Proposed law sparks debate over reporting foreign gifts

Every year, the Department of Education sends a checklist to colleges and universities reminding them of the various federal laws and regulations they have to comply with, including environmental standards, Title IX and FERPA, the Family Educational Rights and Privacy Act.

For many years, that checklist did not mention any reporting requirements for foreign gifts and contracts. As a result, many higher education institutions were caught off guard in 2019 when the department began launching investigations of colleges and universities for noncompliance with the regulations.

Institutions scrambled to bring their disclosure practices into line, combing through gifts and contracts and sometimes hiring expensive auditors to turn over every stone, said Deborah Altenburg, associate vice president for research policy and government affairs at the Association of Public and Land-grant Universities

“I don’t think there was any ill intent, that people were trying to somehow avoid reporting,” she said. “It was just out of sight, out of mind for many people.”

Now, three years later, lawmakers are attempting to strengthen and clarify the reporting mandates for donations that come from abroad. The Bipartisan Innovation Act, versions of which passed the House and Senate this spring, is meant to boost America’s competitiveness in the global economy, but it also includes language that would beef up foreign transparency laws for higher education institutions.

The law would require individual faculty and staff members to report gifts from foreign entities and lower the current reporting threshold for institutions from $250,000 per gift to $50,000. President Biden has promised to sign the bill once the House and the Senate hash out their differences.

Some experts say that underreporting and a general lack of transparency regarding foreign gifts have been problems for decades, and that clearer, more stringent regulations are a welcome step forward. Public criticism of university ties to the Chinese-owned telecommunications company Huawei in 2018, to funding from Saudi royals following the killing of journalist Jamal Khashoggi and to Kremlin-linked oligarchs and institutes in the wake of the Russian invasion of Ukraine has only deepened concerns about transparency in foreign giving.

“The current state of the transparency and disclosure framework around higher education is pretty poor,” said Dylan Hedtler-Gaudett, a government affairs manager for the nonprofit project on Government Oversight who specializes in foreign influence. “There just isn’t enough insight and sunlight into who’s giving money, how much and what that money is for.”

Others feel differently. More than 20 higher education advocacy organizations signed letters to Congress protesting the new measures, arguing that they would put an undue burden on institutions that are already struggling to understand and comply with current reporting laws.

“We agree that we have an obligation to report foreign gifts,” said Sarah Spreitzer, associate vice president for government relations for the American Council on Education, a higher education lobbying group. “The confusing thing is, there are still a lot of questions about what that involves.”

Renewed Interest in a Long-Dormant Law

Reporting foreign gifts and contracts has been a legal requirement for colleges and universities since 1986, when it was outlined in Section 117 of the Higher Education Act. But the Department of Education only began enforcing the law a few years ago, when Secretary of Education Betsy DeVos ordered investigations of suspected non-compliance by a dozen institutions.

The department released its initial findings in 2020, which showed a widespread failure to report foreign donations. Yale University, for instance, did not report a single foreign donation between 2012 and 2017; Two other institutions, the names of which are redacted in the report, failed to disclose $760 million and $1.2 billion in foreign gifts, respectively. ED also launched a new online portal for reporting foreign gifts.

“Underreporting remains a pervasive problem, despite many universities possessing sophisticated and fully capable accounting systems,” the report concluded.

Since 2019, the department’s investigations have expanded to include 19 colleges and universities; most of these are still ongoing. They primarily target elite universities like Harvard and Yale, which the department claimed had failed to disclose a combined $375 million in foreign contributions and contracts. But they also include some public institutions, including the University of Maryland and Rutgers University.

Concerns over the influence of Confucius Institutes, organizations affiliated with the Chinese Ministry of Education, sparked the Education Department’s renewed interest in Section 117. A 2019 report by the Senate subcommittee on investigations found that more than 70 percent of colleges and universities that had received $250,000 or more from the institutes—also known as Hanban—had failed to report it.

The study went on to call foreign giving to US colleges and universities a “black hole,” saying institutions routinely fail to report foreign gifts and contracts despite legal requirements.

Spreitzer said the problem isn’t that institutions are reluctant to make their foreign donations public but rather a lack of clear formal guidance from the government.

ACE wrote several letters to the Department of Education asking for clarification in 2019. Spreitzer said their questions—including how much information to include beyond the country of origin of each gift, how to report gifts retroactively and whether the law covered gifts to alumni organizations— were largely ignored.

“Schools are trying very hard to comply with Section 117. They’re trying to be transparent,” Spreitzer said. “The Department of Education is not making it very easy.”

Altenburg said the sudden and intense scrutiny of foreign money in higher education was at least partly motivated by politics during the Trump administration.

“There was a lot of political pressure on the previous Department [of Education] staff, and they took a very adversarial view of interactions with the higher education community in setting up compliance,” she said.

In an email to Inside Higher Eda current Department of Education spokesperson acknowledged the confusion and frustration among higher education institutions in navigating the law.

“The Department recognizes there are concerns with how the reporting requirements of section 117 have been addressed in the past, and is committed to working with higher education institutions to help them understand and comply,” the spokesperson wrote.

‘Compliance Is Only as Strong as Enforcement’

Before 2018, the Higher Education Act’s foreign giving clause was rarely enforced. According to the 2019 Senate investigations subcommittee report, between 2004 and 2019, the government did not send a single reminder to US higher education institutions about foreign gift reporting requirements.

“For decades, the Department of Education didn’t ask for those reports,” Spreitzer said. “We had institutions who were worried when the department started launching investigations, who through internal audits identified money that should have been reported, self-reported it and then got slapped with an investigation themselves.”

Hedtler-Gaudett said the government dropped the ball on its own oversight responsibilities.

“Compliance is only as strong as enforcement,” he said. “Disclosure requirements only work if there’s a cop on the beat to make sure it happens. And if there isn’t, then you can understand why, over time, the norm became to play fast and loose.”

Doug White, a philanthropy scholar and author, said that erring on the aspect of more transparency is often the most ethical practice when it comes to reporting sources of funding.

“The bottom line is integrity,” he said. “Not everybody is going to agree that you should take certain money. That’s not the goal. But you will be on record as having exposed yourself for everyone to see your value system.”

More Reporting, More Problems?

Higher education lobbyists have opposed provisions in the Innovation Act that would lower the reporting threshold. They argue this would substantially increase the burden of reporting for institutions, as well as for the Department of Education, which Spreitzer says has already struggled to keep up with the volume of reported foreign gifts over the current $250,000 threshold.

“If you’re trying to find a needle in a haystack, you don’t make the haystack bigger,” she said.

Hedtler-Gaudett said the argument that stronger reporting requirements would be onerous for institutions is weak at best.

“These institutions already have to keep pretty close track of all this stuff for their own accounting purposes,” he said. “I just don’t think the argument flies.”

He added that while strengthening requirements under the Innovation Act is a step forward for transparency, the reality of foreign giving to colleges and universities presents more complicated problems than the legislation is likely to solve.

“Requiring a broader universe of disclosure by lowering the threshold and tightening up enforcement will hopefully lead to more compliance, but I think that only addresses an aspect of the problem,” he said. “Sometimes there could be a donation or a financial stream coming from an entity that looks perfectly innocent but actually has a very blurry line between that organization and state actors.”

Examples of this murky area abound. For years, the Massachusetts Institute of Technology partnered with Skoltech, a Moscow technical university, and in 2010 even helped with its initial funding and establishment before suspending the relationship in February after the Russian invasion of Ukraine. While Skoltech is not technically affiliated with the Kremlin, it is a product of the Skolkovo Foundation, which itself is headed by Russian oligarch Viktor Vekselberg, a close ally of Vladimir Putin and Russian Security Council deputy chairman Dmitry Medvedev.

White said one reason foreign donation transparency is so important for higher education institutions is because there’s a “revolving door” between academia and politics, think tanks and industries that have a hand in the country’s governance. A financial relationship with foreign donors, White said, could put those institutions and their leaders in conflicts of interest.

“There is a national interest to be sure that money coming from foreign sources doesn’t infiltrate power policy making in the United States,” White said. “The origin of the money and how it was spent—these things need to be known to the public, not just internally.”

For Spreitzer, there is a plus side to the Innovation Act’s proposed updates on foreign gift reporting: they would clarify expectations and give stakeholders in higher education a seat at the table through the process of negotiated rule making. She and other higher education lobbyists still oppose the more stringent requirements, but she’s hopeful that a compromise can be reached.

“We want to be a partner with the US government and Congress in addressing national security concerns,” Spreitzer said. “We don’t just want to be reporting for reporting’s sake.”

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