Shutdown to Impact Trade Agencies

A government shutdown is set to severely impact the U.S. Department of Homeland Security (DHS), and other trade enforcement bureaus, leaving over 185,000 frontline personnel, spanning from law enforcement, security analysts, to disaster response officials, working without remuneration.

As the third-largest federal department, DHS is at the forefront of the nation's security, with responsibilities ranging from safeguarding borders, responding to cyber threats, to aiding Americans during crises.

Here are some points from the DHS fact sheet:

1. 72% of DHS Staff to be Affected: Almost three in four DHS workers would remain on duty during the shutdown but without a paycheck.

2. Border Security: Over 19,000 border patrol agents and 25,000 field operation officers would still be mandated to execute their tasks unpaid.

3. Financial Strain for Localities: DHS's funding exceeding $770 million, aimed at assisting border and interior communities with migrant-related costs, would halt.

4. Cybersecurity Compromised: The Cybersecurity and Infrastructure Security Agency (CISA) would see its capacity to provide cybersecurity and physical security support diminished.

5. U.S. Coast Guard Distress: Approximately 40,000 active U.S. Coast Guard members would only get compensated if a dedicated appropriation gets greenlit.

6. Law Enforcement Preparedness: Some training at the Federal Law Enforcement Training Centers would cease, impacting nationwide law enforcement readiness.

7. Airport Delays Predicted: With TSA officers working unpaid, travelers might face extended wait times at airports, further aggravated by potential delays in new security tech deployments.

8. Disaster Relief at Risk: This potential shutdown, unique in its coincidence with the exhaustion of the Disaster Relief Fund, would shift disaster response onus to states and local bodies.

9. Hiring Setbacks: The onboarding process for nearly 2,500 DHS job offers as of September 18, 2023, would stall until government operations resume.

The impending shutdown, if it materializes, would be the fourth in the last decade and arises from disagreements between the Republican House and Democratic Senate over the fiscal year 2024 spending bills. They have until September 30, 2023, to find common ground. If unresolved, around 438 government agencies might suspend operations starting October 1, affecting essential services and disrupting U.S. trade activities.

Other Trade Operations

Key trade operations – exporters, importers, transportation entities, customs brokers, and all linked to U.S. global trade – are bracing for interruptions. This is especially true if agencies pivotal for trade, such as the U.S. Customs and Border Protection,  Treasury's Office of Foreign Assets Control, and Department of Commerce are affected.

Previous shutdowns suggest potential disruptions in import and export activities. Many export licensing and enforcement activities, investigations, and administrative proceedings might come to a standstill.

While CBP is anticipated to maintain operations at U.S. ports, importers are warned of potential slowdowns with other Partner Government Agencies like the U.S. Environmental Protection Agency and the U.S. Food and Drug Administration.

While agencies like the Federal Aviation Administration might continue essential functions, others, such as the Federal Maritime Commission, could see a near-complete shutdown.

Impacts of the Shutdown: OFAC Sanctions, Export Licensing Delays, and AML Operations

Further implications are anticipated across various agencies.  Venable has prepared a note on the topic, as has Husch Blackwell [link]  both of which inform the following summary:

OFAC Sanctions Enforcement and Limited Guidance

Historically, during government shutdowns, the Office of Foreign Assets Control (OFAC) has leaned towards prioritizing sanctions enforcement activities. Key tasks include overseeing the Specially Designated Nationals and Blocked Persons List (SDN List), rolling out new sanctions designations, and catering to sanctions-related inquiries, albeit on a restricted scale.

Despite continued enforcement, the trade sector should brace for extended delays, or even a complete cessation, of OFAC's voluntary disclosures evaluations, license applications, SDN List removal petitions, and other communication channels. Past shutdowns have showcased OFAC's struggles with limited staffing, affecting its interactions with financial establishments and other crucial sectors for sanctions compliance and enforcement.

The Department of Treasury recently publish a contingency plan detailing which departmental functions will be operational during the shutdown. According to the plan, key regulatory and enforcement actions, including administration and enforcement of economic and trade sanctions will continue. However, the Office of Foreign Assets Control (“OFAC”) will not be processing licenses or providing regulatory guidance during the shutdown.

Further, the Department of the Treasury will likely face disruptions in its regulatory endeavors tied to anti-money laundering (AML) and counter-terrorism operations. Historical data from past shutdowns indicates the Financial Crimes Enforcement Network (FinCEN) halting rulemaking and regulatory advice, though it did continue to supply law enforcement with financial intelligence.

Export Licensing Suspensions vs. Continued Enforcement

Reflecting on previous government shutdowns, the Bureau of Industry and Security (BIS) typically puts a pause on routine services. This includes export license application processing, commodity classification requests, encryption reviews, registrations, and advisory opinion requests, barring national security-linked exceptions. During these times, the SNAP-R portal has remained inactive. Exporters should be prepared for potential postponements in receiving export licenses or other determinations from the BIS. However, the enforcement of export controls is predicted to remain active.

State Department

Functions within the State Department will continue as detailed in the contingency plan. However, the administrative functions, such as those served by the Directorate of Defense Trade Controls (“DDTC”), which oversees compliance with the International Traffic in Arms Regulations (“ITAR”), will be severely curtailed.

Enforcement and criminal investigations will continue, but companies should expect licensing and other regulatory functions to be disrupted.The Directorate of Defense Trade Controls (DDTC) has also faced operational lags during past shutdowns due to staffing constraints, with the emphasis placed only on urgent license application requests, such as those linked to military and humanitarian requirements. Non-emergency defense articles and defense services exporters should be ready for setbacks. Yet, in prior instances, DDTC has been proactive in resuming certain standard operations, like handling non-emergency registration, renewal requests, and fresh license applications, even before the conclusion of the government shutdown.

DDTC services, particularly those needing an interagency review, like Commodity Jurisdiction determinations, are expected to either be halted or massively curtailed.

Though licensing operations might face interruptions, exporters should still have access to the Automated Commercial Environment (ACE) to file mandatory Electronic Export Information (EEI) to the Automated Export System (AES), as mandated by the Census Bureau.