DoW, NSF Intensify Scrutiny on Interactions with Designated Chinese Entities
Recent announcements by the Department of War (DoW) and the National Science Foundation (NSF) signal ongoing federal concern with the interactions IHEs have with foreign entities deemed to pose a risk to U.S. national security.
IHEs should act now to proactively audit engagements with any listed foreign entities of concern and establish robust compliance measures.
Recent announcements by the Department of War (DoW) and the National Science Foundation (NSF) signal a continued escalation in scrutiny of federal research funding agencies on the engagements of IHEs with a growing list of entities in China, Russia, and Iran deemed to pose a risk to U.S. national security. Arising out of the requirements of the CHIPS and Science Act (Pub. L. 117-167) and recent reauthorizations of the National Defense Authorization Act, these announcements reflect the Federal government’s sustained efforts to protect the nation’s research enterprise from unwanted foreign influence. The government’s multi-pronged approach to restrict federally-funded research from the reach of foreign entities of concern is further evidenced by the recent proposal from the Office of Management and Budget (OMB) to reshape the “Uniform Guidance” for Federal Financial Assistance to (1) restrict use of grant funds for activities involving listed entities and (2) allow agencies greater discretion to suspend and terminate grants, which we discussed in greater length in our XL INSIGHTS+ article Proposed “Uniform Grants Regulation” Raises New Risks for International Programs and Collaborations.
In light of these developments, IHEs that receive federal research support should act now to audit engagements with any listed foreign entities of concern and ensure that they have robust compliance measures in place.
DoW Orders Targeted Research Security Audits, Updates Restricted Entity Lists
On August 17, 2026, the Department of War (DoW) announced that it had ordered 30 U.S. IHEs to conduct research security audits of their “ties and collaborations” with foreign entities of concern, which it identified as entities designated on the Section 1286 List of “Foreign Institutions Engaging in Problematic Activities, as well as organizations associated with rebranded Confucius Institutes.”
The Department described the scope of the required audits in broad terms to include “comprehensive reviews of their academic, financial and research collaborations with foreign entities of concern” and the object to include assessment of the exposure of sensitive or export-controlled research. Finally, it suggested that appropriate mitigation measures might include termination of problematic partnerships. IHEs receiving this letter from DoW were given until August 31, 2026 to report their findings and any mitigation plans implemented to address concerns raised by the DoW letter. As of the publication of this blog post, DoW has not commented on the responses submitted by IHEs.
To add an additional layer of complexity, DoW’s announcement to IHEs followed only weeks after the Department updated to its Section 1286 List of “Foreign Institutions Engaging in Problematic Activities” and its Section 1260H List of “Chinese Military Companies Operating in the United States” (CMCs) to add some notable entities:
Section 1286 List (updated July 23, 2026): Recent additions include Fudan University, Shanghai Jiao Tong University, Shandong University, Xidian University, Hangzhou Dianzi University, and the Chinese Academy of Sciences.
Section 1260H List (updated June 8, 2026): Recent additions include the biotechnology companies Novogene, Complete Genomics, and WuXi AppTec. (While federal contractors are not currently prohibited from doing business with entities on the 1260H list, the scope of covered contracts will expand on June 30, 2027, to include contracts “for the procurement of goods or services that include goods or services produced or developed by” entities on the Section 1260H, thereby significantly increasing the risk exposure of federal contractors).
NSF Announces New Funding Prohibitions
On July 8, 2026, the National Science Foundation (“NSF”) issued a Dear Colleague Letter (“DCL”) announcing plans for a new policy, Prohibition on Collaborations with Restricted Entities, that would prohibit NSF funds from being expended on collaborations involving entities on several U.S. restricted party lists, including well-established restricted party lists (e.g., the Bureau of Industry and Security’s Entity List and Denied Persons List, the U.S. Department of State’s Debarred Parties List) and more emergent lists such as DoW’s Section 1286 List and Section 1260H List. According to the DCL, NSF’s new research security policy, which is expected to be implemented in fiscal year 2027, contains two key prohibitions applicable to NSF-funded projects:
No Use of NSF Funds with Restricted Entities. The DCL provides that “NSF appropriated funds shall not be used for grants, contracts, other transactions or other assistance to an organization if the purpose is to conduct research in collaboration with restricted entities.” This prohibition extends also to the use of NSF funds for collaborative activities involving employees of these restricted entities.
Prohibited Activities of Senior/Key Personnel. The DCL also provides that senior/key personnel are prohibited from (1) “holding an appointment or position with, or receiving research support from, a restricted entity” and (2) “collaborating with a restricted entity, or employee thereof, on research funded by their NSF award.”
IHEs will be responsible for identifying and addressing prohibited activities before NSF funds are expended, and Authorized Organizational Representatives (AORs) and senior/key personnel will be required to respectively certify to compliance with this prohibition at the time of proposal submission.
In tandem with the DCL, the NSF also announced anticipated new guidance on financial assistance (intended to replace the current Proposal and Award Policies and Procedures Guide) that would align with the OMB’s proposed revisions to the Uniform Guidance, including by allowing NSF officials greater discretion in grant suspension and termination.
Implications for IHEs
The amplified scrutiny on engagements with restricted entities, and particularly those in China, creates heightened risks for IHEs on several fronts: (1) potential disruptions in current or future federal funding, (2) concerns of DOJ enforcement actions under the False Claims Act, and (3) potential reputational risk if a federal agency audit or congressional hearing raises significant questions about an IHE’s engagements with foreign entities of concern.
Accordingly, IHEs with research funding from the DoW or NSF should consider multiple measures now to assess their current interactions with listed entities and to ensure robust compliance capabilities moving forward.
Evaluate for any Engagements with Foreign Entities of Concern. Evaluate the international activities portfolio to identify if any engagements involve foreign entities of concern or employees of such entities. Review the activity to determine if federal funding is involved and whether continuation of the activity presents risks to the university.
Activities of Senior/Key Personnel. Ensure that all senior/key personnel are adequately trained on the risks of engaging with foreign entities of concern (including employees) and the institutional processes for screening and review of such engagements. Confirm that senior/key personnel understand the requirements to disclose all ties and collaborations in proposal submissions and conflict of interest disclosures and are current on all required trainings.
Comprehensive Screening Protocols. Verify that compliance processes screen for potential matches to entities included in all of the restricted entity lists maintained by all funding agencies. Consider adding additional modules to support the expectations on IHEs to adequately vet international partners.
Equipment and Materials. Identify and document all acquisitions of equipment or materials from listed entities, whether through traditional procurement or other channels, that may fall within the scope of the anticipated prohibitions by NSF and DoW on the use of federal funds on “grants, contracts, or other transactions” with restricted entities.
Due Diligence with New Proposals. Undertake comprehensive due diligence with respect to individuals and entities connected with new funding proposals where the proposal includes an engagement with a foreign entity of concern (or its employees) or where the ties and collaborations of senior/key personnel indicate a connection with foreign entities or concern (or their personnel).
Comprehensive Documentation. Maintain detailed documentation of the results of all these compliance measures, and any mitigation efforts undertaken, in a form that would allow the IHE to respond on short notice to inquiries from funding agencies.
