Universities failed to report US$1.3 bn in foreign funding

A United States Department of Education investigation into six universities found that they had failed to report in excess of US$1.3 billion from foreign sources, including China, Qatar and Russia, over the past seven years, despite a clear legal duty to do so.

The findings were revealed in a letter sent by Reed Rubinstein, the principal deputy general counsel of the Department of Education on behalf of the Office of the General Counsel, to Rob Portman, chairman of the Senate Permanent Subcommittee on Investigations, Homeland Security and Governmental Affairs Committee on 27 November.

One university received research funding from a Chinese multinational conglomerate to develop new algorithms and advance biometric security techniques for crowd surveillance capabilities.

Another had multiple contracts with the Central Committee of the Communist Party of the People’s Republic of China.

Another university accepted funds from the arm of a foreign government to create an “academic” centre expressly for the dissemination of propaganda and to conduct other “soft power” information activities.

Rubinstein said that according to a public declaration filed in a Texas court by a high-ranking official of an arm of the Qatari government and a letter from their US law firm, Qatari ‘donations’ to US colleges and universities are made strategically to advance Qatari interests, and recipients of such ‘donations’ agree to keep the purposes and amounts of such donations secret.

“Apparently similar provisions are often part of foreign money agreements,” Rubinstein said. “Unfortunately, the department cannot confirm whether donors and recipients use such provisions to justify non-reporting and non-disclosure of foreign source donations to the US government and the American taxpayers.”

Another university had a relationship with Kaspersky, a Russian company that has been banned from contracting with the US government.

One university promotes a ‘Talents’ programme through a Chinese company with close ties to the Communist government. Another university received gifts from a foundation suspected of acting as a propaganda and influence front for the Chinese Communist government.

Five of the six universities reviewed have or had multiple contracts with the Chinese telecommunications company Huawei, a company that has been the subject of US national security and trust concerns and has been banned from access to federal broadband subsidies for posing a national security risk.

Legal requirement to disclose

Under Section 117 of the Higher Education Act, US institutions of higher education are not barred from accepting money from, or entering into contracts with foreign governments, companies, persons or their agents. But, with limited exceptions, they are required to disclose transparently their foreign money and contracts to the department.

Rubinstein explained that the investigations were opened in response to the US Senate’s Permanent Subcommittee on Investigation’s findings, published in a report in February 2019, on China’s Impact on the US Education System, that foreign spending on US colleges and universities is “effectively a black hole” because the US institutions fail to report foreign money as required by law.

That report found that the Communist Chinese government “invests strategically” in US education through Confucius Institutes and other vehicles; the public lacks an accurate picture of that Chinese investment because nearly 70% of US colleges and universities failed to report such investment and Chinese investment comes with “strings attached that compromise academic freedom”.

The February report said: “The Chinese government approves all teachers, events and speakers. Some US schools contractually agree that both Chinese and US laws will apply. The Chinese teachers sign contracts with the Chinese government pledging they will not damage the national interests of China.”

It said such limitations attempt to export China’s censorship of political debate and prevent discussion of potentially politically sensitive topics.

Indeed, US university officials told the subcommittee that Confucius Institutes were not the place to discuss controversial topics such as the independence of Taiwan or the Tiananmen Square massacre in 1989. As one US university administrator explained to the subcommittee, when something is “funded by the Chinese government, you know what you’re getting”.

‘Problematic’ lack of transparency

Rubinstein said in his letter to Portman that, although the Department of Education’s investigations are preliminary and few in number, “we share our preliminary concerns and conclusions to alert you to what appears to be a problematic lack of transparency and accountability regarding the solicitation and receipt of large amounts of foreign money by at least some of our colleges and universities”.

“The evidence we have reviewed to date tracks Congressional findings that American colleges and universities have provided unprecedented levels of access to foreign governments, corporations and persons without adequate oversight.”

He recommended that Congress “scrutinise more closely” the goals and methods of foreign money sources, the significant efforts and corporate mechanisms some colleges and universities take and use to solicit and channel foreign money, the influence and effect foreign money may have on research and curricula, and the extent to which foreign money might provide the means for access to sensitive US government research and-or create insider threats.

‘Financially opaque’

The Department of Education said many non-profit universities are multinational, multi-billion-dollar enterprises operating, inter alia, through financially opaque captive foundations, foreign campuses and other structures to generate revenue, including from foreign sources.

Rubinstein said the department believes the investigations, despite being at an early stage, have raised concerns that “at least some institutions of higher education appear to believe their disclosure and transparency obligations to the US government and US taxpayers must be qualified by their desire to expand financial relationships with foreign governments, corporations and persons, including anonymous foreign donors”.

The department found that the universities use sophisticated methods for managing, soliciting and tracking contributions, grants and contracts over time and from many thousands of sources, foreign and domestic, but it appears they have not deployed similar systems with respect to Section 117 reporting.

Universities solicit foreign governments, corporations and persons in a variety of ways, including institutional fundraising operations, quasi-entrepreneurial activities by professors and administrators, and foundations and alumni organisations.

But “some of these foreign governments, corporations and persons are hostile to the United States and may be seeking to project ‘soft power’, steal sensitive and proprietary research and development data and other intellectual property, and spread propaganda,” the department says.

While universities use foreign gifts to subsidise scholarships for foreign students at domestic and foreign campuses, there is “no evidence” that foreign gifts and contracts correlate with reduced tuition and other costs for American students, parents and taxpayers who generally subsidise the higher education sector through the Title IV, Higher Education Act student loan programme and various federal research grants, the department found.

It also raised concern about the higher education industry’s “poor cyber-security record and posture”, on which it ranked 17th out of 17 industries ranked by the information technology security company SecurityScorecard.

“This is a matter of concern because institutions of higher education are heavily invested in overseas operations,” Rubinstein said.

“Evidence from at least one of the investigated institutions of higher education suggests foreign campuses’ IT networks are interconnected with the domestic IT networks, with the possibility that foreign persons might have access to the institution of higher education’s entire information domain.

“This creates a risk that students and faculty on foreign campuses may circumvent US government vetting while retaining substantially unrestricted access to institution of higher education information networks.

“All investigated institutions of higher education receive American government research funding. The insider threat risk presented by hostile foreign actors also may be an appropriate subject for further Congressional inquiry.”

Correcting lax oversight

Rubinstein said Secretary of Education Betsy DeVos is correcting the historically lax oversight of Section 117 compliance and under her leadership the department is “moving aggressively to remedy past failings”.

This includes continuing investigations, setting up a Section 117 landing page on the Department of Education’s website to provide transparency, expanding existing inter-agency consultation processes to better highlight and address the challenges posed by universities’ pursuit and receipt of foreign money and entanglements, and reviewing the wording of regulations to tighten up gaps.

Rubinstein said: “Transparency through our proposed information collection, and accountability through effective government and public oversight are critical to safeguard the integrity of US government-funded research; to preserve our national security and economic primacy; and to protect American students and citizens from the consequences of an imprudent pursuit of money from hostile foreign governments, corporations and persons.”