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Lujan Legal Counsel, LLC

5509 Eden Prairie Rd.

Minnetonka, MN 55345

 
TO: Mr. Masud Roshan, Managing Director, Afghan Gateway Solutions.

DATE: January 12, 2015.

SUBJECT: Legal Opinion on the Effect of the BSA on United States Contractors:

BACKGROUND: The United States of America and the Islamic Republic of Afghanistan recently concluded a Security and Defense Cooperation Agreement, commonly referred to as the Bilateral Security Agreement (BSA).  The effective date for the BSA is January 1, 2015.  The BSA fundamentally changes many of the critical aspects of the relationship of the two nations, and it has a substantial impact on the operations of United States government contractors and sub-contractors in Afghanistan.  The following document provides a legal opinion regarding the changes and their potential impact on United States Contractors.  A bullet format is provided below that concisely captures aspects that affect U.S. contractors in a format that tracks various provisions of the BSA.

KEY PROVISIONS RELATING TO US CONTRACTORS: The BSA provides a clear definitional scheme regarding US citizens in Afghanistan.  There are essentially four groups.

·         The first two come under the heading of “United States forces”.  That group is more fully defined as “the entity comprising the members of the force and of the civilian component, and all property, equipment, and materiel of the United States Armed Forces present in the territory of Afghanistan”.  “Member of the force” means any person belonging to the land, sea, or air services of the United States Armed Forces.  Therefore any deployed member of the US Armed Forces is included in this pre-eminent group.

·         The second group, “Member of the civilian component” consists of civilian employees of the United States Department of Defense (DoD), but excludes permanent residents of Afghanistan or Afghan nationals who reside in Afghanistan. 

·         The third group, denominated United States Contractors and their employees, are defined as “persons and legal entities who are supplying goods and services in Afghanistan to or on behalf of United States forces under a contract or subcontract with or in support of United States forces”.

·         The fourth group, although not mentioned in the BSA, would ostensibly be American civilians and are pursuing commercial interests in Afghanistan. 


·         Contracting Procedures: Article 11 of the BSA first describes the authority of US forces to contract within Afghanistan for the provision of goods and services under US law.  Most importantly however, Article 11 specifically mandates the registration of US Contractors and the issuance by Afghan officials of a business license that may be in effect for up to three years.  The BSA specifically details that this will be an expedited process with a one-time fee paid to the Afghanistan Investment Support Agency.  US contractors shall be otherwise exempt from other license regimes or similar requirements, presumably to include local or provincial initiatives, with respect to the execution of contracts or subcontracts with or on behalf of US Forces.  Article 11 further describes a goal to increase transparency and the effectiveness of the contracting process to avoid abuse.  To that end it urges improved communication and immediate referral of any issue to the newly established Joint Commission.

-      Article 20 seemingly creates an exemption from the above licensing requirements for those functions designated as “Service Support Activities”. However, such activities are narrowly construed to include only “military post offices, banking services, military service exchanges, commissaries, recreational service areas, and telecommunications services, including broadcast services”.

·         Legal Jurisdiction: Article 13 specifically asserts that Afghanistan reserves the right to exercise jurisdiction over US Contractors and their employees.  This is a broad assertion, and, by its very terms and lack of differentiation, would include both civil and criminal jurisdiction.

-      Article 15 provides that US Contractor employees may enter and exit at specified locations and must have a passport and obtain a visa prior to doing so. Visas may provide for multiple visits and be in effect for at least one year.  Afghan authorities may decline to issue said visas in an expedited manner and if declined, the individual and the US Government will be informed of the reason for the denial.  In exceptional circumstances, visas may be issued upon arrival in Afghanistan.

·         Taxation: US Government purchases in Afghanistan shall not be subject to tax.  Similarly, Members of the Force or the civilian component are not subject to taxation.  United States Contractors are not subject to taxation or similar or related charges for their activities pursuant to contracts with the US Government in support of US Forces.  Afghan entities that are US Government contractors are subject to Afghan taxes.  US Contractors are required to comply with Afghan withholding rules with respect to payments to employees who normally live in Afghanistan or are Afghan nationals.  US Contractor employees who normally do not live in Afghanistan, or who are not Afghan nationals are not subject to any Afghan tax on their income or related activity in contract support to US Forces.  Activities by US Contractor employees that are not in contract support of US Forces are taxable by Afghanistan.
 
·         Incidental Provisions: US Contractors are not permitted to wear uniforms and may carry weapons only in accordance with Afghan laws and regulations. Those performing security functions are similarly bound by Afghan law.

-      Government contractors are authorized to import, export, re-export out, transport and use equipment, supplies, material, technology, training and services so long as the items are for the purposes of supporting United States Forces in Afghanistan. Any of these activities in support of any private commercial purpose is prohibited.

-      Government contractors may also import items for personal use as long as such items are reasonable and proportional to personal use.

-      No licensing, inspections, taxes or customs duties shall be imposed on the above imported items.  However, the Government of Afghanistan reserves the right to inspect such shipments if it suspects abuse of the above provisions.


ANALYSIS:

The BSA fundamentally changes the landscape of the requirement for US Government Contractors in Afghanistan.  Although there is specificity in the Agreement regarding Members of the Force being related to the Department of Defense, the definitional scheme for US Contractors relates to “contracts in support of the Force”.  Ostensibly the bulk of US Government efforts in Afghanistan would be in support of the Force, so, although not definitively asserted, it seems reasonable to conclude that other Governmental agencies and their contractors would be covered by the BSA.  If that were to become an issue, a practical solution would be to simply require that all US contracts in Afghanistan be issued by DoD.

The three major provisions that impact US Government Contractors are the requirement to obtain a business license, the clarification of who owes taxes, and the assertion of civil and criminal jurisdiction.

The business license requirement is applicable across the board, and only a minor exemption may be in play for those who provide specified “Service Support Activities”.  The exclusive listing of what is meant by such activities makes it clear that this only applies to inherent functions generally associated with the operation of a military compound.  Unless a Government Contractor has but one contract and that was for one of the specified activities, securing a business license would be far and away the most prudent course of action.

The tax provisions clarify to a great extent the often muddled tax environment in Afghanistan.  The broad definition of what constitutes a tax helps define what will and what will not be applicable to foreign entities working there.   Government contractors and sub-contractors are exempt from Afghan taxes to the extent that they perform their contracted for duties in support of the force and do nothing outside that mandate.  The language that restricts federal taxation seemingly applies to local and provincial tax efforts also, and that will assist tax planning across the board.

The imposition of the criminal and civil jurisdiction of the Afghanistan court system on US Contractors and sub-contractors and their employees represents a clear assertion of sovereignty and authority by the Government of Afghanistan.  The extent to which the oft reported corruption in Afghanistan extends to the court system is difficult to assess.  Clearly entities and contractor employees in Afghanistan need to be fully appraised of the prevailing law and regulations, and need to be compliant to the highest degree in order to avoid potentially disastrous legal entanglements.


Respectfully Submitted;


THOMAS R. LUJAN

Attorney at Law

COL (Retired) The Judge Advocates General’s Corps, USA

Director, Afghan Business Gateway, Inc. DBA Afghan Gateway Solutions, Inc.

 

        



 






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