Client Alert: Donations from Foreign Sources Come Under Heightened Federal Scrutiny

In a recent letter to the Senate Subcommittee on Homeland Security and Government Affairs Committee (“Subcommittee”), the Department of Education’s Principal Deputy Counsel Reed R. Rubinstein shared preliminary findings from six investigations under Section 117 of the Higher Education Act, as amended.  The investigations were launched, in part, as a response to Congressional findings by the Subcommittee that concluded the public often did not have an accurate picture of foreign spending in the U.S. education system because colleges and universities “routinely” failed to report foreign money. The six investigation notices from ED are available here:

• Georgetown University and Texas A&M University
• Cornell University and Rutgers University
• University of Maryland and Massachusetts Institute of Technology

Collectively, the Department’s Principal Deputy Counsel highlighted that the six investigated universities “failed to report over $1.3 billion from foreign sources (including China, Qatar, and Russia) over the past seven years.” Moreover, one of the enumerated preliminary concerns of the Department were that institutions of higher education appeared “to believe their disclosure and transparency obligations to the U.S. government and U.S. taxpayers must be qualified by their desire to expand financial relationships with foreign governments, corporations, and persons, including anonymous foreign donors.”

In light of the Department’s enforcement actions and focus on foreign gifts and contracts, institutions of higher education should review the obligations prescribed in Section 117, which require postsecondary institutions to report foreign gifts and contracts from the same foreign source that, alone or combined, have a value of $250,000 or more for a calendar year. The Department has never issued regulations on this statutory requirement, though they have issued formal guidance in 1995 and 2004. Colleges and universities should also note that pursuant to 20 U.S.C. § 1011f, knowing or willful failure to comply with Section 117 may result in monetary damages of up to the full cost of obtaining compliance and associated costs of investigation and enforcement. Moreover, the Secretary of Education can request that the Attorney General commence a civil action to compel compliance in court.

The American Council on Education (“ACE”) and five other associations representing postsecondary institutions have urged the Department to issue regulations or clarifying guidance on how to comply with the reporting obligations of Section 117. ACE noted that a primary point of confusion remains whether gifts made to an affiliated foundation must be reported. Additionally, ACE sought clarification on the extent in which colleges and universities should disclose the name of a specific foreign donor, rather than the donor’s country of origin, and the process in which colleges and universities can submit amendments and corrected reports to the Department.

Should you have any questions or require assistance in complying with these federal requirements, please feel free to contact HMBR’s Higher Education Group at 312-946-1800.