Why the UK’s universities should take a closer look at where their money is coming from – and not just student fees

15 August 2016

By Michael Lowe

A few weeks ago, a piece in the Times caught my eye. Highlighting the risk that Britain’s universities could be receiving millions of pounds of “dirty money”.  The writer pointed out that educational institutions were the source of only nine reports of possible money-laundering incidents to the authorities in 2014-15 – out of a total of 382,000.

If you work in a UK university and didn’t read that article, it makes an interesting read. As the higher education sector becomes ever more competitive and universities chase 'bums on seats', overseas students are playing an increasingly prominent role in balancing the books. Indeed, the Higher Education Statistics Agency reported that 312,000 non-EU domiciled students enrolled to UK universities in 2014/15.  

Why might this be a potential problem as regards money laundering? Two facts. First, two-thirds of these non-EU students came to the UK from just ten countries. And second, six of those countries have been allocated a rating of 50 or below in Transparency International’s 2015 Corruption Perception Index, marking them as higher-risk (0 being highly corrupt, 100 being very clean).

What’s more, the figure of 312,000 covers just the students coming to the UK’s 130 universities. When you add our 2,600 private schools, together with the donations and bequests made every day by overseas benefactors to UK educational institutions of all kinds, the potential flows of such “dirty money” into UK academic coffers become mind-boggling.

All of this explains why I believe the exposure of instances of money laundering through UK universities is ultimately a question of when, not if. And when it does happen, the resulting reputational damage to the bodies involved will be swift and extremely damaging.

Against this background, the most surprising thing might seem to be that these risks don’t attract more coverage and attention. A key reason for this is that, as corporate bodies, universities aren't covered by anti-money laundering (AML) regulations. This contrasts with 'regulated' bodies such as law and accountancy firms (PwC included), which have to perform 'know your customer’ (KYC) checks before accepting money from anyone.  

That said, some restrictions do apply. Individuals – including those working in universities – have a personal responsibility under the Proceeds of Crime Act 2002. They may also have duties under the rules of any professional bodies they belong to, such as the accountancy institutes. However, employees often forget their own personal accountability, instead focusing solely – and possibly naively – on their employer's corporate responsibilities and policies.

So, what are universities doing at the moment to protect themselves? I’ve checked out a lot of university AML policies published online, and they’re mostly centered on student fees – a focus underlined by the 'red flags' they offer as examples. However, alumni-type donations may well present more of a danger: they’re larger, more visible, and create a more lasting association with the donor. When Sir Howard Davies resigned in 2011 as Director of the LSE, the main cause was its (in hindsight regretted) acceptance of £300,000 in research grants from a foundation run by Colonel Gaddafi's son. Such an instance is not isolated, with recent headlines linking other universities of high standing to alumni donations from those facing international bribery scandals and placed on international arrest warrants.

At the same time, other developments may be serving to increase universities’ exposure still further. For example, growing numbers of UK universities are looking to partner with overseas institutions and create a physical campus presence in other jurisdictions. When these locations are high-risk, what is being done to ensure local working practices – let alone the sources of funds coming into the joint venture from the other side – adhere to UK legal and ethical standards?

As the new academic year looms, bringing with it fresh inflows of overseas cash, the obvious question is what universities should do to counter the risks of getting embroiled in a money-laundering scandal. In most industries we would advise adopting industry best practices. But since these have yet to emerge in universities, it’s really down to each university to take action proportionate to its risks – and to decide for itself what “proportionate” means.

At the very least, the approach ought to include an ongoing monitoring or screening process that takes account of the differing levels of risk presented by different jurisdictions. And for those of greatest risk, where the provenance of funds are unclear, draw on specialist skills in conducting due diligence to ensure sanctioned individuals and ‘politically exposed persons’ (PEPs) are speedily identified.

Overall, the message for universities is clear. AML rules may not apply to them. But this will hardly make the press any more sympathetic when it emerges they’ve willfully accepted cash from exposed persons or those associated with unethical practices (whether it be arms dealing, child labour, etc). Better act now to prevent a scandal, than face having to clear one up after it breaks.

To discuss the issues raised in this blog contact me:
Michael Lowe | Senior Manager
Email | Tel: 0161 245 2646