Export compliance challenges and requirements for Higher Education

Over the past few years, trade compliance risks have made their way onto the higher education sector’s leadership agenda as universities and research institutes come under increased regulatory scrutiny regarding export controls, foreign investment, and sanctions implementation. A wide range of public policy announcements, legislative guidance and new legal requirements have been issued in recent years to prompt compliance. However, higher education faces a unique set of increasingly complex challenges. This raises several key questions including what the trade compliance requirements and challenges are and how to balance collaborative international research and development against a backdrop of increasing compliance risks. This article will explore these key challenges facing the sector.

Export controls are regulations that restrict the export of certain goods, technologies, and services from one country to another. These controls are designed to protect national security, control the movement of military and dual-use items, and promote foreign policy objectives. In recent years, as the production of knowledge, services and data have increasingly become the basis of liberal economies, regulators have progressively shifted their attention from controlling the export of physical products to “intangible items”. In this context, intangible items mean software or technology including data, information, and technical assistance which can be exported electronically, orally, or visually.

Through information and knowledge sharing as well as training, these domains are the primary remit of higher education, hence the current focus on trade compliance in the sector. While the laws themselves are sector neutral (meaning legal requirements are the same from one national economic sector to another) a number of governments have recently issued specific guidance for higher education. From this, we see certain provisions and concepts carry greater weight than others in the sector, so let’s look at some of these now.

The export control challenge in academia

Firstly, export control regulations generally exempt technology or software that is already ”in the public domain” from control, which typically covers the teaching of undergraduate courses. It does not cover new research, so controls can come into play when considering advanced degree courses or careers requiring research in sensitive technical disciplines, which may require exporting sensitive technology. This requirement raises a fundamental compatibility challenge with the “publish or perish” environment surrounding academic career paths due to the pressure of releasing research findings “in the public domain” to help secure future funding. However, the lengthy timeframes for awarding some export licenses often do not coincide with urgent submission deadlines, thus creating a potential impediment in obtaining researcher buy-in to meet export compliance requirements.

Secondly, “fundamental research,” defined as experimental or theoretical work in search of new knowledge of fundamental principles or observable facts, is exempt from control as academic freedom is protected under export control regulations. Generally, this de-control for “fundamental research” can only be relied on in the context of “dual use research” and not military-linked research. However, as research into dual use technologies can involve the use of controlled items, and can have potential military applications, the basic research exemption is restrictive. Meaning dual use research can also fall within the scope of controls resulting in export compliance requirements for academia.

Thirdly, the minimum information necessary to file a “patent” applicationis decontrolled. Unless authorised, if the item being patented concerns sensitive technology there is a licensing obligation for researchers to file their application in a foreign country, to physically export their invention abroad, or conduct a “deemed” export to foreign nationals in their home territory. Producing novel inventions forms the core of any scientific researcher’s ambitions and are often sought through partnerships between researchers and research institutes internationally. Even though patent decontrols are available, researchers must often wait until the patent is authorised for publication by the relevant patent office before they can export or disclose their invention. These restrictions mean research institutes are required to carefully balance securing and controlling information with sharing for the benefit of wider society.

The foreign funding challenge in academia

Funding academic research is a further challenge in today’s economic climate as higher education institutes (HEIs) find themselves facing growing financial pressures along with increased compliance risks for inward investment from foreign sources. Traditionally, the university funding model is made up of tuition fees, education contracts, grants, contracts from funding and research bodies (including from industry and other income earned from intellectual property rights), donations and endowments. However, increased competition for limited domestic public budgets means higher education has become increasingly reliant on overseas funding, which due to concerns over potential foreign interference, has equally resulted in increased scrutiny on the sector from regulators.

Overseas funding comes from high foreign student fees and foreign state-owned or -affiliated companies as well as gifts and endowments, all of which are embedded with increasing elements of risk.

These risks include:

• theft or misappropriation of sensitive research or intellectual property
• allowing ownership or control to a foreign adversary
• a foreign individual or entity exerting influence over decision-making
• gaining access via cyber intrusion to secured information or data
• the risk of a breach to national security

As a result, several key regulators have imposed mandatory reporting requirements on foreign investments and acquisition attempts in critical technologies such as advanced robotics or artificial intelligence. As critical technologies are often emerging technologies, they specifically fall within the research scope of HEIs and these requirements impose additional obligations. Regulators can call-in transactions of concern for in-depth review and pending the outcome of that process have the powers to prohibit transactions from proceeding. They may even restrict the commercialisation of intellectual property gained from research endeavours to certain foreign entities.

The science sanctions challenge in academia

Science is sometimes intertwined with international security concerns and sanctions are often used to deter the offending behaviour. Like travel bans and arms embargoes, science sanctions restrict the exchange of scientific and academic research with the aim of limiting access to resources and know-how to prevent sanctioned entities and individuals from pursuing potentially sensitive and controversial military programmes. Sanctioning governments can prohibit the use of public research funds, terminate existing research agreements, suspend research collaboration, and freeze payments of funds for existing research projects that may advance the aims of sanctioned entities and individuals. The features of this type of sanction extend to prohibiting specialised teaching and training and scientific cooperation in sensitive technical disciplines.

As these activities are at the core of a university’s mission, science sanctions pose a values challenge to academia due to concerns over the securitisation of the open research environment. Still, compliance with multilateral and national sanctions regimes is a legal requirement. Research institutes are increasingly being called upon to go further than screen applicants against designation lists. They are expected to conduct enhanced due diligence using open-source intelligence to detect red flags in applications to ensure applicants are not acting on behalf of sanctioned entities or individuals, or in the interests of adversarial states.

Deloitte’s Trade Compliance team can support universities and HEIs with identifying key compliance risks. Our team includes specialists with sector experience who understand the challenges faced by HEIs. Our team can support with establishing a robust and effective compliance programme to ensure compliance and continued business growth. Specifically, our team can provide timely and responsive sanctions and denied party screening support as well as specialised corporate intelligence services to enable integrity due diligence for entities or individuals of concern. Our team can also support in ensuring compliance with export control regulations by providing advisory services in relation to technology transfers (including in the cloud), export classification, export licensing services and training to those employees most at risk.