Enforcement Actions Expected to Continue During a U.S. Government Shutdown, While Export Industry Will Incur Licensing Delays
After successfully forestalling a potential U.S. government shutdown earlier this year, the threat once again looms if the U.S. Congress fails to reach an agreement on spending bills for the next fiscal year. In such an event, hundreds of government agencies will suspend normal operations on November 18, forcing non-essential federal workers into furlough and disrupting services critical to U.S. trade activities. Companies should expect licensing processing and reviews to be significantly delayed, if not brought to a complete standstill. Meanwhile, investigative activity and enforcement actions related to U.S. national security will continue as agencies and federal workers deemed "essential" will continue to conduct such operations.
Based on past shutdowns and limited information available, here’s what companies can expect when engaging with the Department of Commerce’s Bureau of Industry and Security (BIS), the Department of State’s Directorate of Defense Trade Controls (DDTC), the Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the Committee on Foreign Investment in the United States (CFIUS).
- BIS: Except in extraordinary circumstances essential to national security, foreign policy, or related to humanitarian assistance, BIS will likely suspend its regular services in processing license applications, commodity classification requests, encryption reviews, and advisory opinion requests. During the last government shutdown, BIS’ online licensing portal was inoperable, and BIS may look to institute paper processing procedures if the portal is once again shut down. While these activities will likely cease until the government restarts, industry should expect enforcement actions to continue and should remain vigilant about identifying and reporting potential violations.
- DDTC: Similar to BIS, DDTC’s non-enforcement activities will be significantly delayed. Companies seeking licenses, registration requests and renewals, advisory opinions, or Commodity Jurisdiction determinations should only expect those most urgent requests related to U.S. national security and foreign policy priorities to be reviewed in a timely manner. It is worth noting DDTC has resumed non-urgent services prior to the end of government shutdowns in the past. However, requests needing interagency reviews will be substantially impacted. Enforcement activities will continue as usual.
- OFAC: Industry should expect OFAC to continue to prioritize sanctions enforcement, such as adding new entities to the Specially Designated Nationals and Blocked Persons List, particularly as the war in Ukraine continues. However, in line with the Department of State and Department of Commerce, issuance of specific licenses and regulatory guidance requests will likely be suspended as reduced staffing will impact key sectors in sanctions compliance and enforcement.
- CFIUS: Per its statutory regulations, the interagency committee is tied to specific review times; however, those filings already in the pipeline with CFIUS will toll until the government shutdown ends. This means if the government is shut down for 20 days, an additional 20 days will be added to any 30-day declaration assessment or 45-day notice review or investigation period. Meanwhile, any new filings submitted during the government shutdown will likely not be commented upon or accepted for review by the committee.
Individual agencies may have some flexibility to continue some operations not related to national security immediately after the implementation of the shutdown if they have available balances in appropriate accounts. In that case, full-time scheduled employees may continue to operate for these agencies although actions involving contractors may be affected. In any event, this flexibility would only be available for a short time.
Depending on the duration of a government shutdown, companies should keep in mind these agencies will be facing a significant backlog of routine requests once operations resume. Many of these agencies have been dealing with considerable administrative burdens prior to the shutdown, which will only be exacerbated by a prolonged period of inactivity. Companies should prepare for delays for most requests unless directly tied to U.S. national security and foreign policy interests and should remain attentive to identifying and reporting any potential violations.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.