FLASH Report: Foreign Assistance Freeze - Legal Issues and Impact

Updates: January 29, 15:00 EST

• On January 29, the White House rescinded the memo concerning its recently announced freeze on federal grants and loans after legal challenges and growing concerns over its broad impact. However, questions remain about how quickly funding will resume and which programs will see full restoration.
• While the memo has been rescinded, White House press secretary Karoline Leavitt said on X that the president’s executive orders freezing foreign assistance and ending diversity equity and inclusion initiatives remain in effect.
• The decision to withdraw the memo comes amid uncertainty about how federal agencies will proceed. Some programs may experience delays or partial reinstatements as the administration navigates ongoing legal and policy debates.
• The rollback signals a shift, but it is not yet evident how, and if, funding streams will be reactivated in practice. Agencies may take time to process changes, and specific programs could still face hurdles.
• The long-term impact remains uncertain. How this translates to funding distribution and whether all affected recipients will see a full return to prior levels is still in question.

Summary

On January 27, the Trump administration ordered a three-month freeze on nearly all foreign development assistance while conducting a review to align aid programs with the administration’s “America First” policy. This decision has raised significant concerns among aid organizations, human rights groups, and international institutions, who warn that the pause could jeopardize critical programs and endanger lives worldwide. The U.S., as the largest provider of humanitarian aid, allocated nearly $70 billion for development assistance in the 2023 fiscal year, much of it through USAID. The freeze halts new obligations and disbursements, though exemptions have been granted for life-saving medical services, food aid, and military assistance to allies like Israel and Egypt. However, funding for initiatives related to gender equity, family planning, and diversity programs has been explicitly excluded.

The administration justifies the pause as a necessary step to ensure transparency and efficiency in U.S. foreign aid spending. Secretary of State Marco Rubio and other officials argue that the U.S. should not continue funding programs that do not provide direct benefits to American taxpayers. The decision aligns with broader policy shifts, including Trump’s move to withdraw from the World Health Organization, citing concerns over U.S. financial contributions. The White House has also announced a similar review of domestic grants and loans, framing it as part of efforts to curb government spending and address inflation.

Legal Issues

Trump’s order was temporarily stopped by a federal court in Washington, DC when four nonprofits sued the administration, and the judge’s pause is in effect until February 3. The nonprofit organizations that sued argued in their filing that the memo "fails to explain the source of OMB's purported legal authority to gut every grant program in the federal government." The groups also argued that the memo failed to consider the interests of grant recipients, "including those to whom money had already been promised." Following this, twenty-two states and DC also sued the administration. Those states are: New York, California, Illinois, Massachusetts, New Jersey, Rhode Island, Arizona, Colorado, Connecticut, Delaware, Hawaii, Maine, Maryland, Michigan, Minnesota, Nevada, New Mexico, North Carolina, Oregon, Vermont, Washington, Wisconsin, and the District of Columbia.

Part of the legal challenge is constitutional, and another part is statutory. According to the lawsuits, withholding funds may violate the Constitution’s provision granting Congress the "power of the purse," as well as the Impoundment Control Act (ICA) of 1974. The first lawsuit, filed shortly after the directive, claims the administration’s action is arbitrary and capricious, violating administrative law. The ICA was established to prevent the executive branch from unilaterally withholding funds that Congress has appropriated. While the law allows presidents to defer spending under specific circumstances—such as for contingencies or cost savings—it prohibits withholding funds to advance policy goals. Critics argue that Trump’s directive, which describes halting funding for initiatives related to equity, transgender rights, and environmental policies, is a clear attempt to use federal funds as a policy tool. The Office of Management and Budget (OMB) contends the pause is temporary and consistent with past presidential actions to align spending with new policies.

Oversight of the ICA falls to the Government Accountability Office (GAO), which previously found the Trump administration in violation of the act for withholding security aid to Ukraine. Despite this, Trump and conservative advocates have argued that the ICA unconstitutionally limits presidential authority. Trump has long pledged to use impoundment to cut government spending, while his nominee for OMB director, Russell Vought, has testified that he believes the law improperly shifts power from the executive branch to Congress. The legal battle over the spending freeze is expected to test the limits of presidential authority over federal funds.

Disruption at USAID

The freeze on U.S. foreign aid has led to a sweeping upheaval at USAID, with dozens of senior staff placed on administrative leave and hundreds of contractors either furloughed or terminated. The move has left USAID without clear leadership, as approximately 60 senior officials, including top administrators and legal advisors, were suspended, with some physically escorted from their offices. The freeze has also resulted in the widespread termination of USAID contractors, with some receiving no severance and losing their benefits within days. The purge of senior staff at USAID appears to be a deliberate effort to eliminate dissent as the dismissals followed an internal memo accusing staff of attempting to circumvent Trump’s executive orders. Trump’s supporters argue that these actions align with his campaign pledge to remove bureaucrats they see as obstacles to his agenda. The sudden restructuring raises serious concerns about the future of U.S. foreign assistance as even attempting to refill these positions (should the Trump administration decide to) will be disruptive. Organizations receiving aid will therefore experiences significant problems going forward even if the legal challenges come to fruition.

Impact

The freeze has immediate consequences for global public health and humanitarian efforts. Organizations that provide HIV treatment, economic development, and governance support are already experiencing disruptions. USAID’s largest single project last year—$14 billion in macroeconomic assistance to Ukraine—now faces uncertainty, as do numerous development programs in Africa and Latin America. The United Nations has urged the administration to reconsider exemptions to prevent further harm to vulnerable populations. Human rights groups, while supporting accountability measures, argue that pausing critical aid programs during the review is counterproductive. Experts warn that cutting assistance could undermine U.S. influence abroad, hinder economic development in fragile states, and weaken global health initiatives. In Johannesburg, South Africa, workers at U.S.-funded HIV programs have already received stop-work orders, illustrating the immediate impact of the administration’s decision.

Forecast

The use of executive power to withhold federal spending has been repeatedly challenged in U.S. courts, with precedents limiting the president’s ability to overrule Congress. In Train v. City of New York (1975), the Supreme Court ruled that President Nixon could not impound congressionally allocated funds, leading to the passage of the ICA in 1974. This law established strict procedures a president must follow if they wish to withhold spending, including a 45-day review process and congressional approval for rescissions. Trump’s vague reasoning and indefinite nature of the halt likely violate legal precedents and the ICA, which strictly forbids even temporary funding suspensions without proper congressional procedures. Past court rulings, including Clinton v. City of New York (1998), which struck down the line-item veto, reaffirm that presidents cannot unilaterally block or redirect congressionally approved funds. While Trump's legal team may argue that the freeze is temporary and therefore not an impoundment, legal experts assert that the ICA does not allow even short-term funding pauses without following established legal procedures. Consequently, the order is expected to face strong legal challenges that will likely lead to it being overturned. However, that will not be the end of the attempts to reduce funding.

While Congress ultimately determines the foreign aid budget, Trump has a history of targeting international assistance. Furthermore, the OMB fact sheet on the directive states that the application is “to programs, projects, and activities implicated by the President’s Executive Orders, such as ending DEI, the green new deal, and funding nongovernmental organizations that undermine the national interest.”

This indicates that despite previous bipartisan support for foreign aid, that Trump’s second term highly likely to see less resistance from Republican lawmakers, making significant cuts more likely. During his first term, Trump attempted to slash foreign aid but was blocked by Congress. However, with more party alignment, his administration will likely succeed in curtailing aid spending this time. The conservative Heritage Foundation’s Project 2025 policy blueprint, which Trump appears to be drawing from, calls for restructuring USAID to focus on countering China’s influence while scaling back funding for climate and diversity programs. Trump’s previous administration also established the International Development Finance Corporation (DFC) to promote private-sector-driven foreign aid, a trend that is likely to continue. Even if the courts temporarily block the freeze, Trump and his supporters are extremely likely to make cuts through Congress, which means that the next budget will see significant reductions in aid.

Finally, the short-term effects of the foreign aid freeze will be deeply felt by NGOs. The uncertainty and funding disruption will weaken humanitarian efforts, harm vulnerable populations, and erode trust in U.S.-backed programs. Organizations may rush to file waiver applications to secure exemptions for life-saving aid, but the process appears unclear and potentially politicized. Without clarity on which programs qualify, NGOs will struggle to determine whether they can continue operations. Even if courts do intervene and block the freeze, the bureaucratic backlog created by the disruption will delay fund disbursement for weeks or months. As such, uncertainty over future funding will force NGOs to dip into reserves, cut non-essential programs, or seek emergency support from private donors or other governments. NGOs working in conflict zones may be forced to relocate operations or suspend activities due to a lack of financial resources. Long-term, the sudden nature of the freeze erodes trust between NGOs and their partners, including host governments, communities, and other international organizations. Even if funding is restored, NGOs may struggle to reestablish disrupted programs, rehire staff, or secure new long-term funding commitments.

Maintaining Essential Security Operations: A Community Imperative

A Call for Strategic Adaptation

The international development community faces unprecedented challenges in maintaining critical field operations worldwide. While funding constraints create immediate pressures, a collective priority must remain the safety and security of these personnel, particularly those operating in higher-risk environments.

Strategic Considerations for Organizations

Experience shows that well-considered modifications to security operations, rather than wholesale reductions, can help organizations maintain essential protective measures while managing costs.

Consider:

• Reviewing existing security infrastructure for optimization opportunities
• Identifying core protection requirements based on actual risk exposure
• Evaluating opportunities for resource sharing or pooling
• Exploring alternative funding mechanisms for essential security functions
• Leveraging existing security partnerships more effectively

Maintaining Essential Security

Organizations are strongly encouraged to:

Engage Security Expertise

Consult with experienced security professionals to evaluate options
Draw upon existing security partnerships and resources
Seek guidance from peer organizations facing similar challenges

Review Operations Strategically

Assess current security measures against operational risks
Identify opportunities for operational adjustments that maintain protection
Document risk management decisions and rationale

Preserve Core Functions

Maintain essential security monitoring and analysis
Continue critical incident response capabilities
Sustain basic duty of care requirements

Community Resources

The international development community has always shown remarkable resilience and creativity in challenging times. Multiple existing resources exist to help organizations navigate these circumstances:

• Industry associations and working groups
• Peer organization networks
• Professional IDEV/NGO -specific security providers 
• Legal and compliance experts

Moving Forward Together

This challenging period requires careful consideration of how these organizations should maintain their duty of care obligations while adapting to current constraints. Critical decisions about security resources should be:

• Made with professional security guidance
• Based on actual risk exposure
• Aligned with operational requirements
• Documented and regularly reviewed
• Focused on maintaining essential protection

A Collective Commitment

The development community has consistently demonstrated its ability to adapt and overcome challenges while maintaining its commitment to staff safety. Current circumstances, while difficult, should not compromise the basic protections our personnel require and deserve.

We encourage organizations to reach out to security professionals, peer organizations, and industry resources to develop sustainable approaches to maintaining essential security operations. Multiple options exist for preserving critical security functions while managing costs effectively.

The international development community has always been stronger together. By sharing resources, expertise, and solutions, we can maintain essential security standards while navigating current challenges.

Riley Risk’s Bridge Support Options 

As part of our commitment to the development community, Riley Risk has established a temporary bridge support program, based on our model used in Ukraine, Bangladesh and other high risk environments to help organizations maintain essential security operations during this period:

Bridge Support Tiers:

• Enhanced Support: $249/month
  • Advanced Security Intelligence, Assessments, Briefings, Training and Alerting
• Focused Support: $749/month
  • Targeted Security Intelligence, Assessments, Briefings and Alerting with Country-level Security Program Documentation Resources

Organizations interested in learning more about eligibility for these temporary support options can submit their information through our Bridge Program Assessment Form here or contact us at support@rileyrisk.com.

Note: This temporary program is being offered at considerable cost to Riley Risk as part of our commitment to maintaining essential security support for the development community during this challenging period.