Foreign Money in U.S. Universities Part II — How the System Could Be Fixed

The ICA could shine some sunlight through the lab window

By Daniel Currell, NSI Visiting Fellow

This two-part series reviews existing requirements for U.S. universities to publicly report foreign contracts and gifts (Part I), and assesses changes to these reporting requirements contained in the Innovation and Competition Act (ICA) as passed by the Senate (Part II).

The Innovation and Competition Act of 2021 (“ICA”) as passed by the Senate is a Christmas tree with many ornaments. Its Table of Contents runs to 47 pages; between semiconductor manufacturing incentives (pg. 48) and customs user fees (pg. 2,374), the impact of its provisions will range widely across the U.S. economy and society.

Somewhere in the middle of the ICA — Section 6124 — is an update to Section 117 of the Higher Education Act’s existing requirements for the disclosure of foreign contracts with and gifts to U.S. schools. Section 6124’s update does several good things and one big, bad one. The House should preserve what’s good about the Senate version and take a serious look at fixing the big problem buried in it.

The ICA’s improvements to Sec. 117 include:

• Requiring schools to disclose the names of foreign sources. This is the most critical improvement and the most important thing to preserve. Proof of the problem is in ED’s current data set: a sea of foreign money and a desert of source names. There are almost none listed. Now that we know the lab environments at many of our research universities are laissez faire markets for attracting foreign funding– see Part I [LINK] — this must change.
• Lowering the reporting threshold from $250,000 to $50,000. University labs can be a bargain for foreign companies and governments — cheap compared to setting up your own R&D shop. There’s a lot of contract research happening. (See, e.g., the disclosures of Cal Tech in this file, and filter for China as the source country.)
• Requiring schools to have a policy on conflicts of interest and to track foreign gifts to and contracts with key staff. Institutions are also directed to implement practices to “identify and manage potential information gathering by foreign sources” connected to gifts or contracts. These provisions mandate what some schools already do, and what every school should have been doing for at least a decade.
• Empowering ED to enforce the rule and remedy noncompliance. The current rule imposes no penalty on institutions that fail to comply, making the unpleasantness of a potential investigation the only deterrent to noncompliance. The ICA changes this by giving ED some enforcement tools.
• Requiring some “administrative hygiene” at universities. Some research universities have become freewheeling economies where money buys access with very little oversight. (Recall that Jeffrey Epstein had no affiliation with Harvard, yet had his own office, key card and Harvard phone line — even after his first conviction.) The ICA requires certain contracting records to be kept and certain administrative standards to be met with respect to foreign contracts and gifts. This is needed, and it should be uncontroversial.

That said, there’s one big problem with the ICA’s language as it stands: it mandates negotiated rulemaking. (See 20 U.S.C. 1098a.)

In short, negotiated rulemaking requires the language of a rule to be negotiated between the agency and a series of appointed representatives of interested parties. The parties hash out the language, word by word and sentence by sentence, in conference rooms at ED. The content of the final rule is still in the Department’s control but negotiated rulemaking dramatically amplifies the already powerful voice of universities (see Part I for a discussion of their degree of influence in D.C. generally).

Negotiated rulemaking is out of place in the statute and its inclusion in the Senate ICA language is a major victory for the higher education lobby. Under the Higher Education Act, negotiated rulemaking is only used for accreditation and federal student aid issues; so, as currently written, the requirement doesn’t even make sense.

More to the point, negotiated rulemaking is designed for setting the rules of the road in instances where all affected parties have an interest in a common outcome. Federal student aid is a good example of this. It is not an appropriate rule-making process when one of the parties at the table has an incentive to oppose the rule altogether, as is the case here.

The House should remove negotiated rulemaking from its update to Sec. 117 — or at a minimum reconcile the current error of pointing to a rulemaking process at 20 U.S.C. 1098a that, by its terms, does not apply to Sec. 117. Rather than negotiated rulemaking, the ED should undertake a standard notice-and-comment rulemaking process that gives universities and the public an equal opportunity to fully participate in rulemaking.

Read Part III here.

This is the second article in a six-part series. You can find all articles in this series below:

• Foreign Money in U.S. Universities Part I — A Weak Reporting System
• Foreign Money in U.S. Universities Part II — How the System Could Be Fixed
• Foreign Money in U.S. Universities Part III — Examining the Tangled Mess
• Foreign Money in U.S. Universities, Part IV — Why Did Huawei Disappear?
• Foreign Money in U.S. Universities, Part V — Reams of Bad (but Interesting) Data
• Foreign Money in U.S. Universities, Part VI — A Guided Tour of Chinese Money in U.S. Universities

Dan Currell is a Visiting Fellow at the National Security Institute and previously served as Deputy Under Secretary and Senior Advisor in the U.S. Department of Education. Mr. Currell worked on issues relating to foreign influence in U.S. higher education, collaborating with other executive branch agencies via a Policy Coordination Committee of the National Security Council.