Sanctions and Export Controls Considerations for Higher Education and Research Institutions

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Universities and research institutions are dedicated to the development of human understanding, which in the twenty-first century often involves cross-border collaborations, international travel and engagement with peers, faculty and students from around the world. While these activities are an indispensable aspect of academic progress, they can also come into conflict with the national security objectives underlying US sanctions and export controls that restrict the flow of sensitive commodities and technology to parties and jurisdictions of concern. In recognition of this tension, US sanctions and export control regulations incorporate various exceptions and exemptions for academic and research-related activities. However, these carve-outs are not absolute, and their application is heavily fact dependent. Further, universities have been the focus of recent legislative proposals at the federal and state levels that would impose additional restrictions and administrative requirements.

This chapter discusses key US sanctions and export control compliance considerations for higher education and research institutions, as well as select legislative proposals for further regulation of academic and research activities on a prospective basis.

Research

Research has long been a core function of higher education institutions in the United States. However, in the 1980s, policymakers grew concerned that countries in the Soviet Union were exploiting research relationships to obtain advanced technology and know-how.[2] A 1982 report prepared by the National Academy of Sciences observed that, while there had:

been a significant transfer of U.S. technology to the Soviet Union, the transfer . . . occurred through many routes with universities and open scientific communication of fundamental research being a minor contributor. Yet as the emerging government-university-industry partnership in research activities continues to grow, a more significant problem may well develop.[3]

As such, the Reagan administration issued National Security Decision Directive (NSDD) 189, titled National Policy on the Transfer of Scientific, Technical and Engineering Information, which:

  • defined ‘fundamental research’ as ‘basic and applied research in science and engineering, the results of which ordinarily are published and shared broadly within the scientific community, as distinguished from proprietary research and from industrial development, design, production, and product utilization, the results of which ordinarily are restricted for proprietary or national security reasons’;[4] and
  • clarified ‘the policy of [the Reagan] Administration that, to the maximum extent possible, the products of fundamental research remain unrestricted’.[5]

The principle that ‘fundamental research’ should be freely conducted and shared for the betterment and education of society forms the framework for application of US export control laws to research activities.

To this end, the principal US export control authorities each incorporate broad exceptions for the results of fundamental research.

  • The Export Administration Regulations (EAR), administered by the Bureau of Industry and Security (BIS) within the US Department of Commerce, regulate the export of dual-use items, software and technology. The EAR exempt certain items from their scope, including information and software that ‘[a]rise during, or result from, fundamental research’.[6] In this context, fundamental research is defined as ‘research in science, engineering, or mathematics, the results of which ordinarily are published and shared within the research community, and for which the researchers have not accepted restrictions for proprietary or national security reasons’.[7]
  • The International Traffic in Arms Regulations (ITAR), administered by the Directorate of Defense Trade Controls (DDTC) within the US Department of State, regulate the manufacture, export and brokering of defence articles and defence services. Like the EAR, the ITAR contain an exemption for ‘public domain’ information available to the public, including ‘[t]hrough fundamental research in science and engineering at accredited institutions of higher learning in the U.S. where the resulting information is ordinarily published and shared broadly in the scientific community’. For purposes of the ITAR, ‘[f]undamental research is defined to mean basic and applied research in science and engineering where the resulting information is ordinarily published and shared broadly within the scientific community, as distinguished from research the results of which are restricted for proprietary reasons or specific U.S. Government access and dissemination controls’.[8]

The above exemptions reflect the policy goals of NSDD 189 and protect the ability of higher education and research institutions to engage in research activities that would ordinarily be restricted. For example, under the EAR, the transmission via email of controlled technical data to a foreign research collaborator would ordinarily be treated as an export subject to the EAR’s jurisdiction, potentially requiring BIS authorisation depending on the export control classification of the technical data and the identity or location of the foreign collaborator. Similarly, the release of controlled technical data to a visiting professor, graduate student or other non-US national within the United States would be ‘deemed’ an export to the foreign national’s home jurisdiction. By virtue of the fundamental research exemption, universities can undertake a significant range of activities that otherwise would be subject to export licensing requirements.

Importantly, however, the fundamental research exemption is subject to limitations. As such, universities must be cognisant of the limits of the fundamental research exemption in planning and executing their research activities.

First, the fundamental research exemption applies to research and information but not to commodities. As such, if collaboration with a foreign researcher would involve the export of material commodities (including equipment or chemicals), an export licence may be required from BIS or DDTC, even if the ultimate output of the research collaboration qualifies as fundamental research. To this point, BIS has advised that ‘fundamental research only applies to technology’, as defined under the EAR, and so the export of a controlled pathogen or another item in connection with research collaboration ‘may require a license depending on the recipient university’s country’.[9]

Second, for information to qualify as fundamental research, the institutions involved in the collaboration must not accept restrictions for proprietary or national security reasons. These restrictions may arise in different contexts, including: (1) restrictions on the publication of research findings; (2) access and dissemination restrictions contained in material transfer or licensing agreements; and (3) restrictions pursuant to federal government contracts or federal government-funded grants, which may flow down to institutions conducting research as subcontractor where a prime contractor has accepted research-related restrictions (whether or not known to a university at the time of contracting).

Third, the fundamental research exemption may not apply where an institution knows, or has reason to know, that a collaborator has violated (or intends to violate) US export control laws. For example, pursuant to General Prohibition Ten under the EAR, parties may not ‘sell, transfer, export, reexport, finance, order, buy, remove, conceal, store, use, loan, dispose of, transport, forward or otherwise service, in whole or in part, any item subject to the EAR . . . with knowledge that a violation . . . is about to occur, or is intended to occur in connection with the item’.[10] In the university context, this may mean that certain collaborations (e.g., arrangements where it is known that a research sponsor or licensee has violated, or will violate, the EAR) may be impermissible, notwithstanding the general availability of the fundamental research exemption.

Fourth, even when the fundamental research exemption is available, other trade regulations may impose collateral restrictions. For example, the economic sanctions programmes administered by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) prohibit US persons – including US higher education and research institutions – from engaging in broad categories of activities with designated countries, regions, entities and individuals. In some cases, these sanctions programmes broadly restrict US persons from engaging in business or dealings with parties located in certain jurisdictions, even if the party has not been individually targeted with sanctions. For example, the Iranian Transactions and Sanctions Regulations (ITSR) broadly restrict US persons from engaging in transactions with persons ordinarily resident in Iran, regardless of whether the research in question is covered by the fundamental research exemption. While OFAC has published various general licences authorising certain academic and research-related activities, application of these licences is fact specific. The relevant general licence under the ITSR, for example, authorises US undergraduate institutions to hire faculty or educate students that are ordinarily resident in Iran, but the general licence applies only to: (1) certain fields of study (e.g., social sciences, law, business and the humanities); and (2) undergraduate, rather than graduate, studies.[11]

Comprehensive, country-based sanctions programmes – targeting, at the time of writing, Crimea, Cuba, the so-called ‘Donetsk People’s Republic’ and ‘Luhansk People’s Republic’ regions of Ukraine, Iran, North Korea and Syria (hereinafter, embargoed countries) – can present particular challenges in the context of online higher education activities. US persons are generally prohibited from providing services, including in-person or virtual online teaching services, to persons located or ordinarily resident in embargoed countries. Covid-19, which gravely affected cross-border travel, exacerbated the impact of these prohibitions and affected the educational experiences of students ordinarily resident in embargoed countries, who could not travel to the United States, even with the appropriate visa, to take advantage of relevant authorisations. OFAC has responded by publishing limited carve-outs to authorise certain online education. For example, for students located or ordinarily resident in Iran, accredited US universities are authorised to provide online courses, limited to certain fields of study (see above) or certain introductory courses (e.g., in science, technology, engineering or mathematics), for the completion of undergraduate degree programmes.[12] OFAC has also authorised (although only until 1 September 2023) activities related to the completion of graduate degree programmes in social sciences, law, business or the humanities for Iranian students who have been granted certain non-immigrant visas (e.g., F (students) or M (non-academic students) but who are not physically present in the United States due to the covid-19 pandemic).[13] OFAC has also authorised exports of certain video conferencing software and related services, as well as educational technology software and related services, if they relate to authorised courses of study and if specified, additional criteria are met.[14]

While in some circumstances, US sanctions restrictions can trump applicability of the fundamental research exemption, existing OFAC authorisations can help to close the gap. For example, transactions related to certain information or informational materials are generally exempted across sanctions programmes. Under Section 1702(b)(3) of the International Emergency Economic Powers Act, the foundational legal authority for most OFAC sanctions programmes, ‘the importation from any country, or the exportation to any country, whether commercial or otherwise, regardless of format or medium of transmission, of any information or informational materials’ is not prohibited.[15] Examples of information or informational materials include ‘publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds’.[16] Importantly, this exception may include published fundamental research findings. However, OFAC has also clarified that this exemption does not apply to materials ‘not fully created and in existence at the date of the transactions’,[17] and that the ‘provision of services to market, produce or co-produce, create, or assist in the creation of information or informational materials’ is not authorised.[18] Therefore, US persons’ participation in the process of conducting fundamental research, as opposed to distributing already concluded fundamental research, may trigger sanctions concerns when sanctioned parties or parties resident in embargoed countries are involved.

While US sanctions therefore impose certain restrictions on research collaborations, they are not the only source of collateral restrictions. In addition, foreign research collaborations, particularly those involving parties in jurisdictions perceived as unfriendly to the United States (e.g., China, Russia), have been the subject of increased scrutiny at both the state and federal levels. For example, in 2022, the state of Louisiana enacted the Higher Education Foreign Security Act of 2022 (the Louisiana Act), which imposed new policy requirements on Louisiana ‘postsecondary education institutions’. Among other requirements, the Louisiana Act requires covered institutions to implement screening policies and procedures for individuals seeking employment in research positions, which require universities to: (1) conduct due diligence to assess whether job applicants have connections to China or other countries of concern; (2) obtain additional documentation and information from applicants with these connections; and (3) potentially submit information discovered through the diligence process to law enforcement authorities. As concerns regarding technology transfer and geopolitical competition continue to attract political attention, it is foreseeable that universities may be subject to increasing regulation on both the federal and state levels, which may further complicate their traditional reliance on the fundamental research exclusion to enjoy open and free collaboration with partners worldwide.

Travel-related transactions

While international travel, including to most embargoed countries, is permitted, US export controls and sanctions may restrict the items that can be transported across international borders in support of research activities or the types of activities that can be engaged in by US persons in foreign jurisdictions.

For example, researchers carrying equipment, biological materials, laptops with technical data or other items controlled under the EAR or the ITAR must comply with export licensing requirements, which can apply in the same manner to hand-carried and shipped items and equipment. Certain existing licence exceptions authorise the hand-carrying of laptops, tools and other goods. For example, under the EAR, the BAG licence exception authorises the unlicensed hand-carrying under certain circumstances of, inter alia, ‘tools of the trade’, defined as ‘[u]sual and reasonable kinds and quantities of tools, instruments, or equipment and their containers and also technology for use in the trade, occupation, employment, vocation, or hobby of the traveler or members of the household who are traveling or moving’.[19] However, researchers can nevertheless run afoul of export restrictions if they presume that a licence exception applies, particularly when carrying sensitive technology in hand luggage.

In addition, if researchers travel to an embargoed country, there may be further restrictions on either the travel (in the case of Cuba) or activities that may be conducted upon arrival.

Cuba is subject to a congressionally mandated embargo and only certain categories of travel-related transactions are authorised. For example, under the Cuban Assets Control Regulations, travel-related transactions are authorised only if they relate to a specified set of activities, including certain educational trips.[20] Educational activities that are compliant include:

  • participation in structured exchange programmes under the auspices of a US academic institution;
  • non-commercial academic research or teaching at a non-Cuban research institution;
  • certain educational exchange programmes; and
  • work by private foundations or research institutes with an ‘established interest in international relations to collect information related to Cuba for noncommercial purposes’.[21]

In addition, limited travel-related transactions are authorised for professional research or meetings, including conferences, in Cuba. Trips to Cuba related to professional research or meetings must meet two minimum requirements: (1) the purpose of the research or meetings must directly relate to the traveller’s profession, professional background or area of expertise; and (2) the travel schedule may not include free time or recreation in excess of that consistent with a full-time schedule of professional research or attendance at, or organisation of, professional meetings.[22] For each category of authorised travel to Cuba (including travel related to education and research), US sanctions requirements are specifically tailored and must be carefully observed.

For other jurisdictions, although travel itself is not restricted, only certain categories of activities are permitted. For example, travelling to Iran for professional research or conferences that benefit persons resident in Iran is generally prohibited, with limited availability for specific licences that can be reviewed on a case-by-case basis. Under the ITSR, a specific licence may be issued for US persons’ participation in projects in or related to Iran, including conferences and training, to support human rights, democratic freedoms and democratic institutions, or to help meet basic human needs.[23] In addition, certain transactions involving a person resident in Iran (excluding the Iranian government or Iranian financial institutions, among others) related to participation in or US person sponsorship of a public conference or similar event are allowed, if the event takes place in the United States or in a third country other than the United States or Iran.[24] In each case, specific conditions must be met for authorisation. As a general rule, if academic conferences or other events require travel to an embargoed country, or dealings with parties ordinarily resident in an embargoed country, restrictions may apply, and compliance with existing general authorisations requires careful review and attention.

Most major universities have adopted formal export compliance policies and procedures to manage these and other circumstances, and it is incumbent on both institutions and their employees to ensure compliance with the requirements. As a matter of risk mitigation, some universities encourage researchers to travel with clean or loaner devices to avoid the inadvertent export of controlled data (or release of other personal information, as some jurisdictions – including China – purportedly may access information upon a traveller’s entry).

Investment activity

Many US universities have significant investment portfolios, including as limited partners in third-party-managed investment funds, which are generally subject to the same US restrictions as for other US institutional investors and asset managers.

Among the relevant restrictions, US universities are not permitted to invest, directly or indirectly, in entities designated to OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List, or entities that – per OFAC’s 50 Percent Rule – are owned, 50 per cent or more (whether directly or indirectly, and not accounting for share dilution) by one or more SDNs. In recent years, OFAC has promulgated novel, investment-focused sanctions programmes, including in respect of China, Russia and Venezuela. For example, the Chinese Military Companies Sanctions prohibit US persons – including universities – from engaging in ‘the purchase or sale of any publicly traded securities, or any publicly traded securities that are derivative of such securities, of any person’ designated to the Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC) List. US persons are prohibited from acquiring new securities of designated parties within 60 days of designation to the NS-CMIC List. In addition, US persons have 365 days after designation to divest of targeted NS-CMIC securities (after which point, a specific licence would be required, although divestment is not a regulatory requirement). Notably, OFAC has advised that US persons are prohibited ‘from investing in U.S. or foreign funds, such as exchange-traded funds . . . or other mutual funds’ that hold securities of a party on the NS-CMIC List.[25]

Many US universities have developed template sanctions compliance provisions to manage investment-related sanctions risk, particularly when investing via non-US-managed funds whose compliance obligations may deviate from – or even conflict with – US sanctions requirements. However, these side letter protections are commonly subject to negotiation, and even unqualified undertakings by third-party fund managers may not present a complete defence if a manager were to implicate a US university or other research institution in a violation of US sanctions (which are subject to strict liability for civil violations). Further, non-US fund managers are increasingly proposing novel, untested ring-fencing strategies to accommodate US investors’ regulatory concerns without imposing equivalent restrictions on non-US investors or risking violation of local anti-sanctions regulations. Particularly as US and Chinese sanctions and other investment restrictions (and countermeasures) continue to proliferate, US universities increasingly may be faced with difficult, conflict-of-laws scenarios, for which there may not be an opportunity to secure unqualified contractual protections.

In addition to OFAC sanctions lists, there are a host of other restricted party lists that impose restrictions on counterparties (including restrictions on exporting items subject to the EAR to a given party), including the Entity List, the Unverified List and the Military End User (MEU) List (all administered by BIS), and the Covered List administered by the Federal Communications Commission, which identifies developers of communications equipment and services that are deemed to present an unacceptable national security threat. Because these restricted party lists do not impose investment-related restrictions, many universities do not prohibit their managers from investing in listed companies (as they are not prohibited by US law from doing so), although these investments can carry a degree of reputational risk and be captured by third-party (e.g., banking partner) compliance certification requests that exceed the scope of applicable US restrictions.

Further complicating investment strategies, universities have been the subject of numerous congressional proposals to prohibit investments in: (1) parties designated to restricted party lists, even if the restrictions attendant to the designation generally do not prohibit investment activity; or (2) Chinese companies writ large. While many of these proposals appear relatively unlikely to be enacted under the current administration, they are representative of increased, bipartisan scrutiny of US universities’ international investments and financial entanglements. Examples of recent legislative proposals include:

  • the Protecting Endowments from Our Adversaries Act (PEOAA). The PEOAA would apply to private colleges and university endowments valued at over US$1 billion and would impose: (1) a 50 per cent excise tax on an initial investment in a party on the Entity List, the MEU List, the Unverified List or the Covered List; and (2) a 100 per cent excise tax on the realised gains of these investments; and
  • the Dump Investments in Troublesome Communist Holdings (DITCH) Act. The DITCH Act would deny organisations tax exemptions if they hold an interest in a ‘disqualified Chinese company’, defined to include any corporation incorporated in China or for which 10 per cent or more of the stock is held by Chinese governmental entities, Chinese corporations or Chinese individuals.

As the US government expands its arsenal of tools to combat perceived national security threats such as the rise of China, and Russia’s invasion of Ukraine, higher education and research institutions may find that their investment activity will prove as complicated to administer in a compliant manner as their general trade compliance policies and procedures, particularly to the extent that they continue to rely upon third parties to facilitate this activity.

Compliance considerations and conclusion

As compared to private sector businesses, US universities have access to more exemptions and exclusions to the application of US export control and sanctions laws. However, these exemptions are not absolute, and universities and research institutions must ensure compliance with US national security laws and regulations, even when those restrictions appear in conflict with the traditional ideological tenets of academia. Further, as new laws and legislative proposals demonstrate, universities and research institutions are increasingly under scrutiny by lawmakers, whether motivated by genuine concerns about US adversaries’ exploitation of research activities for technological gain or pure political expediency.

In the current environment, US universities and research institutions should ensure that they have in place policies and procedures that govern, inter alia, tone from the top, delegation of authority, deemed export compliance (and associated technology control plans), guidance for researchers and administrators regarding the scope of fundamental research (and exceptions to that exclusion), investment activity and standard trade compliance functions, such as restricted party screening, export classification and licensing, and record-keeping. While higher education and research institutions have not traditionally been a focus of enforcement activity, the proliferation of complex trade laws and regulations that apply to universities is growing, and universities would be well served to ensure that they and their employees have a sufficient understanding and appreciation for the delicate interplay between these restrictions and academic activities.


Footnotes

[1] Ama Adams and Brendan Hanifin are partners, Emerson Siegle is a counsel and Junsuk Lee is an associate at Ropes & Gray LLP.

[2] ‘Science and Security in a Post 9/11 World: A Report Based on Regional Discussions Between the Science and Security Communities’ (National Academies Press, 2007), www.ncbi.nlm.nih.gov/books/NBK11499/pdf/Bookshelf_NBK11499.pdf.

[3] ibid.

[4] National Security Decision Directive 189: ‘National Policy on the Transfer of Scientific, Technical and Engineering Information’ (21 September 1985), https://irp.fas.org/offdocs/nsdd/nsdd-189.htm.

[5] ibid.

[6] 15 Code of Federal Regulations (C.F.R.) § 734.3(b)(3)(ii).

[7] id., § 734.8(c).

[8] 22 C.F.R. § 120.34(a)(8).

[9] US Department of Commerce, Deemed Exports and Fundamental Research for Biological Items, www.bis.doc.gov/index.php/2011-09-08-19-43-48.

[10] 15 C.F.R. § 736.2(b)(10).

[11] 31 C.F.R. § 560.544.

[12] Office of Foreign Assets Control (OFAC), General License G.

[13] OFAC, General License M-2.

[14] See 15 C.F.R. § 560.540; OFAC, General License D-2; OFAC, FAQ #853, https://ofac.treasury.gov/faqs/853.

[15] 50 U.S.C. § 1702(b)(3).

[16] ibid.

[17] See, e.g., 31 C.F.R. § 560.210(c)(2).

[18] ibid.

[19] 15 C.F.R. § 740.14(b)(4).

[20] 31 C.F.R. §§ 515.560(a)(5), (10).

[21] See id., §§ 515.565, 515.576.

[22] id., § 515.564(a).

[23] id., § 560.545(a)(1).

[24] id., §§ 560.544(a)(5), 560.554(a)–(b).

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