The U.S. Department of Education (ED) continues to monitor institutional compliance with Section 117 of the Higher Education Act (Section 117), which requires institutions to report certain foreign gifts and contracts. increase. On July 22, the ED updated her July 8 electronic announcement with a link to additional guidance on interpreting section 117’s reporting requirements. This is reflected in the June 23rd presentation to the American Council on Education (ACE). In a follow-up letter from ACE to the ED on August 16, ACE said: That ED will address concerns and issues with the existing reporting portal.Control of Section 117 is transferred [from the Office of the General Counsel] Return to Federal Student Aid (FSA). “
Outline of Article 117
Section 117 states that if, alone or in combination with other gifts, you have “received a gift” or “entered into a contract” from a “foreign source” worth US$250,000 or more, the “organization” required to submit a disclosure report to Contract with the same foreign supplier in the same calendar year. look 20 USC §1011f. Reporting deadlines are twice a year, January 31 and July 31.
The Act authorizes the ED to promulgate regulations related to compliance with Section 117. The law also authorizes the United States Attorney General (ie, the United States Department of Justice (DOJ)) to bring civil actions against the agency at the request of the ED Director.[w]Whenever you believe that an institution has not complied with the following requirements: [Section 117], including any rules or regulations promulgated under this section. 20 USC § 1011f(f)(1).
To date, the ED has issued quasi-regulatory guidance in lieu of regulation, including a November 13, 2020, document intended to “clarify the department’s enforcement powers for failure to report properly.” Includes Notice of Interpretation (NOI) of the day. [Section 117]The NOI argues that the ED can enforce compliance with Section 117 as a Title IV matter, that is, compliance is a mandatory element of the Program Participation Agreement for institutions participating in the Federal Student Financial Assistance Program. In other words, violations of Title IV can lead to “fines, restrictions, suspensions, or termination of the institution’s participation in Title IV” under the NOI.
Between June 2019 and January 2021, the ED initiated a survey of 19 agencies’ compliance with Section 117.
ED Recent Guidance
The July 2022 electronic public notice states that the ED will “ensure compliance with Section 117 and [institutions of higher education] To identify and address potential foreign malicious influences. The slide deck linked in the electronic announcement covers eight of his topics: Foreign Sources, Transaction Amounts, Gift Reporting, Contract Reporting, Restricted Gifts and Contracts, Covered Agencies and Entities, Reporting Portals and Systems, General Compliance. The presentation was attended by ED General Counsel Lisa Brown and her FSA Chief Operating Officer Richard Cordray.
Highlights of the updated guidance include:
- Agencies that do not report in a timely manner (i.e., in accordance with statutory deadlines)[are] Not compliant with Section 117. ”
- Contracts are evaluated at runtime. Gifts are valued based on the amount actually received by the institution.
- “Money out,” arm-length trades are generally not reportable, but “[t]Ransom payments that are well below market value may be reported, even if they are “out of money”. “
- Agencies must make a “good faith effort” to determine whether a gift or contract relates to a foreign source. Such efforts may include gathering information from the other party and conducting independent investigations.
- For multinational corporations or U.S. entities with foreign parent companies, the ED directs agencies to consider the formal relationships between the parties and the actual reality of how the parties interact.
- In some circumstances, the foreign source may be a US-based company or a foreign subsidiary of the parent company. A financial institution must determine whether a subsidiary meets the definition of “foreign source.”
- Institutions must use “reasonable valuation methods” for contracts of uncertain value.
- Institutions must report transactions involving intermediaries if the institution benefits from the transaction. The ED makes a “falsifiable presumption” that in situations where a legal entity operates substantially for the benefit of, or under the auspices of, an institution (such as a foundation), money received by intermediaries is for the benefit of the institution. ” said.
- The disclosure report “must reflect the details of individual transactions” and cannot be reported as a whole. The ED identifies one exception. “Restricted or conditional agreements with the same foreign source for the payment of tuition (and related fees) for students from a particular country.”
- In the case of a limited or conditional contract, the institution shall “[a]t minimum, “detailed or narrative description of the terms or conditions under which an individual transaction is made” shall be deemed to be restricted or conditional. The institution is “[s]means specifying which of the four enumerated restrictions or conditions apply to the transaction. “
- An agency is not required to prepare a Section 117 disclosure report if it has no data to report for the relevant period.
- The ED expects that “financial institutions will be required to submit a disclosure report immediately upon identifying any undisclosed reportable transactions or previously disclosed transactions that have not been properly reported.” I am emphasizing.
- Institutions may amend previous disclosure reports by emailing the Foreign Gifts Access Team.
Although not reflected in the slide deck, according to the August 2022 ACE letter, the ED will close its outstanding Section 117 investigation, address concerns and issues related to existing reporting portals, and issue a Section 117 investigation. He also communicated plans to transfer the administration of Section 117 compliance from the Secretariat. General Counsel for Federal Student Aid.
The ED also continues to update its Section 117 web page to share information and guidance on Section 117 compliance and enforcement. The webpage contains, among other things, links to statutory and section 117 reporting portals. Interpretations of the ED of Section 117 requirements and related material (including updated slide material); Notices of Investigation and Record Requests issued to the Agency (including closure notices, if applicable);
Proactively, legislation has been introduced that seeks to amend the reporting requirements for foreign gifts and contracts. The U.S. Innovation and Competition Act of 2021, commonly referred to as the Bipartisan Innovation Act, is currently in debate to reconcile differences between the House and Senate versions of the bill. Potential changes include, among other things, lowering financial thresholds for reporting in Section 117 (proposals include calendar-year $50,000 and $100,000 thresholds, or multi-year thresholds) as well as “Faculty, professional staff, and other staff engaged in research and development . . . disclose . . gifts received from or contracts entered into with foreign sources” ($50,000 for proposal thresholds (no monetary thresholds).
next step
Given the ED’s continued focus on Section 117 compliance, we encourage agencies to:
- Make sure your institution has Section 117 reporting policies and procedures in placeConsider which units or departments will receive gifts or enter into contracts on behalf of the institution and develop appropriate data collection processes. Also consider whether the institution has foundations, affiliates, or other intermediaries that engage in transactions with foreign sources that benefit the institution. If so, your institution must capture such entities in your Section 117 process.
- Preparation of Timely Section 117 ReportsInstitutions must submit Section 117 reports via the ED reporting portal by January 31 and July 31 of each year to be considered timely. The ED confirmed that a financial institution is not required to file a disclosure report if it did not participate in the transactions reported during the relevant period.
Answer questions about the requirements of Section 117 and the development of policies and procedures to address compliance.
Special thanks to Summer Associate Emily Webb for her contribution to the article.