Early this morning the White House released a statement by President Obama on Egypt stating, inter alia, that "Given today's developments, I have also directed the relevant departments and agencies to review the implications under U.S. law for our assistance to the Government of Egypt."
The President was referring to Section 508 of the Foreign Assistance Act, which provides:
None of the funds appropriated or otherwise made available pursuant to this Act shall be obligated or expended to finance directly any assistance to any country whose duly elected head of government is deposed by military coup or decree: Provided, That assistance may be resumed to such country if the President determines and reports to the Committees on Appropriations that subsequent to the termination of assistance a democratically elected government has taken office.
Under this provision, the United States has cut off foreign assistance to several countries where the elected government has been toppled in a military coup, including the Cote d'Ivoire, the Central African Republic, and Pakistan.
Unlike many restrictions in the Foreign Assistance Act, Section 508 does not include Presidential waiver authority. As a result, the Executive branch has strained in some cases to avoid determining that the ouster of an elected leader was actually a military coup, including in Honduras in 2009 and Egypt in 2011. [Addendum: To clarify, the State Department ultimately did cut off assistance to Honduras in September 2009 three months after the ouster of President Zelaya in June 2009, reportedly after diplomatic efforts to restore Zelaya to power had failed.] In other cases, the President has been forced to seek specific statutory waiver authority, as happened when President Bush sought and received specific waiver authority for assistance to Pakistan after the 9-11 attacks.
The review of whether Section 508 has been triggered is generally led by the Legal Adviser of the State Department and may take several weeks or longer. But it may be difficult for the Legal Adviser to conclude that the house arrest of Mohammed Morsi and suspension of the Egyptian Constitution do not amount to a military coup.
The consquences of a cut-off of assistance would be significant, including for U.S. companies. The U.S. provides $1.5 billion in aid to Egypt each year, much of which is used to buy U.S. military equipment.