After successfully forestalling a potential U.S. government
shutdown earlier this year, a shutdown likely will occur 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 October 1, 2025, forcing
non-essential federal workers into furlough, or possibly facing
layoffs, 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 halt.
Meanwhile, investigative activity and enforcement actions related
to U.S. national security will continue as agencies and federal
workers deemed "essential" will continue to carry out
such operations.
Based on previous shutdowns and limited information available,
here's what companies can expect when engaging with the U.S.
Department of Commerce's Bureau of Industry and Security (BIS),
the U.S. Department of State's Directorate of Defense Trade
Controls (DDTC), the U.S. Department of the Treasury's Office
of Foreign Assets Control (OFAC), the Committee on Foreign
Investment in the United States (CFIUS), and the U.S. Department of
Justice (DOJ) National Security Division.
- 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. 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. In the past, DDTC resumed non-urgent services prior to the end of government shutdowns. 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 (SDN) and Blocked Persons List. However, in line with the State and Commerce Departments, 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.
- DOJ National Security Division: DOJ maintains a high number of "essential" personnel during a shutdown, and the DOJ's National Security Division will continue its operations as normal, coordinating with other government agencies to facilitate the national security activities of the United States. This means that the excepted employees will continue to work on a matter of issues, including export controls, sanctions violations, and review CFIUS matters including time-sensitive inquiries. Criminal investigations relating to these matters will be unaffected by a shutdown, and companies should continue to remain vigilant about identifying and reporting any potential violations.
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 funds in
appropriate accounts. In this scenario, full-time scheduled
employees may continue to operate for these agencies, although the
involvement of federal contractors may be affected. Regardless,
even with available funds and federal employees, this flexibility
would only continue 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 normal operations resume. Many
government agencies have been dealing with considerable
administrative burdens prior to the shutdown, along with the
potential for a reduction in the U.S. federal workforce, which will
only be exacerbated by a prolonged period of inactivity. Federal
workers may face the risk of mass layoffs if the government shuts
down according to a memo released by the Office of Management and
Budget (OMB).1 The memo directs agencies to prepare
plans for a reduction in force (RIF). According to the memo,
agencies should consider a RIF for certain federal programs if
three conditions are met: (1) programs whose funding would lapse as
a result of the shutdown; (2) programs that are not otherwise
funded, and (3) programs that are "not consistent with the
President's priorities."
In the event of a government shutdown, 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. Companies
should also note that potential layoffs at these agencies, most of
which are already experiencing staffing issues, could further
impact the industry even once the shutdown ends.
In the event of a government shutdown, certain agencies may post
official guidance on their public websites with additional
instructions. Under existing OMB guidance, agencies are expected to
update their plans regarding government shutdowns every two years.
Historically, OMB made these plans publicly available on its
website. However, earlier this year, OMB removed the agency plans
from its website.
Footnote
1 OMB, Special Instructions for Agencies Affected by a Possible Lapse in Appropriations Starting on October 1, 2025 (Sept. 30, 2025).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
