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U.S. Establishes Trust With $3.5 Billion in Frozen Afghan Central Bank Funds

WASHINGTON – The Biden administration on Wednesday decided to create a foundation that will spend $3.5 billion on Afghans, using funds that President Biden had frozen and seized from the Afghan central bank after the Taliban attacked the country last year. years had taken over.

With several international partners, the US government has announced the creation of a foundation based in Switzerland, which will use the money to help address the unfolding economic and humanitarian crisis in Afghanistan — while keeping the money out of the hands of the Taliban.

Possible payoffs include “keeping abreast of its debt payments to international financial institutions, making them eligible for development aid, and paying for critical imports, such as electricity,” the government said.

The move was the latest step in a highly unusual dilemma that touches on issues such as foreign policy, international finance, counter-terrorism and domestic politics. The problems stem from the abnormal situation of a sanctioned terrorist group that has taken over a country by military force, but is not recognized as its legitimate government.

When the Afghan government was dissolved in August 2021, it left about $7 billion in central bank assets on deposit with the Federal Reserve Bank in New York, raising the question of what to do with them. A group of relatives of victims of the September 11, 2001 terrorist attacks tried to seize the funds to pay off sentences from lawsuits that, among others, had held the Taliban responsible for their losses.

But in February, Biden used emergency powers to freeze the assets of the Afghan central bank, known as Da Afghanistan Bank. He left half to the 9/11 families to sue in court, saying the remaining $3.5 billion would go into a trust fund to help the Afghan people. Many details still had to be worked out.

Wendy Sherman, the deputy secretary of state, said in a statement Wednesday that the establishment of the foundation in Switzerland, known as the Afghan Fund, was a concrete step forward.

It will ensure that “additional resources can be mobilized to reduce suffering and improve economic stability for the people of Afghanistan while keeping the Taliban accountable,” she said.

Afghanistan’s economy went into free fall when the government collapsed during the takeover of the Taliban in August 2021. Financial aid and international spending dried up, in part because the Taliban are a designated terrorist group subject to U.S. and international sanctions it imposes. make a crime to transfer money that could reach them.

The Ministry of Finance later relaxed some sanctions. Under a so-called general license, people can legally transfer money to officials of government agencies — including ministries now headed by Taliban officials — for transactions such as taxes, duties, import duties, and the purchase or receipt of permits, licenses or public utilities.

Human rights advocates welcomed the establishment of the Afghan Fund, but said it would not be enough to address the country’s economic crisis, leading to mass famine. This in turn creates a huge and destabilizing flow of refugees.

Human Rights Watch’s Asia advocacy director John Sifton called the fund essentially a “shadow quasi-central bank” outside Afghanistan. In a statement, he said many complicated issues remained to be resolved, including how the fund would communicate with other countries’ central banks and the World Bank.

“This is a huge step forward in addressing the economic crisis in Afghanistan, which is a big part of the root cause of the devastating humanitarian crisis,” he said. “It is ultimately only a temporary solution, not a comprehensive solution.”

The United States had attempted to directly recapitalize the Afghan central bank, or DAB, in an attempt to revive the country’s economy. But it was unable to find a way to do this that would ensure that none of its funds reach the Taliban.

If long-term conditions change, the government said on Wednesday, all unspent money could one day be returned to DAB.

The just over $7 billion in assets the DAB had deposited with the Federal Reserve Bank in New York included currency, bonds and gold. Much of it came from foreign exchange funds that had accumulated over the past 20 years when the United States and other Western countries donated large sums to Afghanistan, helping to generate economic activity and international exchanges.

The Taliban declared themselves the government of Afghanistan and claimed the right to the money. Relatives of victims of the September 11 attacks have argued that the funds were sufficiently tied to the Taliban that they could confiscate the money as compensation for their role in hosting Al Qaeda. Years earlier, the families had once filed seemingly symbolic lawsuits against the Taliban, among others.

The legal effort to seize the remaining $3.5 billion in frozen DAB funds has sparked controversy.

Some exiled Afghans and a faction of relatives of the September 11 victims have argued that the money should instead be used to address the humanitarian crisis in Afghanistan.

Last month, a federal magistrate judge, Sarah Netburn, recommended that the 9/11 families’ efforts be rejected — in part because any statement that the Taliban have a sufficient interest in the DAB funds, she said, would effectively recognize the Taliban as the legitimate government of Afghanistan.

The advice is not a final decision. But if the September 11 family members eventually lose their case, it would raise the possibility that Mr. Biden could also send the remaining half of Afghan central bank funds in New York to the new Afghan fund.