of policy and refused to recognize the Taliban as Afghanistan’s government. This is particularly problematic for the plaintiffs as, in the United States, the president has the exclusive constitutional authority to make such determinations and federal courts generally give those determinations substantial deference. The plaintiffs may have compelling reasons to believe that Congress did not intend to make TRIA and other relevant statutes contingent on the executive branch’s recognition policies. But absent such arguments, the plaintiffs’ efforts to attach the DAB’s assets seem likely to fall flat.

The Justice Department expressly declines to take a position “at this stage” on whether the plaintiffs’ claims satisfy these requirements. But its statement of interest does identify and discuss each of the above legal issues at length. Doing so is particularly significant as neither Afghanistan nor the DAB have legal counsel of their own in these proceedings able to make counterarguments, conditions that might normally lead courts to be more willing to accept the plaintiffs’ versions of the laws and facts. But by setting out these legal questions in its statement of interest, the Justice Department is helping to ensure that the plaintiffs’ arguments receive scrutiny. And the clear tenor of its analysis, though never stated explicitly, is that there are good reasons to doubt whether the plaintiffs’ writs satisfy the necessary legal requirements. 

The Justice Department does, however, take a more explicit stance on two legal questions relating to the $3.5 billion that is pending transfer. 

First, the Department asserts that, because TRIA only permits attachment to enforce judgments for compensatory, not punitive, damages, the plaintiffs must revise the amounts their writs seek to attach. While the Doe plaintiffs only pursued compensatory damages, the Havlish writ includes more than $4 billion in punitive damages. If limited to compensatory damages, the Havlish and Doe writs combined would equal less than a third of the DAB assets in the FRBNY, making it unnecessary to subject the entirety of the account to a writ of attachment and placing the $3.5 billion the Biden administration is seeking to transfer well outside the writs’ scope. Hence, there would be no grounds on which the Havlish and Doe plaintiffs could object to this transfer. Of course, other plaintiffs who still intend to pursue attachment and are worried about there being adequate funds might, which may in turn provide an incentive to move quickly. Consistent with this logic, the Havlish plaintiffs recently confirmed that they do not object to the proposed $3.5 billion transfer, but urged the court to rule on their motion to move forward with attaching an amount equal to their compensatory damages.

Second, the Department argues that, under relevant Second Circuit precedent, otherwise blocked assets whose transfer is authorized by an OFAC license do not constitute “blocked assets” within the scope of TRIA. Hence the OFAC license authorizing the transfer of the $3.5 billion makes those assets ineligible for attachment. This is almost certainly why the Biden administration chose to issue that license without having a clear use in mind for the transferred assets or any section 25B designees in place: authorizing the transfer is sufficient to create the statutory grounds for excluding the $3.5 billion from the writs of attachment.

Consistent with the statement by White House officials, the statement of interest is clear that the $3.5 billion transfer “cannot be implemented until [the court] confirms … that the writs of execution … are no obstacle[,]” an issue whose consideration it asks to be expedited. This need for a judicial ruling most likely reflects concerns on the part of the FRBNY and Department of Justice that pursuing the transfer while the $3.5 billion remains subject to post-judgment writs of attachment could put the FRBNY in violation of federal law or even expose the United States as a whole to claims under the Takings Clause. It is also the legal issue that White House officials have suggested will take “months” to resolve. 

These factors provide a window into the fate of the remaining DAB assets as well. Even though there are good reasons to believe that the September 11th plaintiffs will ultimately fail at securing the DAB’s assets, reaching this conclusion will require the courts to resolve several complicated legal issues of first impression, through what are likely to be multiple levels of appeal. Prior attachment efforts by the September 11th plaintiffs have taken years to resolve, and the same may be true here. In the interim, these assets—or at least whatever portion is ultimately covered by the plaintiffs’ revised writs of attachment—will likely have to remain in place, unavailable to address the needs of Afghans. 

Assessments and Alternatives

The Biden administration’s approach to protecting DAB assets is far from a perfect one. Like any policy, it entails trade-offs and compromises. But it does leave Afghanistan’s central bank assets more protected than they were before the policy was put into effect. And while one can certainly make valid criticisms of the policy choices here, many such criticisms fail to adequately wrestle with the difficult legal realities at play.

One criticism is that the Biden administration is simply rejecting the reality of Taliban control in Afghanistan and should officially recognize it as the country’s new government. Doing so might present certain advantages, including by empowering someone to perform the basic functions of government necessary to operate a national economy. But it would only put the DAB assets at greater risk of attachment by better aligning U.S. recognition policy with the plaintiffs’ claims. Combining recognition with the elimination of sanctions against the Taliban might help by rendering the TRIA exception inapplicable. Recognition, however, would open other legal avenues through which plaintiffs could try to hold Afghanistan to account for the Taliban’s actions, perhaps even more successfully. In short, normalizing relations with the Taliban would not be a panacea for the legal morass surrounding Afghanistan’s assets.

Another possible objection is that the Biden administration did not push back as hard as it could on the September 11th plaintiffs’ attachment efforts. No doubt this is correct: the administration could certainly have expressly argued against the legality of the plaintiffs’ attachment efforts, or sought to move more than $3.5 billion beyond their reach. But it’s not clear why the former would necessarily be more effective. And the latter would increase the risk that the amount being transferred would overlap with the assets subject to the plaintiffs’ revised writs of attachment. This would likely delay any transfer until the broader array of legal issues surrounding the writs of attachment can be resolved. Instead, the Biden administration appears to have accepted the risk of leaving some funds on the table so that it can be more confident in its ability to remove the $3.5 billion. 

Both of these critiques, moreover, neglect the simple reality that the Biden administration has other policy interests tied up in this debate. In regard to the Taliban, the United States has joined the rest of the international community in withholding recognition and maintaining sanctions until the group severs its ties to terrorism, abides by human rights standards and implements a more inclusive model of governance, among other demands. Nor has the Biden administration shown any signs of walking back the federal government’s longstanding position supporting civil litigation efforts by U.S. victims of terrorism. These victims are an understandably sympathetic group of Americans that has suffered real harm that has gone undercompensated for decades, and they enjoy broad support across the U.S. political spectrum. One can debate the merits of either policy. But it’s not surprising that the Biden administration would try to accommodate both, even as it genuinely works to protect Afghan assets. 

Doing so may also be necessary to maintain the cooperation of Congress. While some elements in Congress have been vocal about the need to address the economic and humanitarian crisis in Afghanistan, others have been equally insistent that the United States not ease pressure on the Taliban and have even introduced legislation that would limit the Biden administration’s ability to do so. Congress has also been nearly unanimous in its strong support for U.S. victims of terrorism over the years, to the point where it has repeatedly enacted legislation to supersede executive branch policies and judicial rulings that are seen as obstacles to victims’ litigation efforts–even where doing so has required it to override a presidential veto. Indeed, some of these laws are the same ones facilitating the September 11th plaintiffs’ current efforts to attach the DAB’s assets. Hence those with reservations about the situation currently facing the DAB’s assets would be well-served to direct their objections not just to the White House but also to Capitol Hill. 

The Biden administration’s greatest failure in all of this was arguably one of communications: by failing to adequately explain how its policy protects Afghan assets, however imperfectly, the administration has helped to fuel a narrative in which the United States not only continues to abandon Afghanistan but loots it on the way out. This should be a warning about the limited credibility that the administration has among Afghans and others who care about Afghanistan policy following the events of this past summer—and how much scrutiny the administration’s actions will likely be under moving forward. The Biden administration still has important choices ahead of it, including how to manage and deploy the $3.5 billion it is working to make available for the Afghan people. Being deliberate and thoughtful both in how it crafts these policies and how it explains them will be essential if the rest of this effort is to be more successful than its debut.

Note: The author previously served as an expert witness for the Islamic Republic of Afghanistan on recognition issues in certain terrorism-related civil litigation.