Sanctions and humanitarian crisis

Afghanistan: the U.S. Has Frozen the Assets of its Central Bank, the Population Foots the Bill

Since the Taliban have taken power again, Washington has frozen the Afghan central bank’s U.S. holdings, a move which has aggravated the humanitarian crisis in that country without affecting the regime. And the creation of a fund in Switzerland, meant to manage half the money has had little impact.

A market in Kabul, 23 March 2023
Wakil Kohsar/AFP

While Afghanistan was hit by a particularly severe Winter, the efforts to partially lift the freeze on those assets which belong to that country seem to have come to a standstill. In September 2022, a special fund was indeed set up in Geneva, with the ultimate objective of repatriating to the Afghan central bank the sums blocked in the U.S. since the Taliban took power again in August 2021. These funds are currently under the management of The Bank of International Settlements (BIS) based in Basel.1

For the moment, however, the Afghan assets remain with the BIS. Shah Mohammad Mehrabi, one of the four administrators of the fund in the name of the Afghan people, who is also president of the Auditing Committee of the central bank of Afghanistan (Da Afghanistan Bank – DAB) is not optimistic about the advancement of the negotiations: ‘The freezing of our assets has brought about a catastrophe of inconceivable proportions which is taking place before our eyes, with 22.8 million people suffering from acute food insecurity.’

An open letter from sixty-six economists

The assets being held at the BRI amount to 3.5 billion dollars, half of the 7 billion frozen since the Taliban came to power. Shah Mohammad Mehrabi, who also teaches economics at Montgomery College (Maryland) had presented President Joe Biden with another solution which involved handing over all the money to DAB but in monthly instalments. He told us he rang the President personally on 1 September 2021, a fortnight after the Taliban’s victory, to warn him of the terrible consequences of freezing the Taliban’s assets: ‘It is the Afghan people who will be made to suffer. Freezing those funds will have only a negligible impact on the people in power,’ I explained to him. Professor Mehradi had proposed that 15 million dollars be allowed each month to the central bank of Afghanistan to ensure price stability. ‘I insisted on the fact that I would personally supervise the process, which could be stopped if the money were used for any purpose other than the stabilisation of the economy.’

Until February 2022, the State Department showed interest in this solution. But on 11 February, Washington took a decision which our economist describes as dictated by domestic ‘politics’: half of the seven billion would be allotted to the families of the victims of 9/11. In his executive order, issued on 11 February 2022, the President claimed that the humanitarian crisis and ‘deepening economic collapse in Afghanistan constitute an unusual and extraordinary threat to the national security and foreign policy of the United States.’… ‘The preservation of certain properties of Da Afghanistan Bank (DAB)’ by American financial institutions would therefore, he claimed ‘be of utmost importance to addressing this national emergency and the welfare of the people of Afghanistan.’ But the President went on to explain that representatives of the victims of terrorism ‘have asserted legal claims against certain properties of DAB … which is therefore declared frozen under this executive order.’

In an open letter to Jo Biden and to Treasury Secretary, Janet Yellen, dated 10 August 2022, 70 well-known economists, including Nobel Prize winner Joseph Stiglitz, demanded that the U.S. executive go back on this decision and return all seven billion to DAB. In vain…

These assets are deposited with the Federal Reserve Bank in New York. Like many other countries, Afghanistan had deposited part of its dollar reserves there on account of the stability of U.S. currency. Thus those 7 billion dollars were in the U.S. Federal Bank before the Talibans came back to power which made it possible for the U.S. to freeze them.

For fear that the families of the victims of 9/11 might manage to get their hands on all that money, after seven months’ talks, the Bank of International Settlements in Switzerland was designated, with the approval of the Biden administration, to receive half of the assets which belonged to DAB though they remained unavailable to the Afghans.

This transfer certainly constituted a progress, but one of the four administrators of the Afghan Fund is still for the moment preventing those 35 billion dollars from being transferred to DAB. This administrator is one Andrew Bankol, interim undersecretary for international affairs with the U.S. Treasury. Another administrator of the fund, a Swiss diplomat by the name of Alexandra Baumann, has expressed doubts concerning the reliability of the Afghan central bank, while still hoping the talks will move forward: ‘We will work to make sure that the foundation takes an inclusive approach – that it does what the Afghan people want because it is their money,’ she declared on 3 November 2022 to the platform Swissinfo.ch.

A reduction in corruption

According to Haroun Rhimi, associate law professor at the American University in Afghanistan, the present discussions are dealing with how to preserve the fund, invest it or use it for humanitarian purposes.’In the light of the latest Taliban decrees, the chances of reaching a compromise seem slender,’ he observed. The reasons why the 3.5 billion held in Switzerland are still not on the way to Kabul are partly political: the latest Taliban decrees concerning women’s rights were a disappointment to everybody and two of the trustees deem the moment inappropriate to return to DAB a part of its assets. And the decisions of the Foundation must be unanimous. According to the second Afghan trustee, Anwar-ul-Haq Ahady, a former director of the Central Bank and one-time Minister of Finance, the U.S. representative, Andrew Baukol will approve nothing which is not endorsed by his government.2

The U.S. also considers that the Taliban government is not respecting UN Security Council Resolution 2,593, passed on 30 August 2021. Among other things, it demanded that the Afghan territory not serve as a refuge for terrorists or the planning of terrorist actions. Attacks by the Pakistani branch of the Talibans (TTP) such as the one perpetrated in Peshawar on 30 January 2023 which caused some hundred casualties are an embarrassment for the Kabul regime since the TTP uses Afghanistan as its rear base. The text of the resolution also stresses the importance of observing human rights, those of women, children, and minorities. And we must add to the Afghan assets held abroad, the 2.1 billion dollars impounded in Europe on account of the EU’s compliance with U.S. sanctions.

However, Shah Mehrabi does see one positive factor which should allow for the partial lifting of the freeze: the reduction of the level of corruption. ‘In order to measure the progress that has been made, we need only observe that the new government has considerably increased the collection of revenue, in the form of customs duties and other taxes.’ This improvement is confirmed by the rating of the NGO Transparency International which now situates the country 150th (out of 180) on its ‘corruption perception index,’ whereas it was 174th in 2021. This improvement is not, however, considered in the discussions about the unfreezing of the fund.

‘Having to choose between eating and heating the home’

Potential investors and people who used to do business with the Afghans are reluctant to send their money into the country again for fear of the sanctions and the difficulties involved in international transfers. The U.S. still forbids bank transfers, applying to the present government the same sanctions laid down by George W. Bush against the Talibans and others right after 9/11. Since 15 August and their return to power, ‘any financial transactions with Afghanistan may be deemed to fall within the scope of Executive Order 13,224 and therefore potentially breach U.S. law. ’, Jean-François Cautain explains. He was once European ambassador to Pakistan and in an op-ed in The Investment Monitor3, he pointed out the absurdity of this situation. The sudden halt in international development funding ‘immediately led to a 40% contraction in the country’s economy,’ the diplomat wrote. International aid alone accounted for 45% of the country’s GDP and financed 75% of its budget. In the opinion of Ali M. Latifi, an independent journalist based in Kabul ‘all that has contributed to the loss of 700,000 jobs. The Taliban rulers haven’t suffered one bit from these financial restrictions. It’s ordinary citizens who are footing the bill, struggling to find cash and work, and having to choose between heating their homes this winter or feeding themselves.’ At the end of 2022, a year and a half after the regime change, 90% of the population is experiencing food insecurity, according to figures provided by Human Rights Watch. With no access to its main reserves, BDA is unable to play its role as a stabiliser of the local money and retail prices.

The latest Taliban decrees, severely restricting the rights of women, have proven the extent to which the latter are vulnerable under the sanctions. Besides which, women and children are the first victims of the ongoing humanitarian crisis. Already in 2021, David Beasley, executive director of the World Food Programme (WFP) sounded the alarm: ‘What is happening in Afghanistan is terrifying, he reported. “I met families with no work, no money and no food, mothers selling one child to feed another, and a few lucky children who’d managed to get to a hospital.”4

The organisation also warned that the food shortage affected cities as much as rural areas. One year later, the situation has not improved and this winter, the coldest in a decade, with temperatures as low as -33° C., has already cost the lives of 166 persons since the beginning of January and killed whole herds.

International NGOs obliged to use the “hawala” system

Confronted with this situation, the UN launched an appeal for funds, but had only reached 45% of its objective in October. Ironically, the main donors were precisely those countries applying the sanctions! The U.S. itself continues supplying cash to the UN for its operations in Afghanistan. But payments to organisations based inside the country are made difficult by the sanctions. Jean-François Cautain, whose wife is head of mission for the French NGO La Chaîne de l’Espoir, explained that the humanitarian organisations are obliged to ask expatriates to carry cash for them on their trips home or else use the informal money transfer system, the hawala.

When asked about the changes that have taken place since October 2022, Jean-François Cautain has observed a slight improvement in bank transfers into Afghanistan, but with the quasi-monopoly of a private bank, the Afghanistan International Bank (AIB) which takes big commissions. “The Fund for the Afghan People, on the other hand, is currently incapable of producing anything positive,” says the diplomat sorrowfully, “the trustees seem to be mired in their own red tape”.

1The Bank of International Settlements is an international financial organisation created in 1930. Its shareholders are the central banks. It defines itself as the ‘bank of central banks.’ Its chief mission is the co-operation between central banks, and it plays a key role in the management of the currency held by these institutions.

2Sarah Lazare, ‘As Afghans Suffers, the U.S. Stalls on Plan to Return Central Bank Funds’, In These Times Magazine, December 2022.

3Sanctions on Afghanistan: Morally reprehensible and politically irresponsible,’ 4 October 2022.

4Afghanistan: World Food Program calls for funds as children face ‘hunger and starvation’, December 2021, (www.wfp.org)