State Department Issues Final Rule Implementing “Mexico City Policy” and Other Policy-Based Restrictions on Foreign Assistance Funding

On February 26, 2026, the U.S. Department of State (State Department) implemented three new rules that have significant implications for U.S. foreign assistance. One of the rules — Protecting Life in Foreign Assistance (PLFA) — implements a January 2025 Presidential Memorandum reinstating and expanding the Mexico City Policy (Policy), which generally prohibits funding recipients from providing or promoting abortions as a method of family planning. The State Department also has implemented two other final rules imposing additional policy constraints on funding recipients: (1) the Combating Gender Ideology in Foreign Assistance rule and (2) the Combating Discriminatory Equity Ideology in Foreign Assistance Rules.

The State Department refers to these three new rules collectively as the “Promoting Human Flourishing in Foreign Assistance (PHFFA) Policy.” Together, the rules establish new policy conditions intended to ensure that U.S. foreign assistance does not support the promotion of abortion-related activities abroad, “discriminatory equity ideology,” or “gender ideology.”

The rules do so by creating “award terms” that the State Department generally must include in grants, cooperative agreements, and certain other foreign assistance instruments. Once incorporated into an award, these terms require recipients — including foreign NGOs, U.S. NGOs, international organizations, and, in some cases, foreign governments — to refrain from specified activities, ensure separation between funded programs and prohibited activities, and flow these requirements down to subrecipients. The rules become binding on recipients only when included in the applicable funding instrument, and the State Department retains discretion to waive or tailor the conditions in particular circumstances.

All three rules were published on January 27, 2026 and became effective on February 26, 2026. This Advisory examines the three new rules, focusing on the PLFA as the structural model for the other rules and then briefly discussing some key requirements of the gender and diversity rules.

Background

First announced by President Ronald Reagan at the 1984 International Conference on Population, the Mexico City Policy prohibits recipients of certain U.S. global health funds from using funds to perform or promote abortion as a method of family planning. Some form of the Policy has been in effect for each Republican presidential administration and rescinded in each Democratic presidential administration over the last 40 years.

In its earlier incarnations, the Policy applied only to foreign NGOs, requiring foreign NGOs that wanted to receive U.S. global family planning assistance funds to certify that they would not perform or promote abortion as a method of family planning. The first Trump administration expanded this requirement, tying it to the receipt of global health assistance funds generally. The second Trump administration’s new rule goes even further, tying these requirements to all non-military foreign assistance — and also broadens the type of entities subject to the rule.

The New Rule: Protecting Life in Foreign Assistance

The PLFA rule establishes a new “award term” for “grants, cooperative agreements, and voluntary contributions” of U.S. “foreign assistance” funds. This award term “must generally be included in all foreign-assistance solicitations and all resulting awards” for “foreign nongovernmental organizations, international organizations, and United States nongovernmental organizations.” By contrast, the award term “may but need not be included in whole or in part, as applicable, in agreements with foreign governments and parastatals … and agreements with bilateral governments if the Department of State assesses such term is appropriate for that agreement.” The award term will be incorporated into grants and cooperative agreements when new funds are added to existing awards and into new awards.

“Foreign assistance” is defined broadly to include any federal funding disbursed by the State Department under Title III of the Department of State, Foreign Operations, and Related Programs Appropriations Act or its “International Narcotics Control and Law Enforcement,” “Nonproliferation, Anti-Terrorism, Demining and Related Programs,” “Peacekeeping Operations,” and “International Organizations and Programs” headings. The PLFA does not apply to military assistance and funding provided outside of these named authorities.

The rule applies only to federal financial assistance — i.e., grants, cooperative agreements, and voluntary contributions. The rule notes, however, that the administration is separately preparing (but has not yet finalized) a contractual term that “all U.S. government departments and agencies” will be required to include in certain foreign assistance contracts.

The new rule differs significantly from prior versions of the Policy. First, the rule expands the scope of entities that are required to agree to the PLFA award term beyond foreign NGOs. In addition to foreign NGOs, the rule applies to U.S. NGOs, international organizations, and foreign governments and parastatals. The following provides a breakdown of the requirements that apply to each of these entities:

• U.S. NGOs: To receive U.S. non-military foreign assistance funds, U.S. NGOs must agree that, for their activities taking place outside the United States, they will not use the funds to provide abortions as a method of family planning.[[N:The PLFA defines “abortion as a method of family planning” as “abortion, except, provided that the abortion is lawful under local law—(i) If the pregnancy is the result of an act of rape or incest; or (ii) In the case where a woman suffers from a physical disorder, physical injury, or physical illness, including a life-endangering physical condition caused by or arising from the pregnancy itself, that would, as certified by a physician, place the woman in danger of death unless an abortion is performed.” 2 C.F.R. § 602.20(a)(2). The PLFA defines “promot[ion of] abortion as a method of family planning” to include committing resources to increase the availability or use of abortion as a method of family planning, operating a service-delivery site that provides counseling on the benefits or availability of abortion, and providing advice that abortion is an option in family planning, among other enumerated examples. Id. § 602.20(a)(4)(i).]] They must also ensure that their foreign assistance-funded overseas service locations are physically and financially separated from abortion-related activities. Beyond this, U.S. NGOs may not provide or promote abortion within the scope of any “program, project or activity” that receives U.S. foreign assistance funds. This requirement flows down to any of the U.S. NGOs’ subsequent recipients of funding that are derived from U.S. foreign assistance funds. U.S. NGOs are expressly not prohibited from using non-federal funds to provide financial support to organizations that provide abortion-related services outside the United States.
• Foreign NGOs and International Organizations: The new rule provides that any foreign NGO or international organization that “receives or implements” a U.S. foreign assistance grant or cooperative agreement must agree that, for the duration of the award, it will not, outside the United States, “provide or promote abortion as a method of family planning, or provide financial support to any other foreign NGO or IO that engages in such activities.” The restrictions are thus broader than for U.S. NGOs, in that the restrictions are not confined to the foreign-assistance funds themselves, but instead restrict the organization’s activities so long as they receive some covered funding.
• Foreign Governments and Parastatals: The new rule provides that foreign governments and parastatals are not, by default, subject to the same funding constraints as U.S. or foreign NGOs, given foreign policy considerations. However, the PLFA permits the U.S. government to make awards to foreign governments and parastatals contingent on the recipient’s agreement to not use foreign assistance award funds to provide or promote abortion as a method of family planning. In the event that this requirement is included in a funding instrument, the foreign government or parastatal recipient will be required to place any foreign assistance funds provided under the award in a “segregated account” to guarantee that such funds will not be used for abortion-related activity.
• Subrecipients of U.S. Foreign Assistance Funds: Unlike previous iterations of the Policy, the new rule provides that the restrictions apply to all recipients, including subrecipients, of the impacted U.S. foreign assistance funds. In other words, U.S. and foreign NGOs, foreign governments, and parastatals who receive the impacted U.S. foreign assistance funds will be required to “flow down” the new rule’s award terms to subrecipients of those funds.

Second, the PLFA expands the categories of funds that trigger the Policy’s requirements from global health funds to “all non-military foreign assistance.” The new rule defines “non-military foreign assistance” funds broadly, to include global health assistance, humanitarian assistance, civil society and democracy programs, migration and refugee assistance, and voluntary foreign assistance contributions to international organizations.

Third, the new rule also provides for waiver of these requirements. The new rule permits the Secretary of State to waive inclusion of the award term if such waiver “is necessary for national security or foreign policy purposes.” The State Department has issued a Frequently Asked Questions document outlining the waiver process. Successful waivers will show that the waiver is “necessary to continue or provide an activity critical to the foreign policy of the United States, that the implementing partner at issue is the only or best provider of services within the scope of work, that the requested scope of the waiver is narrowly tailored to the justification, and that the partner has made a good faith effort to comply with the policy as a whole.” The requesting entity must submit a waiver request through its relevant federal assistance team stakeholder to PHFFA_waivers@state.gov. The federal assistance team’s request on behalf of the entity seeking waiver must include:

• Key information, including the scope of and justification for the proposed waiver
• The relevant assistance bureau’s national security and/or foreign policy justification for the waiver, “articulated at both the entity and award level”
• The waiver policy
• The criteria for a waiver

Key Takeaways

The funding restrictions in the PLFA rule are not self-executing but rather must be incorporated into a particular funding instrument to be enforceable. But organizations should carefully review award documents — and any cross-referenced standard award provisions — to determine whether these conditions apply and should remain attentive to later amendments or funding modifications that could introduce the rule’s requirements into existing agreements. Per the State Department’s Frequently Asked Questions document, the “presumptive action” for violations of the PHFFA, which includes the PLFA, is immediate termination of the award.

NGOs will also need to understand their subrecipients’ operations, locations, and facilities to determine and ensure their compliance with the Policy’s new flow-down requirements. The State Department’s guidance indicates compliance-related costs may be allowable depending on the award term and are “generally” allowable under grants. Specifically, if a recipient must physically and financially separate from other entities, its “compliance-related costs are generally allowable under a grant or cooperative agreement.” These costs could include “the use of separate facilities, personnel, and accounting records.”

Finally, the rule may be challenged in litigation on constitutional, statutory, or other bases, and affected parties should monitor litigation that could potentially affect the rule’s enforceability.

Brief Overview of the Other PHFFA Rules

In addition to the PLFA rule, the State Department issued rules imposing other policy-based restrictions. These rules’ structure and scope mirror those of the PLFA, including the flow down of the rules’ award terms, as applicable, to subrecipients of foreign assistance.

The Gender Rule. The rule on Combating Gender Ideology in Foreign Assistance (the Gender Rule) prohibits foreign aid recipients subject to the rule’s new award term from promoting “gender ideology” outside the United States. “Gender ideology” is defined as “ideology that replaces the biological category of sex with an ever-shifting concept of self-assessed gender identity.”

The Gender Rule award term, once implemented in an agreement, prevents the recipient from “promot[ing] gender ideology, or provid[ing] financial support to” any foreign NGO or international organization that promotes gender ideology. To “promote gender ideology” covers a broad range of activities, including:

• Public information campaigns on gender identity
• Drag performances
• Lobbying foreign governments for gender identity-based legal protections
• Promoting social transition (e.g., counseling, pronoun usage, gender identity curricula)
• Providing or promoting gender-affirming medical care (referred to in the Gender Rule as “sex‑rejecting procedures”) (including puberty blockers, cross-sex hormones, and surgeries)

Similar to the PLFA rule, the restrictions on U.S. NGOs are slightly narrower. U.S. NGOs are prohibited from providing gender-affirming medical care outside of the United States. They are also prohibited from promoting “gender ideology” within any U.S.-funded program, though they may use non-federal funds to engage in such work, as long as they maintain the required physical and financial separation from foreign-assistance activities.

Foreign governments and parastatals subject to the new award term would be prohibited from using foreign assistance award funds to provide or promote restricted activities. If the foreign government or parastatal recipient engages in those activities with their own funds, they will be required to place any foreign assistance funds in a “segregated account” to guarantee that such funds will not be used for prohibited activities.

The Diversity Rule. The rule on Combating Discriminatory Equity Ideology in Foreign Assistance Rules (the Diversity Rule) creates an award term that, once incorporated in an agreement, would prohibit “promot[ing] discriminatory equity ideology, engag[ing] in unlawful DEI-related discrimination, or provid[ing] financial support to” any foreign NGO or international organization that conducts such activities outside the United States. “Discriminatory equity ideology” is defined as “an ideology that treats individuals as members of preferred or disfavored groups, rather than as individuals, and minimizes agency, merit, and capability in favor of generalizations.”

Federal aid recipients need to be aware of potential conflicts between the requirements of the Gender and Diversity Policies with federal, state, and local laws where they operate.

By staying informed and working with a trusted legal team, you can minimize uncertainty and ensure that your organization continues to meet regulatory obligations despite ongoing policy shifts. In particular, if you receive a notice from a government agency regarding any of these issues, Arnold & Porter has a cross-disciplinary team dedicated to ensuring compliance and preparing for any developments that may follow. We are also monitoring litigation that may challenge the rules and affect their enforceability.

Arnold & Porter will continue to monitor developments in this area. For questions about these rules and related issues, please contact the authors or any of their colleagues in Arnold & Porter’s Global Law & Public Policy, Administrative Law & Regulatory Litigation, Tax Exempt, and Government Contracts practice groups.

© Arnold & Porter Kaye Scholer LLP 2026 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.