Heightened Scrutiny of University Reporting of Contributions from Foreign Sources

The U.S. Department of Education recently has reinvigorated its enforcement of a decades old provision requiring the reporting of foreign gifts and contracts. Section 117 of the Higher Education Act of 1965, 20 U.S.C. § 1011(f), enacted in 1986 to address concern over the growing number of financial arrangements between American universities and foreign sources, requires institutions of higher education to report to the Department of Education contracts with and gifts from a foreign source that, alone or combined, are valued at $250,000 or more in a calendar year. As part of its efforts to make Section 117 reporting more transparent, the Department of Education has posted a public report of the foreign gifts reported by institutions between January 2013 and June 2019 on its website. In the past, Section 117 was largely ignored. While the Department previously had provided only sparse guidance regarding Section 117, it recently has engaged in a flurry of enforcement activity and issued sub-regulatory guidance providing more clarification regarding its expectations for reporting. Universities therefore should thoroughly evaluate the reporting requirements and their compliance efforts in light of the Department of Education’s renewed focus on Section 117.

Over the past year, the Department has opened no fewer than eight investigations into major research institutions’ reporting practices under Section 117. One institution was cited for a failure to “report a single foreign source gift or contract in 2014, 2015, 2016 and 2017,” despite purporting to have considerable presence abroad, including assistance in setting up jointly run laboratories with Chinese universities funded by Chinese granting agencies. To verify compliance, the Department requested records from this institution regarding any contributions specifically from Saudi Arabia, Qatar, China, Huawei (a Chinese telecom giant and frequent focus of American national security concern), ZTE Corp. (another Chinese telecom giant), and the National University of Singapore, among others. A different institution was notified that the Department “[wa]s aware of information suggesting [that it] lacks appropriate institutional controls and, as a result, its statutory Section 117 reporting may not include and/or fully capture all reportable gifts….” The Department then requested extensive records, including records regarding contributions from China and its telecom giants, Qatar, Russia, and Iran.

On February 10, 2020, the Department posted a notice in the Federal Register of a new information collection form it proposes to use to collect information from institutions of higher education regarding receipt of foreign contributions. Two days later, Secretary Devos emphasized: “If colleges and universities are accepting foreign money and gifts, their students, donors, and taxpayers deserve to know how much and from whom . . . We will continue to hold colleges and universities accountable and work with them to ensure their reporting is full, accurate, and transparent, as required by the law.” Notably, the Department’s proposal appears to require institutions to report the name and address of foreign sources to verify compliance with Section 117 as “the statute does not carve out an exception for institutions to withhold the name or address of an anonymous party.” Institutions should be aware of the potential adverse effects of such a requirement and generally should plan for and adapt to heightened scrutiny by the Department. In short: institutions must consider seriously Section 117 reporting requirements and improve processes for tracking and reporting contributions from foreign sources.

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