From Frozen Assets to Sanctions: What Economic Leverage Does the U.S. Have in Afghanistan?

From Frozen Assets to Sanctions: What Economic Leverage Does the U.S. Have in Afghanistan?

good morning on behalf of the center for new american security welcome to today’s special event from frozen assets to sanctions what economic leverage does the united states have in afghanistan thank you for joining us for this important and timely discussion my name is emily kilgrays i’m the director and senior fellow here at cnes in the energy economics and security program our program explores the dynamics of the global economy and its implications for u.s national security foreign policy and economic statecraft we cover a wide range of foreign policy issues and national security topics including the u.s china economic competition financial technology and most relevant for today’s conversation sanctions and course of economic state craft i’ll be moderating today’s panel discussion focusing on the economic leverage that the united states and its allies has to compel taliban to act in accordance with international standards as well as the limits of that leverage and the uncertainty surrounding this conversation given the conditions on the ground today this discussion could not be more urgent as we speak president biden is meeting with other g7 leaders where sanctions will be on the agenda and we know that at least great britain will be pushing for strong coordinated action amongst the g7 countries on sanctions the united states government has already frozen approximately 9.5 billion dollars in assets belonging to the afghan central bank to prevent the taliban from accessing these funds and the imf has halted the disbursement of 460 million dollars in emergency currency reserves more economic actions are surely to come but it remains unclear if even the harshest sanctions can compel the taliban to follow international standards on human rights or whether sanctions can effectively punish the taliban without causing further suffering to the afghan people in today’s discussion we’ll be talking about the specific steps that the us government and its allies need to take immediately to prevent the taliban from controlling the financial access financial resources of the state we’ll also be to the extent we can given the changing conditions be talking about how the united states and the international community should engage with the taliban moving forward on the economic front we’ll be taking audience questions throughout the panel please go to cnas.org live cnes.org live to submit questions or use the chat function we’ll address questions as we go and also towards the end of the panel today with that let me turn to our expert panel to get the conversation going i’d like to welcome first annie forsheimer annie is currently non-resident associate with the center for strategic and international studies he’s also formerly the acting deputy assistant secretary of state for afghanistan and the deputy chief of mission at u.s embassy kabul alex cerdan alex is founder and principal of capital peak strategies alex is formerly children attached to afghanistan at the u.s embassy in kabul and served in a wide range of us government roles examining terrorist financing i’m also pleased to announce that starting today alex is joining the cnas team as an adjunct senior fellow with our program finally rachel zemba rachel is an expert advisor on sanctions and macroeconomic policy and is also part of our cnas team as an adjunct senior fellow with our program annie alex rachel thank you for being here and making the time for this discussion today let’s go ahead and get right into it um we’ll give time for brief opening remarks and i’ll start with you alex i’d like to ask you to set the stage for us big picture in terms of the afghan economy afghanistan’s economy was not in good shape before the taliban took over high levels of drug trafficking high levels of corruption heavy reliance on foreign aid for the vast majority of government resources and extreme poverty throughout the country what does it mean now that the taliban controls the economy and how much worse can the situation get emily thank you so much for having me and thank you to cnas and i’m particularly honored to be an adjunct senior fellow now and affiliate again with cnas i also want to thank rachel and annie for joining today i actually had the privilege of working for annie in kabul uh when we overlapped in 2018. but just put bluntly i have really grave concerns about the taliban’s takeover of the afghan economy i feared the economy and i share what you said it’s already in really rough shape going into this crisis and i fear that it will only get worse as this crisis evolves so i just want to briefly discuss a few points to help set the economic scene and frame this conversation first the afghan economy itself is anemic gross domestic product annually is about 20 billion dollars by comparison the u.s annual gdp is roughly 22 trillion dollars and just to give this a little bit more texture vermont which is the smallest state uh economy in the u.s has a gdp itself that is 70 percent larger than afghanistan’s at about 34 billion dollars so afghanistan is an incredibly tiny economy to start out with but of that 20 billion dollars the international donors have invested roughly eight to nine billion a year at least um heroin trafficking and production illicit mining smuggling account for maybe a couple billion dollars as well but we just don’t know what those figures accurately are um it’s a really tough economy and that is not a great foundation being driven by donor assistance and illicit drugs and smuggling and mining illegal mining and the the afghan government’s fiscal picture the former afghan government’s fiscal picture is similarly uh depressing officially the afghan government only raised about two and a half billion dollars a year in revenue which is only half of their civilian budget the government could have increased that but there’s a huge problem with corruption so there was leakage when the government tried to actually raise revenues for customs and for taxat tax administration the overall government spending and donor grants is about 11 billion dollars and it’s uncertain what will happen next particularly on the donor grant side the international partners the united states and allies effectively paid for about a hundred percent of the afghan military and security forces and the future of that assistance also very much in question and afghanistan has a very narrow tax base but it did tax for instance international defense contractors now that they have reduced their operations or left the country that’s one loss of revenue and while smaller you need to think also about one-off revenue like aviation overflight rights and as as airlines move away and avoid afghanistan that’s a source of illicit revenue that afghanistan is losing now as as planes divert around afghanistan second the afghanistan financial services industry remains incredibly fragile and the industry itself is in very tough shape the economy runs a lot on physical cash both local afghanis for day-to-day and everyday transactions as well as it’s a heavily dollarized or u.s dollar dependent economy for larger transactions people for instance will purchase houses and dollars and also for imports so for trade cross-border including with neighbors like iran and pakistan and others this occurs in dollars because nobody wants afghanis outside of afghanistan doesn’t have that value the formal financial sector identified by the world bank is about 4 billion that’s assets under management held in banks and the world bank itself describes the the sector across the board as underdeveloped and also vulnerable and just also level set to understand the challenges of economic development and financial services somewhere between 10 and 17 percent of afghans hold a bank account that’s incredibly low could just be one in 10 adults and that number drops precipitously for women the number is about 3.8 percent or roughly 1 in 25 women adult women in afghanistan hold a bank account furthermore most bank branches are just concentrated in three cities so there’s not a lot of bank penetration across the country and but to its credit um not everything is is bad setting the scene the former afghan government did make big strides to reform the financial sector and improve oversight of the banking industry but given this lack of financial connectivity with the domestic international systems the hawala industry really does predominate across the country so this is a informal money exchange service that exists throughout the country and throughout the region my concern with the taliban takeover is that the use of hawala will increase and that’s a net loss for financial integrity and for transparency uh third you know i think we need to understand the environment that afghanistan has endemic poverty the former president ghani noted last year that roughly 90 of the country or 36 million people exist on the poverty line or below and that’s identified by about two dollars or less a day of what they live on and so they’re also facing multiple humanitarian crises not just the current violence but also internally displaced persons uh a looming drought and a persistent drought as well as structural unemployment hovering somewhere in the 20s to 30s in the 30s percent um but it’s like of unofficial numbers but it’s likely higher and so this frame hopefully helps us understand now going into how the taliban has raised revenue and a look at the taliban revenues lastly so according to the un in june quote the primary sources of taliban financing remains criminal activities end quote that same report stated that the taliban raised between 300 million and 1.6 billion dollars annually that’s a really huge spread and speaks to the challenges about identifying and having good data fidelity in a war zone as well as the different revenue streams that the taliban has it includes domestic taxation extortion kidnapping for ransom donors um from wealthy individuals particularly in the gulf states as well as charitable organizations or non-for-profit organizations and proceeds from the heroin and opium and methamphetamine trades so now where we are today over the past several weeks the taliban has additionally come into possession of u.s weaponry and also controls the the levers the levers of the afghan government including its customs and tax systems so none of these indicators will get better with the taliban takeover and sorry to provide such a dismal picture of the landscape but it really is critical to understand where we start so we can improve from here so with that emily i want to turn it back to you thank you alex and indeed not an optimistic picture but certainly one that we need to be keeping in mind as we think about how to to engage with our economic tools uh with the afghan country at the taliban controlled afghan country moving forward um rachel i’ll turn to you next walk us through some of the actions that we’ve already seen on the economics front uh we’ve mentioned the freezing of the afghan central bank assets the halting of the imf special drawing reserves what do these emergency actions actually accomplish should we be thinking of them more as you know a band-aid will figure out what to do next and what else should we see in this space moving forward thanks very much emily and and the team and alex and and annie for joining today so the short answer is that some of the easy steps of freezing assets were done quickly and i shouldn’t say they’re easy because it required people at the treasury at the federal reserve bank of new york and colleagues to act very quickly and also afghan central bankers as well some of whom have already fled um but the point i guess i would make is that it can be easier to sort of freeze foreign assets uh particular than it can be to choke off all assets nor is it necessarily easy to target and find a pathway for the some of the humanitarian channels and impact on the population so what i want to talk about today briefly is just make a couple of points about the hard parts ahead um some of which are obviously being discussed at the g7 level will be discussed at the u.n and that many countries and i also want to sort of conclude with some thoughts about maybe what to watch for from the sort of taliban choice of policy action um you know many in in that way so what’s in you know i think i would share the concerns that alex raised about the state of afghanistan’s economy as we had it as as we headed into this collapse the and that in many ways makes it more difficult to make sure the humanitarian crisis already underway doesn’t doesn’t get worse particularly since the new government is likely exacerbating that um it’s made more challenging by the fact that afghanistan has a high reliance on its informal economy informal trade and poorest borders so that means the actions of its neighbors including countries like iran are critical so what’s happened so far we had some very quick actions relatively from the u.s treasury the new york fed to stop the regular u.s dollar shipments that go to afghanistan why why why were there those regular shipments because afghanistan is a country that runs a structural deficit that doesn’t produce doesn’t uh generate sufficient foreign foreign reserves and that is really reliant on that in flux and inflows of cash as alex mentioned very much reliant on trade on remittances and the like um also also we had and there’s some very good first-hand accounts from the former central bank governor of afghanistan decisions that were made on the ground to reduce and pull in dollars and to some extent afghanis local currency uh as cities were falling to the taliban so that may was probably the right decision to do but it did mean that the run on the banks the run on cash actually got worse um and that has contributed to uh currency crisis it has contributed to significant inflation and just a shortage of goods um what else happened several countries froze their bilateral aid programs or put them on hold there weren’t necessarily transfers going on same thing with multilateral development bank projects the focus became on evacuation and other projects but most importantly politically was the issue with the special drawing rights that you’ve already mentioned now this was something that was a global initiative all imf member states were going to get additional special drawing rights the whole purpose of this was to increase global liquidity and to help countries suffering under coven to have more liquidity the challenge was that of course the timing couldn’t have been worse from uh the risk that additional central bank reserves might fall into the hands of the new government uh the imf took the step under pressure from the us and other member states to sort of hold off and not give afghanistan access to these um to these sdrs and this isn’t the first time this has occurred venezuela myanmar all countries that don’t have access and some of you may have followed the increasing debate about whether belarus should as we speak now have access but that’s a a different topic as is the broader question about whether afghanistan would even have been able to access those sdrs [Music] again something we can come back to in the q a but the bottom line is is that the imf preferring to avoid the sort of political turmoil and wait till there is international recognition of a government this is sort of a short-term uh solution um ultimately these formal curbs from the u.s and international institutions were also reinforced temporarily by the fact that many neighboring countries shut their borders uh they didn’t want to have migraine migration flows they didn’t want to have a lot of people flying across their border but that had the net result of cutting back on some of the some of the trade some of those neighboring borders are starting to reopen most notably the taliban has requested that iran begin resuming uh oil products um which has been an important sort of lifeline for afghanistan and historically a modest supply of dollars to iran so there’s a factor here relevant for iran’s sanctions program as well which we can come back to but ultimately this is a dynamic where within afghanistan we’ve had real restrictions on the formal on the formal access but what needs to happen now or what’s going to happen now arguably on the sanctions front is a clarification and update of existing sanctions regimes some of this freezing of assets was really drawn on decades-old sanctions on the taliban which some of my co-panelists can speak to as well um and uh that that exists in a u.n in the u.n context uh but these are there are elements and lots of questions about loopholes lots of questions about what it means when a government is sanctioned we have other cases we can look to about government actor sanctioned again places like iran venezuela myanmar but this is unique because of the degree of um you know sort of escalation and the sort of the us and g7 interests on on the evacuation front so right now one of the key elements as this sort of sanctions program likely comes into place is also how to put in place some humanitarian channels how for example to protect remittances and our experience in other countries like syria and elsewhere is not great on this syria for example right now has no formal banking channel um access and some of these questions might seem a little bit premature but we’re already seeing circumstances where lack of access to capital is even shutting down some of the huawei networks that were highlighted now my hunch would be that some of those networks will resume themselves and that members of the government or closely linked entities are going to be ahead of the curve in figuring out how to get barter trade operating and resuming and i think that creates some problems for the average citizen who will have more trouble uh doing that so i think this is a really important test case of how the u.s and its allies think about establishing some humanitarian channels the biden administration sanctions review in part has focused more on how to target sanctions better um to lead to policy change but not to punish the population and so this is going to be an important lens finally finally i think that just to leave us here the last point i want to make is that the impact of sanctions and what happens next does depend a lot on what the taliban government does how do they use the policy space they have um what we’ve seen so far doesn’t look up doesn’t look optimistic around condition on around meeting humanitarian conditionality for foreign aid um but what are they able to deliver to other countries uh such as china and russia china has a mixed story um i’m sure we’ll get into with afghanistan and difficulties getting investments done will the tal will the taliban government be different from a security uh perspective um we’ve seen the government appoint a new central bank governor uh we’ve seen a number of different uh policy of political channels in place what those what the broader priorities of the government are how much control they have what their priorities are that is very much going to shape it and shape how we’re able to use our leverage to meet the goals that are in u.s and global security interests with that i know i’ve overrun my time i’ll hand it back to you emily thank you rachel and we’ll dive deep into the specific sanctions programs in just a minute before we do that um i did want to turn to annie uh to give us a little bit of kind of the diplomatic and political context here rachel touched on the complications of the fact of you know afghanistan’s neighbors are not necessarily going to be the most helpful in terms of advancing u.s interests um annie would love to get your thoughts on how we can expect afghanistan’s neighbors to play a spoiler role here what should we expect from gulf states russia china as the u.s and allies are really considering strong economic action how might um how about this broader geopolitical soup uh undermine some of our efforts sure thank you so much and thanks to the very knowledgeable panelists who’ve spoken um i feel like the role of the outside the neighbors uh is in that category of uh unknown but predictable um and uh before i go into that i would say that we have a bit of a fork in the road or there’s a fork in the road every single day our actions by the international community going to be coordinated or are they going to be piecemeal um the g7 meeting is an attempt to do the right thing and to look at the idea of what would conditions-based recognition look like um there are such uh you know there’s a long list of things the international community i think should ask for uh using one of its remaining points of leverage many of them have to do with the issues that have been raised about humanitarian access as well as adherence to international human rights obligations of afghanistan and now is the moment to try to use that you know that tool because the tool of recognition grows weaker uh the more people who do not act together uh and if russia and china as indications would have it are ready to move ahead long before the you know nato eu collective gets its act together then our conditions are less relevant uh you know and and the economic side of it is what we have to work with i would note that besides the g7 meeting there should be other tools of international coordination and so far they have failed that really includes in particular the u.n security council and the u.n human rights commission which met today and issued the stirring call to have uh you know its leader michelle bachelet report back in march of 2022 um so the conditionality that we’re looking for hasn’t come from those bodies yet and if it’s going to have teeth it needs to um meanwhile though fortunately you and humanitarian agencies and some ngos do know how to operate and try to alleviate some of the worst needs um and i think that carve-outs in existing sanctions and assistance programs should remain in place so that quietly some work can continue to happen which i think it is happening on the food issues and the covet issues in particular um i think i would just mention in terms of outsider spoilers you know russia hasn’t been heard from let’s say directly but indirectly all their signals are that they are ready to work with the taliban-led government and uh whether they formally recognize or not they’re keeping their embassy open they can find a way china issued a statement saying that further sanctions would be counterproductive um the gulf states etc have not really been heard from many of them are actually actively helping afghans who are leaving so they haven’t thrown their lot in with the taliban but they haven’t exactly you know cut off any future relations and i would just notice that we have other actors the private sector you know which really wasn’t that much of a factor back in the original taliban regime they they are a factor now and uh on some level they also might be cutting separate deals or they could be harnessed to be part of the overall conditionality they want for example some of the same things we do which is they want the airports open they want the land borders open they want you know what we would probably call humanitarian corridors and they would call transportation corridors to be able to restart some elements of trade and they want the banking sector to open again i’ll just finish by saying that the lack of cash right now it’s only been how many days is having such an immediate impact um i know i work uh on the board of an ngo and you know they haven’t been able to pay people in a long time and uh one of our employees had a baby yesterday and was unable to go to a hospital so the impact is immediate and the cash issue nobody can figure a way out of it so the last thing i’ll say going back to the first is we are either going to be fixing these problems one by one or they are going to be linked i don’t want to say grand bargain but i think there are so many interconnected parts that if there is a moment for any policy maker to breathe that’s the way they should be thinking how can we put all of these pieces together and come out with sort of a workable uh short term that leads to a better medium term that leads to some kind of long term i think we can’t solve all these problems at once but we do have to address them as we can as a group thank you annie let’s talk about one of those tools specifically both in terms of what it might look like uh to implement a sanctions regime and then how it should fit into this this broader package the phase package as you’re suggesting um i’ll try and perhaps back to alex um just to level set us what are the existing i mean we do have sanctions on the taliban today they are old sanctions that have been in place um that obviously predated the taliban’s uh takeover so the occurring sanctions regimes are not designed to deal with the taliban as we are today but just give us the background quickly on what the existing sanctions regime are and then uh you know we’ll start with alex welcome your thoughts on if sanctions are going to be part of this overall package um what does that sanctions program look like yeah emily i think you’re exactly right the the existing regime came in in a previous era so in the 1990s the united nations implemented certain sanctions these were again were not the most precise and this was a different a different era completely with how the treasury department how the united states government international partners conduct economic statecraft and so those were largely bucketed as travel bans arms embargoes and other types of broader restrictions and then after the tragic events of september 11th the treasury department operating under an executive order 13224 in subsequent executive orders put on sanctions through the office of foreign assets or control ofac against quote unquote the taliban and so this is a very unique approach and now i think over the past two decades the treasury department and partners have been more precise in approaching sanctions implementation but for the purposes of what we have to deal with right now the taliban is the designee for sanctions and so that makes it without a definition and so that makes it very very difficult and very very broad in its scope now that the taliban has moved from an insurgency from a terrorist group into the government of afghanistan and so the implications of that are also very challenging again before these i want to also flag these were counter-terrorism sanctions by the us government by treasury and ofac and so they have a different um a different set of legal authorities than country sanctions for instance for iran or for cuba or for syria and they also don’t have the same type of carve outs particularly on humanitarian exemptions there are there is discretion that the treasury department has and i’m sure our colleagues or my former colleagues are using all tools available and exploring all possible options but as a facial threshold matter there isn’t a humanitarian carve out for counter-terrorism sanctions because by design they’re supposed to go after the worst of the worst but over time through the past 20 years they normally go after an individual and so that’s a key distinction as opposed to the taliban without further identifiers and then to your other part where we go from here i mean so these counterterrorism sanctions exist there are some narco related designations against a handful of taliban individuals um but the other tools that can be used and i’ve seen floated as well as the global magnitsky anti-corruption and human rights authorities which is a powerful tool as well but um but you know it is a little bit challenging in this context along with all sanctions against the taliban due to relatively the success i i would argue of the sanctions against the taliban in the first instance it’s not like they have the members of the taliban have bank accounts have direct access to the international financial system so from a practical denial of revenue standpoint for for current sanctions further further efforts may be more complicated i’ll stop there thank you um that is quite helpful um annie i’ll ask if you have any reactions on that and also would be curious to get your thoughts here as well on um i mean given all the factors that alex just laid out in terms of you know they told me not having bank accounts and so perhaps not being dependent on the us financial systems in a way that would make sanctions really have a punch you know if sanctions aren’t going to be part of the the answer is it going to be kind of a moral imperative here that we feel like we need to sanction uh the taliban or is this a situation where we think we actually can have some some impact in terms of restraining their operational flexibility um or or compelling better behavior so welcome welcome your thoughts on kind of that effectiveness question sure um it’s thorny um first of all the you know the possible composition of a new government uh at least so far the taliban haven’t perhaps legally declared themselves the government as much as they have de facto taken over and we do know that there are some behind-the-scenes conversations happening with power brokers um perhaps on a purely legal let’s leave moral issues out of it on a legal level it will perhaps matter uh what the taliban’s role is in that government and whether there are any entities within the government that could be said not to be controlled by them i i mean that’s a long shot but people are waiting for that to some degree before knowing what the recognition issues really are um sanctions are a tool that i think by now we know the real weaknesses of and in this case we have to really rethink them um i want the sanctions to continue of course until there is some better answer uh it is the u.n sanctions i’m actually quite interested in as well um they’re the ones that have the punch of including russia and china um and they have had at least so far a certain amount of attention by the taliban that they want them lifted um that’s the basis for future action it is not much um and with respect to the american side of it yes it the biggest issue and i’ve heard this complaint is that it’s essentially transferring the risk from the us government to the people who are on the ground trying to you know get food to starving people um because are we or are we not trying to give humanitarian assistance and now are we trying to make you know uh world food program and and uh non-governmental ngos responsible for breaking sanctions i think the very first order of business is to figure out what a genuine humanitarian carve-out can be now that the taliban de facto controls the territory in which there are people in in desperate need of help thank you annie we’ve got a few questions that have come in from the audience i’m going to turn to those uh uh briefly and just a reminder to cnes.org live for any further q a from the audience but a very specific question from dr wayne a schroeder is afghanistan totally frozen out of swift what other options might it have in lieu of swift um alex why don’t i turn to you on that one yeah that’s a great question so afghanistan has had limited international financial connectivity through the formal banking sector what the current status so just a level set i believe i’m not aware of afghanistan having direct any banks in afghanistan having direct u.s correspondent banking relationships at this time and but that that may have evolved over the past several years the issue is that they have a lot of regional connectivity and that’s where a lot of the trade and a lot of the commerce occurs is through kind of regional banks so the question of what are they frozen out of swift right now i’m not aware of any current development i just know aside from the current conflict in the current crisis financial connectivity for banks in afghanistan and financial engagement with the international financial system has been very limited and that’s a whole host of other factors that are a little bit beyond today’s discussion we’ll go to another question from the the audience here from ian talley uh please discuss the biden administration’s dilemma in terms of recognizing the taliban as a legitimate government uh versus its terrorist designation when can we expect treasury guidance on how the non-designated entities or sectors should be created so it’s a bit of a substance question and a bit of a timing question in terms of when do we think uh the treasury department may um it comes to some decisions on this um and this may also be related of course to the ongoing uh conversations of the g7 and elsewhere on what’s next in sanctions um but uh given the linkage to the the um the international kind of recognition question andy why don’t i why don’t i turn to you and then we’ll welcome alex’s thoughts on any timing issues of where we can expect something from treasury sure and on recognition the question is sort of when that might happen or under what conditions uh you know i think it’s under what conditions and um uh you know given the the current terrorist designation can we have both of those things at the same time um you know the rules about recognition are are very um flexible on some levels that governments who are in control of their territory is sort of the you know the non-legal way of putting it uh you know you can recognize them uh you do not have to uh there are all kinds of instances of everything right recognizing a government in exile such as with venezuela um in fact i would guess that if there is some kind of government announced that includes members of the former political establishment along with the taliban um any legal reason not to recognize isn’t you know it kind of goes away now we have the issue of terrorism and um i don’t know enough for example about hamas and and other like uh cases to say the conversation is is a political one internal to the united states but there may be a majority of uh countries that decide this is what they’re going to get and it’s a de facto takeover they’re going to have to recognize yeah i think i’d answer a little bit of a process question one i think you know it’s an interagency decision on recognizing and legitimacy questions um so i would defer to the diplomatic components on that i think where treasury comes in here i have full confidence in the current civil servants who are on the ground in in different components the office of terrorism financial intelligence at treasury i have full confidence in deputy secretary eddiemo who i had the privilege of working for at the white house as you know as overseeing international economics and then dr yellen secretary yellen is no stranger to financial crises the problem is there’s a bit of a doughnut hole and i’ve spoken about this before and the wall street journal recognized that that currently senate republicans are holding up the nominations for two key tfi leaders this is for the under secretary of terrorism and financial intelligence and the assistant secretary for terrorism financing and these leadership positions are critical in times of crises are critical for managing how treasury can respond to these incredibly thorny issues and so i would just again reiterate the need to have confirmed senate leadership in place on these national security decisions and so that’s how i would approach this right now let’s turn to uh the news of today which is that the g7 meeting where we do know that sanctions uh is going to be on the agenda uh among a range of other uh issues including evacuations but particularly on the sanctions issue um what what are we expecting to come out of this g7 meeting uh do we expect to see a coordinated package amongst the allies of saying she’s moving forward do we think that this may be a moment where the the united states starts to take its own track um annie why don’t i ask you first to respond on that i’m sorry for it um ideally it is not another moment where the united states takes its own attack um the g7 economies are you know very important impactful and they can lead the way in the rest of the world and send a signal that ideally is taken up by the security council um if it is yet another instance of the us having its own agenda you know i think we’re starting to see some very important political splits in europe uh about the role it’s been playing on the evacuation front the withdrawal timing itself it’s very important for a range of issues well beyond afghanistan that there be some harmony at the g7 um so i would hope that at this moment in time they don’t have to make a bold new statement there there really isn’t a need for brand new sanctions there’s a need for figuring out what to do as people in this panel have discussed of how to repurpose sanctions that were put on an entity that had a certain status and now has de facto control over uh you know a huge country great needs and also i mean there are endless permutations to this a lot of us and international money that sits in the banking system right now which we can only hope they are not going to try to seize thank you annie i’ll go next to a question from the audience here um getting to the issues around the structure of the afghan economy and the informal nature of much of the economic activity in the country the question is what is the logical incentive to sanction a regime in a country that has a largely formal economy um especially when there are extremely few if any cases of sanctions resulting in the political change desired by the sanctioning actor do we have any examples of this rachel why don’t i turn to you on this one i know you’ve looked across countries including those with informal sectors to see if you have any initial thoughts on this good question so the logic of sanctioning a regime with the informal economy is also the fact that the sanctions were imposed and the asset freezes were imposed on the foreign assets these assets that were abroad including a sizable amount of credits effectively that afghanistan had from the world bank um and so the focus is you know is has been on on that and limiting their access to those foreign assets that could be used for a range of sort of illicit accidents now i wouldn’t the the issue though that you raise is an important one which is that for a country that doesn’t have those global financial links that may not have the same the same impact and it also can create distortions for an actor like the taliban was in the 1990s who might actually have an interest in turning inward and having less conditionality from global actors particularly around human rights around women’s rights a whole variety of things to some extent being persona non grata at that point might have been part of the the plan i i don’t think i think that this some of things we’ve heard have shown a slightly different tack but i still think this is likely to be a government that’s unlikely to want significant amounts of conditionality based aid and the like and so to this but to this question mark about what brings policy change looking around the world i think we tend to see sanctions being somewhat effective not only when there’s a hope of removing the weight of sanctions but where there’s a positive upside economically and and socially so for example we can look at at south africa under apartheid we can look at iran uh in the last decade aware there was this hope around investment in the private sector and a variety of actors so i think you need both the removal of the negative and constraint and enough actors domestically that see a positive side about integration and we’re right to be skeptical about what that entails but this is where again i’d sort of just reinforce annie’s point and to the last question where uh the unitedness stance of the g7 or most of it is really important because i think that there’s a lot of rule that uh european businesses you european humanitarian organizations others can play here particularly since part of any moderately successful policy change would actually mean creating some channels for both funds uh but people in in this you know in this way so the the case of getting this right is both really essential and also also very difficult and i think it would be wrong to just focus in on how do we close all the loopholes all the access to finance use hammers because sanctions are often a very blunt instrument and it would be very difficult to close off all those sort of you know porous borders the better thing is to think about what are the regional actors and other actors you know interest in um that that actually are our conditions emily if i could just jump in and make one quick point on that um i think something that i struggle with in government my colleagues and also in the private sector is managing sanctions efficacy and measuring that i think we have an incredible instance here where you can actually manage and measure the efficacy of sanctions and that is in the 2020 agreement between the united states and the taliban the taliban spent precious political capital in negotiating time in inc to put in two provisions about consideration of sanctions withdrawal both at by the u.s and by at the u.n and so where it is very challenging i mean the question is the logical incentive of sanctions i think this is an instance where we have pretty concrete evidence of sanctions working it’s been difficult for the taliban to get money to and they it costs them more time and energy to raise money and move money around the world and in afghanistan and so i just i think that’s a critical point it kind of gets glossed over sometimes but it wasn’t the us that was putting in sanctions uh the designation provisions in the agreement with the table yeah thank you alex for raising that point um you know we have seen uh coming out of the taliban issuing his first economic decree they’re saying that they’re going to pay the salaries of government employees uh the banking operations will resume in the near future i mean obviously there’s a question about how credible those statements are and how how effective they will be able to be but clearly they’re trying to present a front right now of being responsible stewards of the country of the economy um does this uh this desire for that sort of expanding and reputation give the united states or allies who are trying to shape behavior does that give them um additional uh opportunity here to try to work with the taliban uh using more carrots rather than sticks to try to to incentivize good behavior even talking about sanctions withdrawal etc um alex i’ll go to you and then annie may have thoughts on that as well it remains to be seen at the taliban i don’t trust a word that they say i i want to see action i mean i’ll kind of leave it that you know they made great promises in the 1990s and engaged in really horrific atrocities against the afghan people i mean so that can’t be underscored and as well as their future their public relations campaign and their rhetoric is right now i i really need to see changes on the ground and i’m not seeing that from your reports and from um from conversations with contacts i would second that entirely um that it would be you know i mean a mistake uh to look at this as a single area where we could work together and ignore all of the other um you know the other agenda items that we must have and you know going back to what i was saying it has to be seen as part of a larger picture or they will play us as they so successfully played us throughout these negotiations and their ability during the negotiations just speaking of sanctions to get out from under the travel ban with our concurrence and the only reason to be out from under was for the purpose of negotiations and what did we let them do go country to country to carve out this separate relationship with moscow with china um with iran and use that in order to get as many green lights as they could to take over and to conduct you know their brutality and their brutal assassination campaign this was exactly what those sanctions were designed to stop we gave them that legitimacy by allowing those uh travel bans to be waived and i think that’s just an unforgivable misstep we have to do better just to very briefly add and reinforce the point that annie and alex are making just because the taliban led government might have an interest in paying the population or those who they determine are working we know that for example another element is they’re maybe quite happy to have the men come back to work in the public service but not the women who were working um but their interest from a political stability perspective on on their side may mean we shouldn’t take that we should be careful about reading into the different sort of interests and alignment and that’s where i think this issue of how to craft the conditionality how to craft the magic is is so so important and agree with alex um we you know we’re you know there’s a lot of things we’re waiting to see about how the taliban left both at the leadership level but also at individual and and local levels um and as a result i think just uh also how neighbors and global players will act and respond to that going to a question from the audience here um adam creighton from the australian does the country have the same scope to profit from opium and heroin given the rise of chinese fentanyl etc competing to satisfy global demand uh so alex i know you followed uh kind of the drug-related issues i’ll i’ll toss this one to you yeah i’ve also turned into the the resident uh drug trafficking expert as well i’m so happy to happy to answer this i mean the economic dimensions of it afghanistan is one of the largest if not the largest exporter of heroin around the world methamphetamines are also being now produced and exported out of afghanistan again the taliban has said that they are going to curb those trades but they make a ton of money off of it and these are also farmers in these are their constituents i mean these are farmers in their heartland who don’t make a ton of money on a case-by-case basis from the sale of opium from the from the production of methamphetamines but you know the us and its allies and the afghan partners were unable to do crop substitution to find really any meaningful replacement for the opium trade so i’m again incredibly skeptical i mean also this is the business i mean this is the drug trade these are ensconce criminal and terrorist and narco interests that have profited handsomely over the past 20 years and i don’t see them just washing their hands of this incredibly lucrative business just because the taliban may have said so and so i have great concerns about that for for the markets where it hits which is south asia which is europe which is a large swath of the world they’re impacted by these uh these harmful drugs and i would just add that even if the fentanyl trade for example becomes um you know more important or more profitable those networks that alex point out pointed out they’re going to keep making money so they will just change what they are smuggling and obviously a smuggling of people is on the horizon that’s very lucrative and the mining trade uh you know that they will exploit i think once you get to the point of having traffickers in anything they’re going to be traffickers in everything last question from the audience here before we wrap up from sue eckert uh and rachel i’ll trust this one for you i know you’ve been looking at the humanitarian issues specifically what specific actions should the united states take to protect and ensure the continuation of humanitarian assistance to the afghan people we’ve already talked about humanitarian carve outs in a sanctions program what else should policymakers be thinking about to ensure that we do have that ability to support the afghan people directly yeah then this is this is uh this this is a tricky one and that’s why you know the the g7 uh leaders and particularly the europeans i think are um pushing this but are still you know sort of figuring out um some of it i could see having um very you know sort of additional verifying verified channels um also um you know some of it i think to sort of annie’s point would also be around perhaps on the ground having uh legit logistics logistical and uh humanitarian access carve out some of it might be particularly with insuring and allowing access for un agencies and others but i think the key is making sure that there is uh unity um at the level and also just really making sure that any program sanctions or not is crafted with these um with these involved focus right now obviously has been very much on evacuation and the like but we do have to keep in mind those who are those who are staying behind i’m sorry not to have more sort of detailed things but it’s something that we’ll continue to be thinking about in days to come i know that uh other panelists might have more specifics i would only underscore what you said about a unified effort um if the un can become the voice i think that’s a very positive uh step forward you know the more different people involved you know the more that the taliban benefits so we’re approaching the end of our hour this has been a really helpful productive conversation just to to round things out i’d like to ask each of you to give your thoughts on the coming weeks and months what are the priority actions for the united states government obviously they need to have a strategy on sanctions obviously they need to continue the efforts to coordinate with allies and have a unified approach um but what what would be specific concrete actions that you would recommend that they could focus on to address the issues we’ve been talking about today um i’ll go perhaps alex first then rachel and then we’ll wrap up with danny thank you and and so i would focus on this sanctions balance about how to strike the correct balance with existing sanctions what to use moving forward with potential new authorities and i think this administration has done a great job of coordinating that with international partners and that is essential here that is required that is a bare minimum and i know that they have full confidence they will do that something i do want to flag though that i gave a brief treatment to is the issue of counter-terrorism financing i know we didn’t get into that as much and this has been economic sanctions focus but we can’t lose sight of the counterterrorism financing risk posed by the taliban taking over the organs of the afghan government and the territory in afghanistan the taliban according to a 2021 treasury assessment maintains ongoing relationship with al qaeda there are many some reports dozens of active terrorist organizations extremes groups in the country isis isis k has had a presence persistently in afghanistan and so this counter-terrorism financing piece i think is again has been a little bit dormant in afghanistan or either more tactical over the past several years but i am gravely concerned about that and would encourage my treasury colleagues who i know are thinking incredibly hard about this issue not to lose sight of that dimension yeah i would i i would very much agree on the counter terror and other counter proliferation kind of elements here because i i think one of the and this is where there you know this is an administration i think that is thinking very seriously about how to target sanctions both to try to avoid um capturing everyone in a way that might actually reinforce the role of a government actor that we we want to undermine but also to make sure that in the dark corners which might actually become more extensive at a time where there are sort of top international sanctions or select actors that those aren’t allowed to develop and so we might well see coordinated efforts to sort of uh to sort of target you know sort of individuals and entities also might need to sort of very much um you know highlight and uh you know and um step up some of the broadening in some ways of the coalition of entities imposing some of these sanctions including some of the some of the gulf states or other efforts things that are you know some of these are building on networks that are already in place to implement other you know sort of other sanctions but just making sure that in a time where they’re all of these economic uh challenges we don’t have a circumstance where those in power and those involved in illicit activities uh gain in power rather than be starved of financial assets which is of course easier said than done but i know there is a really great team on the case and there’s a lot of really smart people outside of government trying to keep them uh on the on the case um so deploy um and utilizing as well afghan uh refugees remittance networks and really trying to unlock illicit flows so that there’s less of a focus on illicit flows and i would just say um first of all there are times where people are out of government are grateful to be out and not facing the incredible array of problems every policymaker faces right this minute um having said that i think they should consider it as sort of policy triage um who can you immediately help who must you immediately help and how do you do so without committing yourself to actions that you you know that you will regret later or closing off avenues that you may need later so what’s the minimum and i think turning to the united nations is the play um it is the moment it is the greatest possibility of getting what we need without closing off our options forever um and secondly um we’re going to need congress we’re going to need all of it uh this is absolutely a crisis uh on many levels including as alex points out are sort of way forward on the issue of counterterrorism what will it mean and what are we willing to live with because our days of putting absolute dicta into our laws and into our conversations with allies i think those days are behind us we are going to make some really unpleasant compromises up ahead or i don’t know what the or what is because i know that we are as a country showing an unwillingness to use any military force uh for almost any reason so what are our tools of leverage and if we overuse sanctions and everybody knows this well we will lose its capability as an as a tool of national security as well thank you that does bring us to the end of our hour today uh this is a complicated discussion there are no easy answers uh we could have this conversation in a week and be in a completely different place so thank you for for working with us uh rachel alex annie appreciate your insights appreciate you taking the time to our viewers that have joined today thank you for contributing to the conversation for paying attention to this issue uh and finally thank you to the cia cnis communications team and our program team for all the support to put this event on we’ll continue to be looking at this space trying to provide policy recommendations expert analysis to help the conversation move to a productive productive place thank you for joining us be well
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From Frozen Assets to Sanctions: What Economic Leverage Does the U.S. Have in Afghanistan?

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