The collapse of the Afghan government in August 2021 and the Taliban’s return to power have presented the United States with a complex and challenging situation.
As the largest international donor supporting the Afghan people, the U.S. government has continued to provide substantial humanitarian and development assistance, totaling over $2.8 billion since the Taliban’s takeover.
However, a recent audit by the Special Inspector General for Afghanistan Reconstruction (SIGAR) has uncovered a troubling reality – a significant portion of this aid is inadvertently benefiting the very regime the U.S. government seeks to isolate.
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SIGAR’s investigation revealed that since August 2021, 38 out of 65 implementing partners (58%) who responded to their questionnaire reported paying taxes, fees, duties, or utilities to the Taliban-controlled government. These 38 respondents have paid at least $10.9 million of U.S. taxpayer money to the Taliban, with $10.4 million stemming from taxes, $346,839 from utility payments, $176,596 from fees, and $9,215 from customs duties.
Uncovering the Hidden Costs: The Role of UN Agencies
While the $10.9 million figure is significant, SIGAR believes it represents only a fraction of the total amount of U.S. assistance funds provided to the Taliban.
This is because UN agencies receiving U.S. funds did not collect data or provide relevant information about their subawardees’ payments to the Taliban. From October 2021 to September 2023, the UN received $1.6 billion in U.S. funding for programming in Afghanistan, which is approximately 63% of all U.S. assistance during that period.
UN agencies maintain that they do not pay any taxes, fees, or duties due to their tax-exempt status, but they act as pass-through entities, using subcontractors to directly implement award activities. As a result, these UN sub-awardees were required to make the same types of payments to the Taliban as other implementing partners.
Implementing partners face significant consequences if they fail to pay the taxes, fees, duties, and utilities demanded by the Taliban-controlled government.
In December 2022, the UN Office for the Coordination of Humanitarian Affairs stated that NGOs who refuse to pay could face consequences such as frozen bank accounts, shuttered offices, or deregistration from the list of organizations allowed to operate in Afghanistan.
Taliban Interference and Pressure on Implementing Partners
SIGAR’s findings also reveal that the Taliban has disrupted implementing partner activities in a variety of ways, including attempts to divert aid or infiltrate NGOs and interfere with their operations.
Seventeen of the 65 questionnaire respondents (26%) reported experiencing direct pressure from the Taliban, such as involvement in and approval of program design and implementation, access to facilities or use of resources, recruiting or hiring of certain Taliban-approved individuals, or diverting food and other aid to populations chosen by the Taliban.
The Legitimization of the Taliban Regime
The direct collection of taxes, fees, duties, and utilities from U.S. government-funded activities risks contributing to the legitimization of the Taliban-controlled government in the eyes of the Afghan people.
Implementing partners reported that the Taliban uses aid delivery as propaganda, taking credit for the assistance provided to the Afghan people.
SIGAR found that most taxes, fees, duties, and utilities paid by implementing partners were not reported to the U.S. Department of State (State) and the U.S. Agency for International Development (USAID) because the agencies only require annual tax reporting on certain award types and even then, only require the reporting of value-added tax (VAT) and customs duties.
Furthermore, State and USAID did not include tax reporting clauses in some awards, despite requirements in State’s Foreign Assistance Directive (FAD) and USAID’s Acquisitions Regulations (AIDAR) and Automatic Directives System (ADS).
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SIGAR also found that implementing partners did not consistently comply with the Department of the Treasury’s Office of Foreign Assets Control (OFAC) recordkeeping requirements. OFAC regulations require that persons engaging in transactions with blocked persons maintain full and accurate internal records of each transaction for 5 years.
However, some implementing partners reported retaining records for only 1 to 4 years, and one partner stated that they are paying taxes to the Taliban but are not maintaining records of those transactions.
To address these issues, SIGAR has made several recommendations to the Secretary of State and the USAID Administrator:
- Expand the foreign tax reporting requirements to all U.S. award agreements in Afghanistan, including agreements with public international organizations (PIOs), and to all types of taxes, fees, duties, and utilities.
- Ensure that responsible officials include foreign tax reporting requirements in applicable award agreements.
- Ensure that responsible officials collect the required foreign tax reports from implementing partners.
- Direct implementing partners to adhere, where applicable, to the OFAC requirement to maintain records of transactions with blocked persons for 5 years.
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