Use of Afghanistan’s Foreign Reserves to Satisfy Judgments Against the Taliban

U.S. Law Does Not Permit Taking Afghanistan’s Foreign Reserves to Satisfy Judgments Against the Taliban

Following the Taliban’s removal from power in the early 2000s, the United States worked with Afghanistan to build a banking system independent of the government. By 2021, the country’s central bank, Da Afghanistan Bank (“DAB”), had accumulated over $10 billion in assets, with some $7 billion held in foreign reserves at U.S. banks. On August 15, 2021, upon the Taliban’s reoccupation, the U.S. Treasury Department blocked DAB’s assets to prevent the Taliban from accessing assets that “belong to the Afghan people.”

In November 2021, the United Nations called for urgent action to prop up Afghanistan’s banking system, warning that the economic cost and negative social impact of its collapse “would be colossal.” This prediction bore out as Afghanistan quickly became the world’s largest humanitarian crisis. The collapse of the banking sector sent business and trade into a downward spiral as inflation and mass unemployment skyrocketed, and an estimated 97 percent of Afghans were predicted to fall into poverty in 2022. The UN Children’s Fund (UNICEF) warned that millions of children would die of starvation and that the crisis could result in more deaths in the country than those caused by the last twenty years of war combined. This crisis was directly traceable to a liquidity drain that DAB reserves were meant to guard against, and which could be used to recapitalize an Afghan central bank, whenever and however that could be done in compliance with sanctions against the Taliban.

After the U.S. blocked DAB’s assets, several family members of September 11 attack victims sought to use or “attach” on these assets to collect on their judgments obtained in U.S. district courts against the Taliban. These judgments are high enough to deplete all DAB assets held in the U.S. several times over. These cases were consolidated into the captioned case of In re: Terrorist Attacks on Sept. 11, 2001 before the U.S. District Court of the Southern District of New York.

Facts

On February 11, 2022, U.S. President Biden issued Executive Order 14064, Protecting Certain Property of Da Afghanistan Bank for the Benefit of the People of Afghanistan, in recognition of the “widespread humanitarian crisis in Afghanistan.” The order applied to all assets held by the DAB in the United States, including the Federal Reserve Bank of New York (“FRBNY”), known as the world’s premiere reserve bank. The order blocked all transactions with these DAB assets but authorized the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) to approve certain transactions through the issuance of licenses.

On the same day that the executive order was issued, OFAC issued a license compelling the FRBNY to transfer half of the DAB assets, or $3.5 billion, to a separate account that could be used solely “for the benefit of the People of Afghanistan.” The other half remained in the blocked DAB account.

Generally, foreign state property (e.g., assets) in the United States enjoys particularly strong protections, including immunity from attachment per the Foreign Sovereign Immunities Act (“FSIA”). However, the Terrorism Risk Insurance Act of 2002 (“TRIA”) provides a narrow exception to such immunity—assets owned by a “terrorist party” or “any agency or instrumentality” thereof that are blocked can be attached to satisfy a judgment for compensatory damages against that “terrorist party” for “a claim based upon an act of terrorism.” While the Taliban meets the TRIA’s definition of a “terrorist party,” the U.S. government has refused to recognize the Taliban’s claim of ownership over DAB assets.

In September 2021, two groups of individuals with default judgments against the Taliban for terrorism-based claims—represented in cases Havlish v. Bin Laden and Does 1 through 7 v. the Taliban—served the FRBNY with writs of attachment encumbering billions in DAB assets. Soon after, the U.S. government intervened, requesting stays of judicial enforcement of the writs while it prepared a formal statement of interest regarding the various questions presented by these cases.

On February 11, 2022, the same day Biden issued the executive order, the U.S. government filed its statement explaining that there is a distinction between a foreign government and a foreign state, and accordingly, the assets of a central bank are considered those of the foreign state itself, and not its government. The United States emphasized that it did not recognize the Taliban as the government of Afghanistan and that a regime not recognized as the government of a state is not entitled to property belonging to that state. It also emphasized that a theory of ownership must consider the risk of reciprocal challenges to American property abroad.

Open Society Justice Initiative Involvement

The Justice Initiative filed an amicus curiae brief in the consolidated case of In re: Terrorist Attacks on Sept. 11, 2001 on behalf of Naseer A. Faiq, the only recognized Afghan diplomat in the United States and the chargé d’affaires (head) of the Permanent Mission of the Islamic Republic of Afghanistan to the United Nations in New York. While the Taliban has opposed Faiq’s service, arguing that he does not represent the Taliban regime. Faiq maintains that he neither represents the former government of Afghanistan, nor the Taliban, only the interests of the Afghan people.

Arguments

The brief filed on behalf of Naseer A. Faiq supports compensation for the victims of the Taliban, including those who have obtained judgments against the Taliban in American courts. However, it holds that under current U.S. law, such compensation cannot come from the Afghan people, who are not legally responsible for the tragic events of September 11, 2001, or other acts of terrorism committed by the Taliban. The amicus curiae argues that:

Nothing in U.S. Law Permits Taking the Property of Afghanistan To Satisfy Judgments Against the Taliban

Under the FSIA, the reserves of foreign central banks held in the United States are generally immune from attachment, even to satisfy a judgment against the bank itself. The TRIA, however, makes a narrow exception if the reserves are owned by designated state sponsors of terror—i.e., Cuba, North Korea, Iran, and Syria. Permitting execution on DAB’s assets would be a radical departure from the principle of central bank immunity, making the reserves of every other country in the world vulnerable to attachment. Other absurd precedents would result. Importantly, states would be vulnerable to judgments that are not even against them, but rather against third parties. What’s more, those judgments could arise from proceedings in which the foreign states themselves were not even parties, as is the case with Afghanistan. Paradoxically, they could not have been made parties, as FSIA provides jurisdictional immunity to these states. Moreover, it apparently would not even matter if a terrorist individual or organization were exercising such control unlawfully and were not recognized as legitimate by the U.S. government; the terrorist organization’s victimization of the foreign state would itself be grounds to attach the foreign state’s property. Such an outcome would be wholly contrary to congressional intent.

Through the FSIA, Congress has made the DAB—the property of the state of Afghanistan—presumptively immune from both the court’s awarding attachment and its exercise of jurisdiction. Therefore, executing on those assets requires an exception to both immunities. At most, the TRIA abrogates attachment immunity of the blocked assets of a designated state sponsor of terror to satisfy judgments obtained against it. Afghanistan is not and has never been designated as a state sponsor of terror. Furthermore, no party has ever secured a judgment against Afghanistan or one of its “agencies or instrumentalities” under an exception to the FSIA’s grant of jurisdictional immunity. The TRIA is thus wholly inapplicable to the foreign reserves of the Afghan people, which remain fully immune from attachment under the FSIA. The Court cannot proceed against a foreign state’s property absent jurisdiction over the foreign state itself. Moreover, the TRIA’s authorization for attachment against a foreign state requires a judgment for which there was original jurisdiction under the FSIA. Applying the TRIA to foreign state property requires a source of original subject matter jurisdiction within the FSIA, which is not present here. 

“Agency or Instrumentality” Status Under the TRIA Is Determined As of the Date the Underlying Complaints Were Filed

Even if the case were admissible under the TRIA exception, “agency or instrumentality” status under both the FSIA and the TRIA is determined at the time of the filing of the complaint, and not as of the time an alleged tort occurred. The Havlish and Does suits were initiated, in 2002 and 2020, respectively, when the Taliban had no control over the DAB.

The TRIA Only Authorizes Executing on Property That the Judgment Debtor Actually Owns

The DAB’s assets are the reserves of Afghanistan itself. Since the United States does not recognize the Taliban as the government of Afghanistan, the Taliban has no property interest in the state’s assets that this court can recognize. Under the terrorism exception of the TRIA, a debtor must actually own the assets to be executed upon. The degree to which the Taliban might control a state institution or its assets is irrelevant, as courts have found that “control and ownership … are distinct concepts.” Nor does it matter that these assets were blocked to keep the Taliban from accessing them. As the United States has explained, “ownership is not required to block an asset, although it is required to attach that asset under the TRIA.” As Biden and OFAC noted, the DAB’s assets are the property of the Afghan people and were blocked for the “benefit of the people of Afghanistan.” The TRIA does not permit taking property that the Taliban does not own. The TRIA’s aim is to punish terrorists by making their assets available to pay judgments against them. It would be incompatible, legally and morally, to use the assets of the people of Afghanistan—who have themselves been victims of the Taliban—to pay their debts.

Authorizing Execution on DAB Assets Would Have Significant Adverse Consequences for the United States

As the FRBNY explained in a different proceeding: “If the clarity and certainty of central bank immunity in the United States is compromised, the potential disruptive effects on deposits of dollar reserves here and the resulting impact on the international financial system could be profound” as foreign banks may decide to take their assets elsewhere. Meanwhile, a foreign sovereign’s central bank reserves are a unique category of assets that U.S. Congress has comprehensively shielded for important reasons, including because:

• Reserves play a crucial role in promoting and maintaining regional and global economic stability, particularly in times of crisis
• Holding central bank funds in the United States, primarily in the FRBNY—without fear of litigation or attachment—brings tremendous benefits to public and private enterprise in the United States
• Reserves support the American economy by increasing the depth and liquidity of U.S. financial markets; reducing transaction costs for private enterprises, particularly those engaging in cross-border transactions; lowering the debt servicing costs of the United States in financing its public debt by exerting downward pressure on interest rates; and promoting the dollar as the preferred currency reserve of the world