The unprecedented speed of the collapse of the former Afghan central government is a humanitarian tragedy. The magnitude of which is rightfully distracting from the immediate near-term and long-term legal issues that those who supported the coalition efforts in Afghanistan are compelled to address as the immediate human concerns fade from the spotlight.
In particular, U.S. government (USG) contractors are going to face a variety of legal implications from the events unfolding in Afghanistan, which will vary depending upon the existence of assets, facilities, contracts or personnel in Afghanistan. This article addresses several common issues that arose early in the withdrawal in assisting clients that had operations in Afghanistan. This article is by no means exhaustive of the issues that will be faced by those with assets, facilities, contracts or personnel related to USG business in Afghanistan.
It is probable that the U.S. will issue economic sanctions in the very near term based on the likelihood of widespread human rights violations and atrocities. U.S. sanctions will likely be levied against the Taliban, known leaders of the Taliban, and entities owned or controlled by the Taliban — including former private businesses subjugated to Taliban control. Typically, there is a permissible wind-down/extraction period, but such a grace period may not be afforded with possible Afghanistan sanctions based on the terrorist history of the Taliban. As a result, USG contractors should consider terminating business and contacts with Afghan entities to be able to comply with U.S. sanctions if or when levied.
Recovery of Investments
Based on the swift departure of the president and other key officials of the now displaced Afghan central government, it is probable that former officials will make a claim that they remain the legitimate government of Afghanistan in exile (though the Biden administration is already offering to recognize the Taliban if they respect women’s rights, which is unlikely). It is also probable that those officials will use such claims to assert control over assets transferred out of Afghanistan or otherwise held for the benefit of the Afghan “government.” The Taliban has already made competing claims to such funds, so there will be multiple competing claims against limited assets. As a result, it may be necessary to work to recover any funds, capitalization or guarantees tied to any Afghan entities as soon as practicable.
Shutdown of Afghan Entities
At last check, the Afghan Embassy in Washington, D.C. was operational and reportedly using electronic platforms to continue consular processes. The U.S. State Department is also advising that its interactions with the Afghan Embassy in D.C. for business-related matters are continuing, though it is likely that such operations and processes will be impacted or even come to a halt based on the Taliban control of Afghanistan. As a result, the ability to “legally” shutdown an Afghan legal entity via the U.S. Afghan Embassy will become increasingly difficult or unlikely.
USG contractors that didn’t have any personnel, facilities or assets in Afghanistan may be relegated to shutting down Afghan operations by actions in the U.S. and documenting such for U.S. sanctions and export control compliance purposes. Such documentation may also be useful for reimbursement claims from the U.S. government (which could be proposed for those supporting USG directives in Afghanistan if the Afghan presence was to support USG actions). Such documentation may be helpful in supporting U.S. tax deductions for losses or costs related to the “forced” Afghan shutdown.
To effectuate and document the shutdown of Afghan operations by actions in the U.S., it may be necessary that the board of directors for any Afghan subsidiary and its direct U.S. parent resolve to shut down the Afghan business, regardless of the ability to effectuate such in Afghanistan or with the Afghan Embassy in D.C. It will be important to maintain records of such to document compliance with possible future U.S. sanctions or changes in U.S. export control requirements.
U.S. Export Control
USG contractors should also determine if there are any U.S. export licenses or Technical Assistance Agreements (TAAs) in place. If so, they may need to be terminated. If the U.S. origin items or information covered by such licenses or TAAs is in Afghanistan, and is either unrecoverable or otherwise compromised, then the U.S. exporter may need to make a voluntary disclosure of such. We recommend the retention of outside counsel to complete a proper attorney-client privileged assessment of the specific facts related to the exporter’s situation and covered items, as well as possible voluntary disclosure based on the Taliban’s act of war.
As noted, additional issues and considerations will likely arise as more information becomes available about the immediate near-term and long-term situation in Afghanistan. USG contractors and other U.S. entities with business, operations or connections to Afghanistan will need to be mindful of the real-time changes in Afghanistan and the U.S. and international responses, and be prepared to adapt and implement policies, procedures and controls to address such.
David Vance Lucas and George A. Smith II are partners in the Huntsville, office of Bradley Arant Boult Cummings LLP. Lucas provides legal strategy for technology and business, with a focus on a variety of intellectual property, international trade and complex litigation matters. He can be reached at [email protected]. Smith focuses his practice on the formation, financing, mergers, acquisitions and divestitures of emerging and established businesses for a broad range of industries, including government contracting, manufacturing, healthcare and technology companies. He can be reached at [email protected].