Frozen Afghan Funds Have Done Little to Sway Taliban

The standoff over frozen funds while Afghanistan sinks into penury highlights the limits of U.S. influence there, despite its avowed financial might.

The U.S. and western donors to Afghanistan had hoped to use the frozen funds as a bargaining chip to entice the Taliban to change its ways, said

John Sopko,

the special inspector general for Afghanistan reconstruction, a watchdog that has overseen U.S. spending in Afghanistan. But hopes “came crashing down,” he said.

The U.S. has stepped up use of economic sanctions and asset seizures in the past two years as a foreign-policy mechanism against Afghanistan as well as Russia. In the case of Afghanistan, those tools have so far shown little efficacy under Taliban rule—and could take years to work if they work at all, people close to the situation say.

“The U.S. and the international community need to figure out additional incentives and punitive measures to impact Taliban behavior,” said

Alex Zerden,

a former U.S. Treasury attaché in Kabul and now a senior fellow at the Center for a New American Security, a think tank in Washington, D.C.

The promise of money now frozen in Switzerland has so far done little to sway the Taliban, he said.

The U.S froze Afghanistan’s central bank reserves in 2021 after the Taliban swept into Kabul and toppled the U.S.-backed government.

After earmarking half the funds for Sept. 11 victims and families, the Biden administration last year sent the balance to the Bank for International Settlements in Switzerland as a gesture to demonstrate the funds were the sovereign wealth of Afghanistan. But the U.S. retained effective veto power over the newly-dubbed Afghan Fund by appointing a four-person board, none of whom represented the Taliban, and requiring that decisions be made with unanimous consent.

The U.S. said money from the Afghan Fund could be released once Kabul’s central bank, Da Afghanistan Bank, showed it was independent and ready to counter money-laundering and terrorism financing.

The Taliban took some promising steps, U.S. officials said. The bank executive board approved in December some outside monitoring bankrolled by the U.S. Agency for International Development, according to a U.S. government report.

But that move was overshadowed by other developments. As deputy chief of the central bank, the Taliban has appointed an alleged terrorist financier,

Ahmad Zia Agha,

who is blacklisted by the U.S., the United Nations and the European Union for allegedly managing funds intended for bombs and for distributing money to Taliban commanders and associates abroad during the U.S. occupation.

Last year, a U.S. drone assassinated al Qaeda leader

Ayman al-Zawahiri

at an apartment in central Kabul, undermining Taliban claims that it had no ties to al Qaeda leaders or their whereabouts. The Taliban has broadly backed off early promises of a moderate rule, and has banned women from most work and school, while imposing public lashings, amputations, stonings and executions.

Critics of U.S. sanctions on Afghanistan say that Washington’s efforts to coerce the Taliban are punishing the country’s population. Economists say a return of central-bank funds could facilitate cross-border trade, which was crippled by a deficit of cash after the U.S. departure. The World Bank estimates Afghanistan’s GDP fell by close to 30% since the Taliban takeover, and the U.N. said malnutrition has reached new highs because of restrictions on banking, international sanctions, and drought and flooding that have destroyed crops.

For now, the World Bank credits a cash pipeline from U.N. agencies with stabilizing Afghanistan’s currency but warns that, should payments stop, Afghanistan’s anemic economic recovery could be reversed.

Meanwhile, the U.S.-appointed trustees of the fund, who include two Afghans and two officials from the U.S. and Switzerland, appear to lack a consensus on whether to disburse any money. The board, at its sole meeting in Geneva in November, agreed to hire an external auditor and develop compliance controls, according to the U.S. Treasury. The fund’s next meeting hasn’t been announced.

One trustee, economist

Shah Mehrabi,

said he favored considering disbursements of $80 million a month to the Afghan central bank and erecting safeguards against money laundering and terror financing. He said the money would help provide liquidity to currency markets and stability to prices in Afghanistan, which he said are “so important to the poor, it’s important to women, it’s important for children.”

Other trustees called for more modest disbursements. One trustee, U.S. Treasury official

Andrew Baukol,

declined to be interviewed.

Patrick Clawson,

a senior fellow at the Washington Institute for Near East Policy, said that the U.S. is unlikely to influence the Taliban by dangling the seized central bank reserves. In the longer run, he said, Washington will likely try to disburse humanitarian assistance, as the U.S. does in North Korea despite sanctions.

Others warn that even humanitarian aid to Afghanistan is coming under increased scrutiny.

Mr. Sopko, the head of the watchdog agency, noted that the U.S. contributed or promised nearly $5 billion in humanitarian aid to Afghanistan since the Taliban takeover.

“U.S. aid to Afghanistan, whether humanitarian in nature or of some other kind, may inadvertently confer legitimacy onto the Taliban, both internationally and domestically,” Mr. Sopko wrote in a recent quarterly report.

“There is also no guarantee that either providing or stopping that aid will succeed in changing the Taliban’s behavior.”

Write to Daniella Cheslow at daniella.cheslow@wsj.com