Highlights
- In light of recent enforcement activity, institutions of higher education should review their reporting and disclosure obligations related to foreign entities and individuals under Section 117 of the Higher Education Act (20 U.S.C. § 1011f).
- Failure to comply may lead to federal enforcement actions with administrative and civil penalties, including potential loss of federal funding.
In light of recent enforcement activity, institutions of higher education should review their reporting and disclosure obligations related to foreign entities and individuals under Section 117 of the Higher Education Act (HEA) (20 U.S.C. § 1011f). Failure to comply may lead to federal enforcement actions with administrative and civil penalties, including potential loss of federal funding.
Overview
Section 117 requires that institutions receiving federal financial assistance report semiannually to the U.S. Department of Education (ED) regarding foreign gifts, contracts and ownership falling within the statute's defined terms. ED also makes the reported information publicly available on its website.
Institutions subject to Section 117 generally include any public or private U.S.-based institution receiving federal funding (including any single campus of such institution) that 1) is legally authorized in the U.S. to provide a program of education beyond secondary school, 2) awards a bachelor's degree or higher or provides at least a two-year program creditable toward such a degree and 3) is accredited by a nationally recognized accrediting agency. Depending on the circumstances, an institution's reporting may include gifts or contracts involving campuses abroad or those related to intermediaries such as alumni organizations or student clubs.
For purposes of this requirement, a "Foreign Source" includes:
- a foreign government, including any agency of a foreign government
- a legal entity, governmental or otherwise, created under the laws of a foreign state
- an individual who is not a citizen or national of the U.S.
- an agent, including a subsidiary or affiliate of a foreign legal entity, acting on behalf of a Foreign Source
Reporting obligations fall into the two categories below.
Gifts and Contracts from a Foreign Source
Institutions must report any gift or contract from or with a Foreign Source valued, alone or combined with other gifts and contracts, at $250,000 or more within a calendar year. Gifts generally include any gift of money or property and are valued when received. Contracts generally include any agreement for the acquisition by purchase, lease or barter of property or services, and they are valued when entered.
For any gift or contract with a Foreign Source other than a foreign government, the report must identify the aggregate dollar amount of the gift or contract attributable to a particular country. For any gift or contract from or with a foreign government, the institution must identify the aggregate amount from each foreign government.
If the value of a contract is indeterminate, ED does not require any specific valuation method. Institutions must instead use a "reasonable valuation methodology" to determine the total value.
Reports of restricted or conditional gifts or contracts must also describe the conditions or restrictions, generally in narrative form. Restricted or conditional gifts and contracts include any endowment, gift, grant, contract, award, present or property that includes provisions regarding the 1) employment, assignment or termination of faculty, 2) establishment of departments, centers, research or lecture programs or new faculty positions, 3) selection or admission of students, or 4) award of grants, loans, scholarships, fellowships or other financial aid restricted to students of a specific country, religion, sex, ethnic origin or political opinion.
Ownership or Control by a Foreign Source
Institutions that are owned or controlled by a Foreign Source must identify 1) the Foreign Source, 2) date on which the Foreign Source assumed ownership or control of the institution, and 3) any changes in program or structure resulting from the change in ownership or control. This Foreign Source reporting obligation is separate from the general obligation of colleges and universities to report changes in ownership and control. However, ED has indicated that institutions should consider the definitions of "ownership" and "control" included in the change in ownership and control regulations at 34 C.F.R. § 600.31 as informative in assessing how to complete Section 117 reporting.
Reporting Mechanics
According to ED, institutions should exercise reasonable due diligence and make a good faith effort to understand the source of any gift or the identity of any contracting party. Foreign gift and contract reports must be updated twice per year, on Jan. 31 and July 31. Any covered transactions or updates to previously reported information should be included in the next report in each January or July, whichever is sooner. Institutions should log in to the reporting portal to file their disclosure reports. ED does not require institutions to include supporting documentation with their submissions; nonetheless, it is good practice to retain evidence of compliance.
Enforcement
Failure to comply with these reporting requirements may result in administrative enforcement action by ED or referral to the U.S. Department of Justice for a potential civil action in federal court. Since 2019, ED has opened several Section 117 compliance reviews that included substantial requests for information and records. ED has also emphasized in past guidance that the information submitted is subject to federal criminal statutes, specifically 18 U.S.C. § 1001 – which provides that any party who knowingly and willfully falsifies, conceals or covers up by any trick, scheme or device a material fact; makes any materially false, fictitious or fraudulent statement or representation; or makes or uses any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry – may be subject to fines and imprisonment.
Conclusion
If you have any questions about how your institution should adapt its practices and help ensure compliance with Section 117, please contact the authors or a member of Holland & Knight's Education Team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
