Companies May Risk Violating U.S. Sanctions Against the Taliban by Conducting Business With the Government of Afghanistan

Now that the Taliban controls Afghanistan, many businesses with economic interests or investments in the country are reevaluating potential sanctions risks. Indeed, a former OFAC official explained that, “[t]his is a new world,” and that he could not “think of any case in which a terrorist group that’s already designated became the power in charge of a full country.”

In this post, we analyze the history of U.S. sanctions against the Taliban, and assess the implications of the current sanctions against the Taliban. The potentially relevant U.S. sanctions fall into two categories: (i) previous sanctions related to Taliban-controlled territories, and (ii) current terrorism related sanctions against the Taliban.

In sum, previous U.S. sanctions against the Taliban created an effective embargo with respect to Taliban-controlled territories. Currently, the Taliban is designated on OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List. As a result, U.S. persons may risk exposure to U.S. sanctions by conducting any transactions with the Afghanistan government. Non-U.S. persons may risk exposure to U.S. sanctions for “causing” U.S. persons to violate these regulations.

Accordingly, until OFAC issues additional guidance or a relevant general license, U.S. companies should consider the sanctions implications of any business with Afghan government entities or institutions. And, non-U.S. companies should conduct heightened due diligence to determine whether any transactions related to the government of Afghanistan involve a U.S. nexus.

Current Terrorism Related Sanctions Against the Taliban

Although Afghanistan is not designated as a State Sponsor of Terrorism, the Taliban is currently designated as an SDN.

On September 23, 2001, then-President George W. Bush issued Executive Order (“E.O.”) 13224, which “declared a national emergency to deal with the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States posed by grave acts of terrorism and threats of terrorism committed by foreign terrorists, including the terrorist attacks in New York and Pennsylvania, and on the Pentagon committed on September 11, 2001.”

The Global Terrorism Sanctions Regulations, 31 CFR part 594, implement E.O. 13224. The Taliban is currently designated on OFAC’s SDN List pursuant to 31 C.F.R. part 594. In addition, several Taliban leaders are also currently designated as SDNs. Accordingly, except as may be authorized by OFAC through a general or specific license, all property and interests in property of the Taliban are blocked to the extent that such assets are in the United States or under the control of a U.S. person, and U.S. persons are generally prohibited from dealing with the Taliban.

Previous Sanctions Related to Taliban-Controlled Territories

On July 4, 1999, then-President Bill Clinton issued E.O. 13129, which blocked certain property and prohibited transactions with the Taliban, effectively imposing a U.S. embargo of Taliban-controlled Afghanistan. According to a recent Congressional Research Service Report, E.O. 13129 was issued in response to Al Qaeda’s August 7, 1998 bombing of U.S. embassies in Kenya and Tanzania. Thus, E.O. 13129 was issued “after finding that the policies and actions of the Taliban in Afghanistan, in allowing territory under its control to be used as a safe haven and base of operations for Usama bin Ladin and the Al-Quaida organization who had committed and threatened to continue to commit acts of violence against the United States and its nationals, constituted an unusual and extraordinary threat to the national security and foreign policy of the United States . . . .”

According to OFAC guidance, E.O. 13129 generally prohibited the following:

• Imports From Afghanistan – With certain limited exceptions, the importation into the United States of any goods, software, technology or services owned or controlled by the Taliban, or from the territory of Afghanistan controlled by the Taliban was prohibited.
• Exports to Afghanistan – The exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a U.S. person, wherever located, of any goods, software, technology (including technical data), or services to the territory of Afghanistan controlled by the Taliban or to the Taliban was prohibited.
• Trade-Related Transactions – Any transaction or dealing by a U.S. person, wherever located, in goods, software, technology (including technical data), or services, regardless of country of origin, for exportation, reexportation, sale, or supply to, or exportation from or by, the territory of Afghanistan controlled by the Taliban was prohibited.
• Transactions Involving Blocked Property – U.S. persons were prohibited from transacting business with the Taliban, and all of their property in the United States or in the possession or control of a U.S. person.
• Financial Dealings With Persons in the Territory of Afghanistan Controlled By the Taliban – Financial dealings with individuals or entities located in the territory of Afghanistan controlled by the Taliban were generally prohibited, including the performance by any U.S. person of any contract, including a financing contract, in support of an industrial or commercial project in the territory of Afghanistan controlled by the Taliban.

Then, effective January 24, 2002, following U.S. military action to remove the Taliban from power, the U.S. government modified E.O. 13129. More specifically, then-Secretary of State, Colin Powell, officially determined that “the Taliban control[led] no territory within Afghanistan and . . . modified the description of the term ‘territory of Afghanistan controlled by the Taliban’ to reflect that the Taliban control[led] no territory within Afghanistan.”

A few months later, on April 8, 2002, OFAC issued several licenses that, “unblock[ed] the assets of three Afghan entities that had been frozen under Executive Order 13129 to prevent their use by the Taliban.” According to OFAC, “[t]he licenses . . . released $ 16.8 million in assets belonging to Pashtany Tejaraty Bank, Afghan National Credit and Finance and Halmund-Arghandab Construction Company . . . [and] . . . were issued after consultations with the new Afghan Interim Authority (AIA) to determine that the entities were free from Taliban control.”

Finally, on July 2, 2002, then-President George W. Bush issued E.O. 13268, which terminated “the emergency with respect to the Taliban.” In E.O. 13268, Bush explained that he found that, “the situation that gave rise to the declaration of a national emergency in Executive Order 13129 of July 4, 1999, with respect to the Taliban, in allowing territory under its control in Afghanistan to be used as a safe haven and base of operations for Usama bin Ladin and the Al-Qaida organization, ha[d] been significantly altered given the success of the military campaign in Afghanistan . . . .”

U.S. Sanctions Implications

As a result of the Taliban’s current designation as an SDN, all property and interests in property of the Taliban that is in the United States or in the possession or control of U.S. persons is blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50% or more by the Taliban are also blocked.

Furthermore, unless authorized by a general or specific license issued by OFAC, or otherwise exempt, all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of the Taliban are prohibited. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of the Taliban. The prohibitions also include the receipt of any contribution or provision of funds, goods, or services from the Taliban.

Notably, OFAC has not defined the precise individuals and/or entities that are encompassed by the term “Taliban,” or how it may apply to, for example, Afghan governmental entities which are effectively controlled, though not owned, by the Taliban. Thus, the scope of these sanctions against the Taliban remains unclear. In addition, it is also unclear whether the U.S. government will re-impose the sanctions outlined in E.O. 13129, which broadly prohibited trade and other transactions related to Taliban-controlled territories.

Accordingly, until OFAC issues additional guidance or a relevant general license, U.S. companies should consider the sanctions implications of any business with Afghan government entities or institutions. In addition, non-U.S. companies may risk exposure to U.S. sanctions for “causing” U.S. persons to violate sanctions regulations.

We will continue to monitor developments in this area, and encourage you to subscribe to be kept informed of latest developments. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.