Tackling attempts by kleptocrats to launder reputations must be a priority for universities, report warns

The study highlights how higher education and think tanks are prime targets for those with ill-gotten gains wanting to gain positions of power and offset controversies.

In recent years, there has been a major surge of foreign funding to U.S. and U.K. universities, including a near-tripling of philanthropic donations to UK and Irish universities from the decade from 2009-2019 to £1.3 Billion per annum. Major gifts now comprise a growing share of donations, and a relatively small number of wealthy individuals contribute nearly 80 percent of gift-giving to universities. Paying for a world class affiliation: Reputation Laundering in the University Sector of Open Societies was written by Alexander Cooley from Columbia University, Tena Prelec from the University of Oxford, and John Heathershaw and Tom Mayne from the University of Exeter.

The report draws on primary research as well as publicly available secondary data and a survey of officers in charge of donations at U.K Russell Group and the Top 20 large U.S. universities as ranked by the 2020 edition of US News and World Report. The survey asked the respondents to share their institution’s gift acceptance policies and the ways in which these policies have changed in recent years. Seven out of 17 Russell Group universities responded to the survey.

The analysis shows universities are increasingly aware of the need to keep their reputation beyond reproach and have adopted ethical principles and expanded review procedures.

But determining whether funds have illicit origins often is not straightforward. It can be hard to find the precise sources of laundered money, and people acting in alliance with kleptocrats often claim to be independent from their governments.

The report says the “core problem” is nondisclosure and a “lack of transparency about reporting gifts and absence of institutionalized accountability about the process of scrutinizing them”. Contacts and discussions with donors can be sensitive and competitive, leading to confidential meetings and negotiations between donors (or their representatives) and university administrators.

The decentralized nature of many universities—where those responsible for the administration of donations often work separately from regional experts who understand the county’s political context—can making vetting difficult.

The study found there is little agreement within universities as to what exactly constitutes prohibitive reputational risk and how to mitigate it or recognize red flags.

In the US, universities are legally required to report data on donations over $250,000 but this responsibility was routinely neglected.

Professor Heathershaw said: “Our study shows reputation laundering can involve private citizens endowing university programs and institutes to garner legal standing and manage their image.  They do so by making donations, serving as guest speakers at high-profile events, and gaining preferential admission to academic institutions for themselves, their family, and associates”.

“Many of today’s funders are not merely individual, politically exposed persons, but companies and the states with which they are associated, blurring the distinction between reputation laundering, authoritarian influencing, and commercial interests.”

The experts recommend:

• Universities should conduct due diligence on prospects before beginning negotiations about the terms of a particular gifts. They should also provide a comprehensive and searchable public list of all donations (foreign and domestic) over a specified threshold.
• Higher education institutions should consider making gift acceptance policies publicly available, and encourage institution-wide ethics training, regular accountability reviews, and the participation of the student body in major endowment decisions.
• Universities should conduct due diligence on prospects before entering into negotiations concerning the terms of a particular gift. University representatives should ascertain the donor’s identity, their citizenship/residency, whether they are on sanctions or other law enforcement watchlists or a politically exposed person requiring enhanced due diligence. They should also find out the source of funds used to make the proposed donation, the involvement of the donor in current legal proceedings, or any criminal history or allegations linked to the donor.
• Universities should provide a comprehensive and searchable public list of all donations (foreign and domestic) over a modest threshold (£10,000/$15,000), including the identity of donor, the amount, and major stipulations.
• The university’s gift acceptance policy, including the ethical guidelines and core principles for all donations, should be publicly available. There should be mandatory annual ethical training for all development officers, even if due diligence is not a formal part of their portfolios.
• Universities should adopt a formal policy of refusing to consider donations from a donor, foreign or domestic, whose family member or associate is currently in the admissions process.

Those who took part in the study reported low numbers of gifts failing to comply with ethical guidelines, mostly because, they say, the decision not to proceed was taken at a very early stage.

A few universities appear to have adopted a “gold standard” policy of making information about all university gifts and donations publicly searchable via their websites.

Dr Prelec said: “Universities have serious concerns about reputational risk, but there is little agreement as to what this is, and how to mitigate it or recognize red flags. However, there is now a broad consensus that the status of named rights, honorary degrees, and university affiliations is subject to current events and may be susceptible to rapid change or revocation. This means reputational management is not just a one-time vetting process, but a recurring concern. To show their willingness to deal with this problem, universities must commit to full transparency in publishing information about gifts and partnerships: it has to become not the exception, but the norm”.