It is a delicate balancing act often unseen by many higher education administrators, students, and the general public: Universities weighing the competing interests of academic freedom and the regulatory requirements with which universities must comply. Given the unique complexities of each university’s academic and research programs, one such requirement that necessitates an increased focus is export controls.
University leaders, including business officers, are often challenged with developing a customized export compliance program that supports the intellectual pursuits of the university’s faculty and students, but also complies with the U.S. export laws and regulations. This article seeks to provide guidance to the business or export compliance officer who is at the beginning of his or her journey down the road of export compliance.
To assist with these initial steps, we conducted interviews with individuals responsible for export compliance at several leading institutions. We confirmed that there is no one-size-fits-all approach to successfully implementing export compliance protocols in the collegiate world. However, the examples described here illustrate the importance of such protocols and the penalties that may arise when processes are not followed or enforced.
What’s the Connection?
One may wonder how export controls, which have generally been written with the manufacturing world in mind, affect universities. Following are some relevant scenarios:
- A team of graduate students is working on the next generation of infrared sensors for industrial manufacturing, under a research grant for which the research results are considered nonfundamental. When research results are subject to restrictions upon publication, such research does not qualify as "fundamental research." In this case, the sensor involved is classified under the export control classification number (ECCN) 6A002.c. Therefore, it may require an export authorization (such as a license) for not only the product itself, but also the underlying technical information. Such is the case if the particular product or technical information is exported from the United States, or if shared with a foreign national in the United States (such as foreign graduate students).
- An individual or group is participating in academic travel to sanctioned countries. Educational trips to sanctioned nations such as Sudan require utilization of various general travel licenses through the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), and involve screening processes and checks to verify any relationships entered into with third parties abroad.
- A consortium of professors is conducting a classified study on advanced unmanned aerial vehicle flight technology for a classified Department of Defense project. Given the funding source, and classified nature of the report, the results derived from the study will not be considered fundamental research. Therefore, unless the research is declassified, the group will have to apply for an export license, in order to share the results with the wider academic community outside of the United States or with foreign nationals within the United States (see 22 CFR §120.11(8)(ii)).
As more universities vie for research funded from government agencies and corporations, collaborative and joint efforts between or among researchers from more than one institution—and often from more than one country—are becoming commonplace. As a result, careful review of these contracts is necessary. Universities located in the U.S. must always comply with the U.S. export requirements; however, participation and dissemination controls limit the applicability of fundamental research to the activity.
University-related exceptions and exemptions under International Traffic in Arms Regulations (ITAR) or Export Administration Regulations (EAR) provide opportunities to achieve compliance and reduce administrative complexities; however, compliance officers must first understand the administrative complexities, in order to make a determination as to applicability of the exceptions and exemptions. But, beware of the misconception that all activities at academic institutions fall under these exemptions (see sidebar, "Export Compliance in Higher Education: One Size Does Not Fit All").
Following is a list of common activities that may elicit export control concerns:
- Export of equipment, materials, computers, and so forth.
- Inadvertent purchases of export-controlled items made with purchasing and procurement cards.
- Transfers of research and capital equipment abroad.
- Joint collaborations with foreign universities.
- Employment of foreign national faculty, staff, and students.
- Presentation/discussion of previously unpublished research at conferences and meetings, where foreign national scholars may be in attendance.
- Visits to laboratories by foreign scholars.
- Acceptance of sponsor restrictions on the participation of foreign nationals in the research.
- Acceptance of sponsor restrictions on the publication or disclosure of the research results.
- Transfers of controlled technology to shared servers or the cloud (while currently not a common practice, export controls should be considered if evaluating such options in the future).
Risks and Responses
Given this array of potentially controlled actions, universities need to be vigilant in identifying research projects, financial transactions, and other enterprise activities that might involve export control risks. Noncompliance may result in significant monetary penalties, incarceration for criminal conduct, and/or the loss of export privileges.
Some well-known examples demonstrate the ways that seemingly innocuous actions can trigger export control violations:
Campus conviction. In 2008, a professor of electrical engineering was convicted of conspiring to illegally export defense articles and services without a license and sentenced to 48 months in prison for violating the Arms Export Control Act (AECA) and the ITAR. The professor had been granted a U.S. Air Force (USAF) contract to develop plasma actuators to control the flight of military drone aircraft. The conviction was a direct result of granting foreign graduate students access to exportcontrolled data without a license and exporting controlled equipment by taking a laptop containing controlled technology on a trip to China, without a license.
The AECA prohibits the export of defense-related material, including technical data, to foreign nationals. In this case, the institution for which this professor worked was not fined or found guilty of any crimes. This demonstrates that an effective export compliance program can protect the institution in instances where individual employees break the law.
Dangerous liaisons. Another university entered into an agreement with the Department of Commerce to settle allegations that the university violated the EAR in 2007. The alleged violations involved the export of items, without a license, to an organization in Pakistan listed on the EAR Entity List. This list contains names of certain foreign persons—including businesses, research institutions, government and private organizations, individuals, and other types of legal persons—that are subject to specific license requirements for the export, re-export and/or transfer (in-country) of specified items.
Speaking too soon. In 2013, several researchers at a university’s school of medicine were charged for sharing nonpublic information about their work conducted through a grant from the National Institute of Health (NIH) to develop magnetic resonance imaging (MRI) technology (we note it is not particularly common for NIH to preclude sharing of information, therefore attention to detail is important). In this case, the legal issue involved commercial bribery and not export violations; however, the university’s effective internal review process identified irregularities pursuant to the research process and alerted officials who initiated the investigation.
To avoid these and other penalties, colleges and universities can take steps to understand the activities that may put their institutions at risk. For example, to mitigate its compliance risk, Boston University (BU) began a "Clean Laptop" initiative in 2014. The process allows researchers and faculty members to temporarily exchange their laptops for new hardware to use during international travel.
According to Marie Hladikova, export control director at BU, the limited projects operating under technology control plans at BU are reviewed and approved by the associate vice president for research compliance, and researchers on those projects are encouraged to utilize the Clean Laptop program to help avoid the risk of noncompliance. This precaution can also result in circumventing the administrative hurdle of applying for a license, when the licensable software or technology on the original laptop is not imperative to the research or purpose of the trip. For example, when a laptop contains encrypted software on its hard drive, export license implications arise regardless of whether the software is actually used or active while abroad. Here, it is also important to understand the numerous license exceptions (such as the one for encryption), which may be available), so that the institution may use an exception or exemption to avoid overly burdensome license requirements.
International Implications
In recent years, there has been a trend for U.S. universities to expand globally via the establishment of branch campuses in foreign countries. The overseas presence of American universities further complicates matters, as the U.S. export regulations have extraterritorial reach. Moreover, officers of these universities may be required to comply simultaneously with the export compliance framework of both the United States as well as other foreign jurisdictions and, in some cases, maneuver contradictory regulations.
Sunanda Holmes, director of business planning and contracts at Weill Cornell Medical College in Qatar, emphasizes the unique challenges that U.S. universities operating facilities abroad face. "The U.S. government’s relationship with a foreign government may be very different than the relationship the entities’ foreign location shares with that government. On top of that," Holmes says, "you also must deal with the challenge of explaining U.S. export implications to staff and faculty who may have never touched U.S. soil before."
Holmes explains that Cornell faces this challenge by "using a concerted approach that [asserts] [1] we are a U.S. institution, therefore U.S. export rules apply to our overseas work; and [2] we provide adequate training to all faculty and staff regularly, so that they understand the implications of U.S. export regulations in their research, procurement, traveling, hiring, and collaborations. Cornell’s Qatar campus also employs a person on the main campus in New York who works exclusively for the Qatar office and handles all imports/exports to and from Qatar."
Having a dedicated resource on site in the U.S. who knows the regulations and has the ability to ship and receive materials, helps to reduce delays and avoid serious ramifications with simple things like mislabeling. Holmes emphasizes the importance of training international staff on how export regulations apply to them, and most importantly, "[administrators must ensure] that staff understands the fundamental research exception."
In short, it is becoming a progressively more challenging task to keep track of global activities being undertaken by universities in order to identify the export control touch points.
Facilitate and Plan the Control Function
Development and deployment of an export control program requires the commitment and resources of the institution’s administration. Several leading research institutions have set an achievable precedent in their development and organization of export compliance programs. Through interviews with various compliance professionals at such institutions, we have observed that generally a good place for the export control function is within the department that has the most interaction with researchers. While for many universities, this means within the office of research services or something similar, in others it may lie elsewhere, such as the Department of Environmental Health and Safety (EH&S).
Steve Eisner, director of export compliance and university export control officer at Stanford University, is housed within the office of the dean of research and reports to the vice provost for research. Similarly, Constance Birden, export compliance shipping specialist at the University of North Carolina at Chapel Hill (UNC), says EH&S was a logical place to support this function, as "we know the researchers will turn to this team first with any questions."
The key determination in placing an export control officer within the organizational structure hinges on the institution’s lines of communication. To be most effective, an export office or officer should be well connected to the office or department managing sponsored research. According to Eisner, "the relationship between the office of sponsored research and the export control officer is critical."
Other key departments that should be involved in the development of an export compliance program include, but arenot limited to:
- Engineering.
- Space sciences.
- Computer science.
- Human resources.
- Office of general counsel.
- International affairs office.
- Global programs.
- Finance and purchasing.
- Admissions.
- Environmental health and science.
The underlying message is that the export control function requires support, from both university leadership and faculty, and the placement of these resources needs to be where they will have such cooperation.
Review, Refine, and Roll Out
Policies, tools, and trainings must be developed that enable internal customers (researchers, faculty, students, procurement, and so forth) to understand their responsibilities, make preliminary assessments, and know where to turn for questions. This is a task easier said than done, as it is based upon regulations that take the academic environment into limited consideration. Further, the success of a program depends on the institution collaboratively agreeing on its approach to export controls and whether policies will be set forth to limit exposure, or take situations on a case-by-case basis.
According to Hladikova, the university formed an export compliance advisory committee composed of members of the administration, faculty, and research staff, to assist with the development of export control policies and processes, and help educate the various segments of the academic community on export compliance and its impacts. In her role, Hladikova leveraged the committee as a resource and had its members review the university’s new export control checklist for proposals, and asked them to provide feedback on how the process could be improved.
This exercise resulted in a collaborative tool that was enhanced by simplification and the provision of supplemental explanations for the questions posed, to explain the reasoning and regulatory background behind each line of questioning. Additionally, this review helped raise awareness and increased the checklist’s visibility across the wider academic community.
Another example of multifunctional collaboration would be to enact an institutional prohibition on any contract that includes language (that cannot be negotiated out of the contract) restricting publication and, therefore, removing the work from the fundamental research umbrella.
Once these policies and tools are in place, universities take varying approaches to spread the word. Some universities roll out various forms of training, including online modules and specific in-person department and faculty sessions. According to Eisner, Stanford conducted training in phases, beginning with "auditorium-sized introductory training sessions via PowerPoint for staff." In subsequent phases, Eisner "initiated lunchtime trainings at departmental faculty meetings and then developed a general online training course for both faculty and research administrators."
According to Elizabeth ("Missy") Peloso, associate vice president and associate vice provost for research services, others, such as the University of Pennsylvania (Penn), "take a multifaceted approach to export compliance training, including embedding information in other campus training such as hazardous materials shipping training, responsible conduct of research training, and sponsored program training for research administrators." Penn also has an online in-depth training available in its learning management system, and conducts one-on-one training for labs engaged in international activities, as appropriate.
To avoid discouraging faculty from pursuing research projects that they are interested in, Peloso meets with faculty members one-on-one to discuss contract proposals, and assists in negotiating the removal of prohibitive contract terms during the selection phase. For example, ideally, contract clauses with overly broad definitions of "confidential" that grant carte blanche authority to the grantor in determining which information derived from research is confidential—including findings and conclusions—would be renegotiated to either: (1) make the determination less unilateral, or (2) confirm the specific information that will be included prior to entering the agreement. Limitations on the right to disseminate research findings, including clauses that require a grantor review period prior to any public disclosure would also ideally be negotiated out of the contract to qualify as fundamental research.
Several institutional contacts emphasized the importance of prioritizing the review of sponsors and contracts. Peloso says, "[Penn] looks more closely at Department of Defense, NASA, and other government agency contracts, as opposed to grants, and pays particular attention to restrictions language. This process is not only a matter of negotiation language; the reviewer must understand the underlying activity [being undertaken by the university] to be certain the activity, in fact, constitutes fundamental research." Eisner emphasizes, particularly for Stanford as a fundamental research–only university, "the critical importance of reviewing research at the proposal stage rather than the award stage to avoid frustration on the back end." He confirms: "[we] review Department of Defense and NASA proposals up front to ensure the activity, work, terms and conditions, and solicitation are conducive to fundamental research."
Also key is the staff of individuals who can review the scope of work, and understand whether the work truly constitutes fundamental research. For example, "For DOD-sponsored research the actual degree of technical maturity may indicate whether the work is considered fundamental," says Eisner. "Therefore, scopes of work (for example, proposed tasks, the science involved, and deliverables) must be reviewed to assess whether the activity meets the definition of basic and applied research, which would qualify the effort as fundamental under export regulations."
Once the export compliance program is in place, to remain effective, continuous risk assessments need to be conducted and the program must remain fluid enough to assimilate new academic studies or programs, and in many cases expansion abroad.
Export Control Reform
Export control reform within the manufacturing world has been the buzz over the past several years. The reform, which started in 2009, had four primary goals:
- Single control list (merger of the Commerce Control List (CCL) of the Export Administration Regulations (EAR) with the U.S. Munitions List (USML) of the International Traffic in Arms Regulations (ITAR).
- Single licensing agency (at minimum, consolidation of BIS [Bureau of Industry and Security], DDTC, and OFAC).
- Single primary enforcement coordination agency.
- Single IT system.
At the time we researched this article, educational institutions saw little change affecting daily activities or the levels of administrative burden, with a major exception being how they need to approach proposals submitted to the Department of State. According to Peloso, "Several new USML categories have included items in their catchall that impose export restrictions on [experimental or developmental] equipment or technology that are funded by the Department of Defense." For example, USML Category XI(a)(7)(b) specifically extends DDTC control over certain electronic systems, as defined in the subchapter, even when those items are subject to the controls of another U.S. government agency.
Nonetheless, attention must be paid to ongoing export reform to help ensure all research being conducted on campus maintains the proper jurisdiction (ITAR/EAR). This also helps in making timely adjustments to the university’s licensing processes, to prepare for new licensing requirements, including transitions to the EAR. The Export Control Reform website on Export.gov, managed by the International Trade Administration, provides up-to-date developments of the Export Control Reform Initiative (for more information, see ECR Blog http://export.gov/ecr).
Business Officer Support
Oftentimes, as export control functions at educational institutions are driven by research needs, their placement may not provide sufficient interaction with the various business offices. Consequently, it is important for business offices and officers to make connections with the institution’s export compliance professionals. Many existing processes and functions undertaken by the business officer could be improved through these interactions and also likely result in enhancement of the institution’s levels of compliance and its ability to mitigate risk. For example:
- When conducting screening, in addition to looking at vendors and sponsors, screen all parties to be involved with the project against the Department of Commerce Consolidated List and the Department of Treasury’s Specially Designated Nationals List (SDN).
- Modify procurement procedures to include export control language on purchase orders, which request suppliers notify the institution if any of the items being purchased could have export control implications. This is important because it is common for equipment to be export controlled, even though its on-campus use may not create any immediate issues; however, should the equipment be transferred or shipped abroad in the future, that activity could trigger licensing or other prior-authorization requirements.
- Educate recipients of purchasing cards or similar tools on the types of purchases that may be subject to export controls.
Ensuring Research Capacity
As our research showed us, export controls are complex, and that complexity is furthered when applying manufacturing-centric regulations to the fluid and creative academic world. Nevertheless, it is crucial for colleges and universities to get it right or their ability to obtain much-needed contracts and grants might be impeded. We observed that understanding your institution’s global activity footprint and research aspirations is key, as is solidifying the proper support from the administration, in order to execute appropriate controls.
While it may be easy to leverage what others have done in the past to meet these requirements, it is also important to know that one size does not fit all and each program should ideally be tailored to the institution in order to not restrict the freedom to discover, develop, and invent.
AMIE AHANCHIAN is a managing director, working with multinational companies on import and export compliance matters; BRANDON BARELA is an associate, consulting on export-related compliance matters; and HEIDI MUSTONEN is a managing director, assisting clients to build and maintain practical compliance programs, KPMG LLP Trade and Customs practice.
This material is distributed solely for informational purposes and is not intended as legal or tax advice. The views contained herein are the opinions of the authors.