US plans to free half of $7bn frozen Afghan funds for aid, remainder to stay in US

The US government is seeking to free up half of $7 billion in frozen Afghan central bank assets on its soil to help the Afghan people, pending a judicial decision, while holding the rest to satisfy lawsuits against the Taliban from victims of terrorism, the White House said on Friday, Reuters reports.

President Joe Biden signed an executive order declaring a national emergency to deal with the threat of a deepening economic collapse in Afghanistan, setting the wheels in motion for a complex resolution of competing interests in the Afghan assets.

The move comes hours before the US Justice Department is due to present a plan to a federal judge on what to do with the frozen fund amid urgent calls from US lawmakers and the United Nations for them to be used to address the dire economic crisis that has worsened since the Taliban’s takeover in August.

Senior administration officials said they would work to ensure access to $3.5 billion of the assets – which stem mainly from aid provided to Afghanistan over the past two decades – to benefit the Afghan people.

They said Washington would set up a third-party trust in the coming months to administer the funds but details were still being worked out on how that entity would be structured and how the funds could be used.

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The multi-step plan calls for the other half of the funds to remain in the United States, subject to ongoing litigation by US victims of terrorism, including relatives of those who died in the 11 September, 2001, hijacking attacks, the officials said.

Washington froze the Afghan funds held in the United States after the Taliban’s military takeover in August, but has faced mounting pressure to find a way to release the funds without recognising the Taliban, who say the money is theirs.

However, some 11 September victims and their families have filed lawsuits seeking to cover unsatisfied court judgments related to the attacks that killed nearly 3,000 people.

Biden’s new executive order requires US financial institutions to transfer all Afghan central bank assets they now hold into a consolidated account at the Federal Reserve Bank of New York. The New York Fed would conduct standard due diligence about any transfers of funds, officials said.

Afghanistan has another $2 billion in reserves, held in countries including Britain, Germany, Switzerland and the United Arab Emirates. Most of those funds are also frozen. US officials said they had been in touch with allies about their plans, but Washington was the first to offer a plan for how to use the frozen assets to help the Afghan people.

The United States, the largest single donor of humanitarian aid in Afghanistan, also plans to keep working with the United Nations and humanitarian aid groups on separate US aid flows, the officials said, adding that they expected significant multilateral engagement in creation of the new trust fund.

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Washington is also working closely with the United Nations on mechanisms to ensure UN agencies and aid groups have the liquidity needed to support critical humanitarian assistance programs, the White House said.

Reuters reported on Thursday that the UN aims to kick-start, this month, a system to swap millions of aid dollars for Afghan currency that would help solve that issue.

UN Secretary-General Antonio Guterres has called for a mechanism to free up about $9.5 billion in Afghan reserves frozen worldwide, including in the United States.

US sanctions ban doing financial business with the Taliban, but has granted waivers to allow humanitarian support for the Afghan people. A new license will be needed to allow transfers from the envisioned trust, officials said.