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The Taliban now control the Afghan economy. Here’s what that means.

Taliban troops patrol Kabul, Afghanistan on August 16, 2021. Photo via a Reuters stringer.

I joined the war in Afghanistan in my seventeenth year as the Treasury Department Finance Attaché at the US Embassy in Kabul. Unfortunately, after years of working on illegal financial problems, Afghanistan has presented an endless list of priorities of the main threats to be addressed: terrorist financing, money laundering, circumvention of economic sanctions, drug trafficking and corruption.

The Afghan economy I encountered was in ruins after a forty year war, largely driven by international donors who provided 75 percent of the state budget and the heroin trade. According to the World Bank, the illegal economy “accounts for a significant proportion of production, export and employment”. Many of those employed in the Afghan private sector have likely been linked to heroin trafficking, illegal mining or smuggling. Iran and Pakistan, Afghanistan’s two largest neighbors, did little to help address these grievances.

After Kabul fell, I’ve spent the last few days helping Afghan contacts get out and reporting to friends who’ve also served there as soldiers, diplomats, and contractors to gauge what’s next in this broken and chaotic one Moment will happen.

Unfortunately, there is only one certainty: this situation will only get worse.

A stark new reality

If the Taliban take over the levers of the Afghan government, it can quickly expand its war chest and arsenal – with catastrophic consequences for the Afghan people and regional security.

It controls customs and border crossings as well as branches of central banks and commercial banks. The group can also exercise greater oversight – and levy taxes – of the vast hawala money transfer industry that serves as Afghanistan’s de facto banking system. The Taliban are now free to consolidate their taxation on opium and heroin trafficking along with booming methamphetamine production. It also benefits from a godsend in surrendered and captured arms, which make up part of America’s $ 83 billion in support of Afghan government forces.

Meanwhile, the Taliban have done little to distance themselves from international terrorist organizations, a relationship that is likely to only accelerate in the near future. According to a recent assessment by the Treasury Department, the group had “a strong relationship” with al-Qaeda and “continued to meet regularly”. The report also found that “al-Qaeda is growing in strength in Afghanistan as it continues to operate with the Taliban under the protection of the Taliban”.

The fact that the Afghan government is led by a strengthened Taliban poses significant and imminent economic policy challenges for the United States and the international community. In particular, the amount of potentially available aid is staggering.

For example, Congress has allocated billions of dollars to the Afghan government for fiscal 2021 – including more than $ 3 billion for the Afghanistan Security Forces Fund (albeit with conditions) as well as more modest civilian funding. In addition, up to 370 million US dollars in disbursements from the International Monetary Fund (IMF) are planned to be delivered to Afghanistan next week by 2024.

What the US can do

It remains to be seen how the US government and its international partners will deal with the Taliban, which the United Nations and the Treasury Department are still earmarked for sanctions. But there are several steps the US can take immediately to restrict Taliban’s access to capital.

First, the US government, including the Treasury Department, must secure the currency reserves of the Afghan people to ensure that the Taliban do not have access to these funds. According to the Washington Post, the Treasury Department took an important step over the weekend to freeze assets in the United States, but more work remains on additional assets outside of Afghanistan.

Second, an inter-agency group consisting of the Treasury Department, the Department of Justice, the Department of Defense, the State Department, and the U.S. Agency for International Development must develop a plan to ensure compliance with existing U.S. economic sanctions that generally prohibit Americans from joining a “deal or deal” with the Taliban.

Third, the Treasury Department should work with international organizations such as the IMF, the World Bank and the Asian Development Bank to reassess ongoing aid projects that could benefit the Taliban and to ensure that international aid complies with sanctions and is serving the Afghan people.

After all, the US government must develop a strategy to hold the Taliban responsible for complying with Afghanistan’s international commitments, such as combating money laundering and the financing of terrorism. If the Group does not or cannot meet these commitments, the United States should consider working through the multilateral Financial Action Task Force (FATF) to increase surveillance and, if necessary, identify potential countermeasures to address the shortcomings, such as this the FATF has successfully done to neighboring countries Iran and Pakistan.

The harrowing images of Americans and Afghans fighting to flee from Kabul International Airport are worlds apart from my last memories of the same place less than two years ago. As the world looks on in horror, policymakers must deal quickly and effectively with the economic consequences of the Taliban’s access to more money and weapons. It should deny the group any further resources while protecting US interests and administering regional security.

Alex Zerden is the founder and director of Capitol Peak Strategies, a fintech, digital asset and emerging technology consultancy. He worked for fifteen years as a business politician, national security and regulation attorney, and business diplomat. From 2018 to 2019 he was Finance Attaché for the US Treasury Department at the US Embassy in Kabul. Follow him on Twitter at @AlexZerden.

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