Enforcement Likely to Continue in Shutdown, but Licensing Delays Expected

Licensing work at sanctions and export control agencies likely will grind to a near halt in the event of a federal government shutdown Oct. 1, though enforcement activities at the Bureau of Industry and Security, Directorate of Defense Trade Controls and Office of Foreign Assets Control will continue -- if previous shutdowns are any guide.

Catherine Hamilton, licensing director for DDTC, said her agency has been preparing for a government shutdown. “It's not looking good that we will have the funding to continue,” she said Sept. 28 during a defense industry conference in London hosted by SAE Media.

She said her team is trying to get through as much licensing work as it can before the shutdown can occur. During past shutdowns, she said, DDTC has been prevented from issuing licenses.

“The last shutdown, I had my team in working cases so that as soon as the system was turned back on, we surged as many [licensing] cases out as humanly possible. In the first two hours we then issued hundreds of cases,” Hamilton said. “I don't know if that's what will happen this time. We are still trying to work through all of that and really get a steer from the administration on what their priorities are going to be.”

She said the work that her agency can do during the shutdown “is determined by each administration. So if the administration really wants to sock it to Congress and shut down activity and play a hard line, then it will prevent us from doing anything internal.”

In previous shutdowns, DDTC “experienced significant delays in its operations as a result of the downsized staffing and prioritized only license application requests pertaining to urgent causes, such as military and humanitarian aid needs,” according to a recent client alert from Venable.

“Exporters of defense articles and defense services should anticipate delays for less urgent requests. However, DDTC has resumed certain regular operations, such as processing non-emergency registration and renewal requests and new license applications, ahead of the end of earlier government shutdowns,” Venable said. “DDTC services requiring interagency review, such as Commodity Jurisdiction determinations, will likely cease or be substantially reduced.”

Liz Abraham, senior adviser for international policy at the Bureau of Industry and Security, also said at the London conference that she’s waiting for more clarity, although there will be some BIS activity that’s exempt from the shutdown “for national security purposes.” Abraham, speaking during the conference said, there’s “typically” an “emergency license process to allow for a very narrow window of licensing to take place.”

“So we know what our priorities are,” she added, “and then we will be working with [the Office of Management and Budget] and others to figure out if that's also the administration's priority.”

In previous shutdowns, “BIS suspended regular services, such as processing for export license applications, commodity classification requests, encryption reviews and registrations, and advisory opinion requests, except in extraordinary circumstances essential to national security,” Venable’s client alert said. “The SNAP-R portal was closed during the length of the government shutdown. While exporters should anticipate potential delays in securing export licenses or other determinations from BIS, export controls enforcement activities are expected to continue.”

A Commerce Department contingency plan for the shutdown released Sept. 27 says BIS will continue to “review and adjudicate emergency export license applications and determine the trade and economic national security impact of export controls on U.S. interests. These functions are necessary to the discharge of the President’s constitutional duties and powers.”

BIS export enforcement functions will also continue, according to the Commerce plan. “These functions include monitoring open investigations, opening new cases, and responding to all contingencies, including actions to prevent or stop illegal exports that might arise during a lapse of appropriations,” the plan said.

Some BIS employees will also remain on the job “for reviewing intelligence and export transactions, providing bona fides analyses of any emergency license applications received, targeting end-use checks to support the work of Export Control Officers and an Export Control Analyst stationed in ten overseas locations to prevent diversions of U.S. items, and providing analytical investigative support to BIS special agents to prevent or stop illegal exports that might arise during a lapse of appropriations,” the plan said.

OFAC in previous shutdowns also “prioritized sanctions enforcement activities, including administering the Specially Designated Nationals and Blocked Persons List (SDN List), issuing new sanctions designations, and handling sanctions-related inquiries on a limited basis,” Venable said. “While enforcement activities will continue, the trade industry should be prepared for longer wait times or the full suspension of OFAC's review of voluntary disclosures, license applications, petitions for removal from the SDN List, and other communications.”

“During previous shutdowns, OFAC has noted that its reduced staffing has impacted the agency's ability to communicate with financial institutions and other key sectors for sanctions compliance and enforcement,” Venable said.