Home – Rise in Donations Raises Universities’ Exposure to Risk

Rise in Donations Raises Universities’ Exposure to Risk

Posted on 03-01-2017 by Kari Abitbol

 The amount of money donated to universities in the United States by individuals, companies and organisations increased last year, according to a new report from the Council for Aid to Education. As universities accept increasingly large gifts, they must make sure they know where the money is coming from. Otherwise, they risk doing business with PEPs or accepting money that was acquired by bribery and corruption.


Rise in donations to universities


The latest Voluntary Support of Education (VSE) report by the Council for Aid to Education shows that universities are receiving considerable sums of money from individuals, companies, and organisations. Colleges and universities in the US raised $41 billion in charitable donations in 2016, a rise of 1.7% from the year before. Harvard raised nearly $1.2 billion and Stanford University raised $951 million. As government funding for universities declines in many countries, the sector is becoming increasingly reliant on private donations.


Universities must therefore put in place proper due diligence procedures to ensure that they do not accept money from an entity which could expose them to reputational risk or legal action. If they accept money that was acquired by illegal means, they could face legal action and reputational damage. A university’s reputation is particularly important, because it can affect how likely it is that a student or academic will apply to study there, and whether people will trust their research.


Global donations require risk-based approach to due diligence


The report shows that universities are increasingly receiving donations from all over the world, which exposes them to increased risks from markets where corruption is more common. Oxford University has received more than £70 million from Wafic Saïd, a Syrian-Saudi Arabian businessman, to set up a business school in his name. Universities in Europe and the US are bidding for a new education prize funded by Charles Chen Yidan, a philanthropist from China. Before accepting a donation, universities should apply a risk-based due diligence approach. They should search multiple sources for mentions of the donor and their business associates, and assess the level of corruption in the country where the donor is based. If these assessments suggest there is a high risk of bribery and corruption, universities should apply furthery enhanced due diligence before making a decision.


Risk of donations by PEPs


The VSE report found that over 40% of donations to US universities last year came from individuals, so universities should check whether these benefactors are Politically Exposed Persons (PEPs), or if they have business relationships with PEPs. PEPs are individuals with a prominent public function, and the Financial Action Task Force guidelines warn that their position and influence “can be abused for the purpose of committing money laundering offices”, bribery and corruption, and terrorist financing. For a PEP looking to improve their image or standing in a certain country, funding a new building at a university might be an attractive investment. So universities should apply enhanced due diligence on PEPs and their family members and business associates.


Universities have suffered reputational damage for accepting donations from PEPs in recent years. In 2014, it was reported that Cambridge University held secret meetings with the daughter of Chinas former prime minister to secure a £3.7 million donation from her charitable foundation. The director of the London School of Economics (LSE) resigned in 2011 after the university faced criticism for accepting a £1.5m gift from a foundation led by the son of Libyan leader Colonel Gaddafi. A report by Lord Woolf said these links to the Libyan regime exposed LSE to a “significant degree of risk", noting that proper due diligence assessments did not take place. This caused the LSE significant reputational damage – Human Rights Watched condemned them for allowing “abusive or corrupt officials or their families to launder their images in exchange for money”.


Lessons for universities:

  1. Apply risk-based due diligence to all prospective donors, and third parties associated with them.
  2. Assess whether prospective donors would be considered a PEP by the relevant regulators. 

3 Ways to Apply This Information Now

  1. Read more about higher education and due diligence topics on the blog.
  2. See how Lexis Diligence® supports a risk-based approach to due diligence.  
  3. Share this blog on LinkedIn to keep the dialogue going with your colleagues and contacts. 

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