The importance of investigating donors
Why universities need to do their research before accepting donations
By Elizabeth Ross
There has been a noteworthy rise in donations – worth more than a million pounds – to higher education institutions in the UK over recent years, as they become increasingly popular targets for philanthropic donations.
For years, the government and other bodies like the OECD have encouraged universities to expand their funding base. Donations for university-led research programmes, which help the UK remain competitive on a global level in a number of key sectors (such as science and technology), have been invaluable. Some high profile grants – such as Michael Moritz and Harriet Heyman’s £75 million bequest to Oxford University in 2012 and David Ross’ (the founder of Carphone Warehouse) contribution to Nottingham University of £81 million – have been targeted at helping institutions plug the gap expected to come from cutbacks from European sponsors.
While encouraging former students to maintain a lifelong interest in supporting their alma mater is undoubtedly positive, it doesn’t mean institutions can bypass examining the source of funds and reputational issues certain gifts may pose. While educational institutions are not covered by Anti-Money Laundering obligations incumbent on financial institutions, they are subject to the Proceeds of Crime Act of 2002, which states they are obliged to notify the relevant authorities of suspicious activity.
The question of whether institutions may fail to identify potential reputational issues around their sponsors is of significant public interest. Links between the LSE and the Gaddafi regime hit the headlines in 2011 and resulted in the resignation of director Sir Howard Davies, alongside demands to return a £1.5 million grant. The fact that in 2014-2015, only nine reports of possible money laundering out of a total 382,000 were brought by educational institutions was surprising, given the high number of foreign students in the UK.
The process should be flexible, as the question is not: “Have we worked through the check list?” but “Have we considered all of the potential risk factors that may apply?”
Screening programmes for sponsors should be established with an examination of an institution’s due diligence processes. Careful analysis of a donor’s personal background, commercial interests (notably origin of capital and ties to sanctioned countries), as well as any association with controversy should be undertaken. The process should be flexible, as the question is not: “Have we worked through the check list?” but “Have we considered all of the potential risk factors that may apply?”
Universities should feel confident that donors who have proactively approached the university are likely to be familiar with vetting processes, whether they are from the UK or not. Reluctance to tolerate this is a significant red flag. Disclosing that the university operates a screening process should not curtail the possibility of conducting research confidentially.
Institutions targeting specific donors direct, whether via the alumni network or as a result of research should ensure they have done their homework prior to any meeting. While many institutions prioritise due diligence efforts by size of grant, this is not the only risk. For example, why should an anonymous grant of £100,000 be acceptable if a seven figure sum, and a request for recognition, would not?
Lastly, institutions need to recognise when they do not have the expertise to undertake the due diligence themselves, particularly when there is a risk of media interest. This is most likely to apply in the case of foreign donors who have complicated business and political profiles and operate in opaque markets. The costs of due diligence should be seen as implicit in overall fundraising budgets, bearing in mind the potential upside a new relationship may bring to the institution.
A tradition of strong due diligence procedures will allow institutions to stay on the front foot when dealing with current and future regulatory obligations, whilst protecting their reputation and brand.
Elizabeth Ross is an Associate Managing Director in Kroll’s Investigations and Disputes practice, based in the London office. As a senior practitioner on the Business Intelligence team, Elizabeth provides consulting advice to private equity, professional services, and corporate clients in EMEA; their commercial interests stretch across a range of sectors and geographies. Prior to joining Kroll, Elizabeth served as an Equity Research Analyst at Morgan Stanley, with a focus on Central and Eastern European banks.