It’s hard not to read this recent Wall Street Journal article titled “American Colleges Pay Agents to Woo Foreigners Despite Fraud Risk” without thinking about the Foreign Corrupt Practices Act.
According to the article:
“Like many U.S. colleges, Wichita State University wants more foreign students but isn’t a brand name abroad. So the school, whose mascot is a muscle-bound wheat bundle, in late 2013 started paying agents to recruit in places like China and India. The independent agents assemble candidates’ documents and urge them to apply to the Kansas school, which pays the agents $1,000 to $1,600 per enrolled student. Overseas applications “shot up precipitously,” says Vince Altum, Wichita State’s executive director for international education. But there is a down side: Wichita State rejected several Chinese applications this year from an agency it suspected of falsifying transcripts, Mr. Altum says, adding that it terminates ties with agencies found to violate its code of conduct by faking documents. Paying agents a per-student commission is illegal under U.S. law when recruiting students eligible for federal aid—that is, most domestic applicants. But paying commissioned agents isn’t illegal when recruiting foreigners who can’t get federal aid. So more schools like Wichita State are relying on such agents, saying the intermediaries are the most practical way to woo overseas youths without the cost of sending staff around the world. No one officially counts how many U.S. campuses pay such agents, most of whom operate abroad, but experts estimate at least a quarter do so.”
The above use of agents is not the only FCPA risk that colleges and universities face.
In recent years, several schools have opened foreign campuses (either directly or through affiliates) in places such as China, India, and the Middle East. In short, the government approvals, licenses, permits, and certifications in doing so are no different than a company needing government approvals to establish a manufacturing presence in a foreign country.
That educational institutions (or those that purport to be as highlighted by the below enforcement action) can face FCPA risk is not merely an academic hypothetical.
The remainder of this post summarizes an unusual 2006 FCPA enforcement against Richard Novak.
Novak and others owned and operated several internet businesses using the names “Saint Regis University,” “Robertstown University” and “James Monroe University.” According to the superseding information “they were diploma mills in that these ‘universities’ had no legitimate faculty members; offered no legitimate academic curriculum or services; required no course work or class work; and were not recognized by the United States Department of Education.”
According to the superseding information, Novak made a bribe payment to the “Consult and First Secretary at the Liberian Embassy in Washington D.C. in order to assist Saint Regis University and its owners in fraudulently selling diplomas through their internet businesses.”
Elsewhere, the superseding information states that “various foreign government officials who received the bribes held various positions at the Liberian Embassy in Washington, D.C., the Liberian Embassy in Accra, Ghana, and at the Ministry of Education for the Republic of Liberia in Monrovia, Liberia” and that these individuals, among other things, “were in a position to: issue certificates of accreditation and recognition; issue notarial certificates; issue letters claiming that Saint Regis University was fully accredited and recognized by the Ministry of Education in the Republic of Liberia; and cause staff at the Liberian Embassy in Washington D.C. to answer the telephone calls in a positive way when inquiries regarding the legitimacy [of the Universities] were made.”
Although not specifically mentioned in the superseding information, a component of the original indictment (here) against Novak and several others was that U.S. Secret Service agents posed as high school dropouts seeking degrees.
Novak was charged with conspiracy to violate the FCPA and FCPA violations. He pleaded guilty (see here) and was sentenced to three years probation.