Whose Cash Is It, Anyways? Venezuela, Afghanistan, and the Palestinian Authority

If you leave your country's money in an American bank, the U.S. government might decide to grab it.

Two pieces of news dropped this week that seem unrelated but point to how power is exercised in the modern world.

First, the United States has dropped its recognition of Venezuelan opposition leader Juan Guaidó as the country’s true president — and with it, Guaidó’s claim to Venezuelan state assets abroad. Second, Israel is cutting the Palestinian Authority budget by hundreds of millions of dollars, and giving some of that money to Israeli victims of terrorism.

Both stories are really about governments that hold onto cash for other governments.

It’s long been a fact that, because most world trade happens in dollars, the U.S. government can sanction individuals or crash other countries’ economies by cutting them off from the American banking system.

In recent years, Washington and its allies have learned that they can just grab other countries’ money if they want to. They can hold onto it for themselves — often under the guise of compensating victims of terrorism — or trade governments’ own funds back to them as if it were a favor.

U.S. military photo

The most notorious example may have been the freezing of Afghanistan’s central bank reserves. During the previous Afghan republic, the Central Bank of Afghanistan kept about $7 billion of its $9.76 billion foreign currency reserves in the Federal Reserve Bank of New York.

After the U.S. withdrawal and the fall of the republic, the Biden administration made that money unavailable to the new Taliban-led emirate. But it wasn’t just about Taliban government budgets; the central bank needed those reserves to keep Afghanistan’s entire banking system afloat. Combined with the loss of foreign aid, the resulting financial crisis has caused mass starvation and death.

The Biden administration is now working to get some of that money back into the Afghan economy, and has set up a $3.5 billion trust fund in Switzerland to pay for Afghanistan’s imports. The other half of Afghanistan’s money is still tied up in U.S. courts, as American victims of 9/11 are suing Afghanistan for compensation.

Lawyers and lobbyists stand to earn hundreds of millions of dollars in contingency fees, but some 9/11 families oppose going after the Afghan central bank money.

The situation with Venezuela’s clashing governments shares some elements with the Afghan crisis. After a disputed 2018 election, the National Assembly declared Nicolás Maduro an illegitimate president and the Supreme Court sided with Maduro against the assembly, leaving Venezuela’s leadership in question.

The assembly declared opposition leader Guaidó president in January 2019. The United States and several of its allies recognized his government. But the January 2019 declaration and a second April 2019 uprising — call it an abortive coup d’etat or an unfinished revolution if you’d like — failed to put Guaidó in power.

Maduro continues to control most Venezuelan institutions inside the country.

Still, Washington insisted on recognizing Guaidó. The main effect has been to deny the actual Venezuelan government control over its oil revenues and diplomatic facilities, as Guaidó held the legal claim to Venezuelan assets on American soil. The opposition is fighting in British courts for another $1 billion of Venezuelan gold held in the Bank of England.

Because of the global energy crisis, the United States has softened its line on Venezuela, hoping to get Venezuelan oil exports running again. As Maduro and the Venezuelan opposition inch closer to a negotiated solution, the Biden administration has begun unfreezing Venezuelan bank accounts.

The opposition-controlled National Assembly finally ditched Guaidó in December 2022, and is working on a new legal structure to manage Venezuelan assets abroad. The Biden administration plans to recognize whatever government they form, and a U.S. official told the Washington Post that “we kind of hold all the cards here at this point in terms of sanctions policy.”

The Israeli-Palestinian situation is a bit different.

During the Oslo peace process of the 1990s, Israel agreed to set up an autonomous Palestinian government in the West Bank and Gaza. Much of the world understood it as the first step towards a “two-state solution,” which would grant Palestinian independence from Israeli rule.

The new Palestinian Authority did not have the ability to collect all of its own taxes. Israel continued to place import tariffs and value-added taxes on goods headed to the Palestinian territories, as well as income taxes on Palestinian workers in Israeli settlements. Under the peace agreements, a share of that money was supposed to be set aside for the Palestinian government.

Today, tax money collected by Israel accounts for about three quarters of the Palestinian Authority’s budget. As the conflict continues despite the Oslo accords, Israel has repeatedly used the tax issue to pressure the Palestinian side.

One recurring issue has been the Palestinian “martyrs’ fund,” a pension for the families of Palestinians killed, wounded, or arrested by Israeli forces. While the Palestinian Authority sees it as a form of social welfare, Israel argues that this practice is basically a cash reward for political violence.

The latest spat is over the International Court of Justice. Responding to a Palestinian request, the UN General Assembly asked the court to rule on the Israeli “occupation, settlement and annexation” of the Palestinian territories.

The decision implies that Palestine is already an independent country with a right to make diplomatic claims against Israel. The Palestinian Authority has already won such a ruling from the International Criminal Court, popularly known as The Hague.

The U.S. government opposes these “unilateral” moves by the Palestinian Authority. So do Israeli leaders, who have implied that the international court cases against Israel are a form of terrorism and racism.

In response to last week’s decision, Israeli authorities announced that they would hand around $40 million in frozen Palestinian tax revenues to Israeli victims of terrorism, and further withhold around $150 million from the Palestinian Authority budget to “offset” the Palestinian martyrs’ fund.

All of these cases involve a complicated interplay of political institutions.

For example, the Biden administration can truthfully say that it does not have full control of Afghanistan or Venezuela’s money, because it has to respect court decisions and the rule of law. In turn, the courts can cite political judgements made by the administration, and both of them are operating in a framework set up by Congress.

Similarly, Israeli authorities claimed to be implementing a court verdict when they decided to give some Palestinian tax revenues to Israeli victims of terrorism.

All of these institutional barriers, of course, point in one direction. They make it so that more powerful countries get to hold onto the money by default, and less powerful actors have to fight for access to their own assets.

To outsiders not versed in finance and sanctions law, it can actually look like the powerful countries are paying the weak ones, and that weak countries are demanding a handout.

The most notorious example might be the debate around U.S.-Iranian negotiations. Unfreezing Iranian accounts in foreign banks was seen as “giving” Iran money. Republican politicians and right-wing media created the impression that the Obama administration had tossed Iran a multi-billion dollar bribe from the pockets of American taxpayers.

All these moves will probably make countries a little more hesitant to put their wealth in other people’s hands.

Rumors of U.S. hegemony’s death have been greatly exaggerated, especially as goodwill for the Biden administration and the Russian invasion of Ukraine bring European allies back into the fold. But even those close allies had been trying to hedge their bets during the Trump administration.

The back-and-forth of American domestic politics may become enough of a risk to justify the cost of building new banking infrastructure.

When countries hold each other's money, symbolic politics turn into (literal) million-dollar questions.