Parents from developing countries have long sought to provide their children with a world-class university education in wealthy Western countries, such as the US and the UK. There is nothing inherently wrong with this—indeed, universities ought to take pride in their ability to provide an elite education to talented young people from around the world. There is, however, a dark side. In 2021, media reports revealed that nearly fifty UK universities had accepted upwards of £52 million in direct cash payments for tuition and fees from students hailing from countries known to be “high risk” for money laundering—most notably the West African countries of Ghana and Nigeria. A Carnegie Endowment Report on this topic observed that although “[t]he overwhelming majority of West African students in the United Kingdom pose little or no corruption risk, … many West African [politically exposed persons (PEPs)] appear to be using unexplained wealth to pay for UK school and university fees.” Indeed, many of West Africa’s nouveau riche made their money through illicit channels, and they may view an elite UK education for their children as a way to launder their reputations as well as their wealth. As Matthew Page, the author of the Carnegie Report, explained, any university that accepts tuition and fee payments in cash—especially from PEPs in countries with high corruption risk—is essentially “putting out a welcome mat for the world’s kleptocrats and money launderers.”
Although most UK universities acknowledge that they have basic anti-money laundering (AML) responsibilities under Sections 327 and 329 of the 2002 Proceeds of Crime Act, universities are not clearly covered as “regulated entities” under the UK’s Money Laundering Regulations. And while some universities have responded to recent high-profile scandals and government warnings by adding basic AML provisions to their fee-collection and admissions policies, this is not the sort of problem that is likely to be solved through unilateral action on the part of universities. The incentives to turn a blind eye to the provenance of tuition and fees from international students—which many UK universities have come to rely on as a revenue stream—are simply too strong. (It’s worth noting here that international students typically pay more than three times the fees paid by students from the UK or the European Union, and many UK universities encourage advance cash payments by offering international students discounts of 20-30% if they can pay their fees in advance.) Solving this problem will therefore require the UK to amend its AML legislation to address the particular vulnerabilities in the university sector. Three such reforms would be particularly prudent:Read more: The U.K. Must Legislate to Combat Money Laundering in Its Universities
- First, universities should be required to accept payments for tuition and fees only through electronic funds and international wire transfers, not in cash. Cash is nearly impossible to trace, while wire payments that are posted manually by financial services departments enable administrators to receive from students a satisfactory explanation regarding the source and circumstances of the payments and to flag suspicious activity.
- Second, universities should implement standardized Know Your Customer protocols that screen applicants for links to known PEPs and conduct AML background checks to screen individual tuition payments. Third party payment processors can provide these services, and the procedure can be standardized across UK universities so that additional overhead costs and administrative burdens remain relatively low.
- Third, universities should be required to submit periodic Suspicious Activity Reports (SARs) to law enforcement in order to flag individuals that are involved in a suspicious transaction. That is, the reporting requirements that are already imposed on banks and other financial institutions should be extended to the education sector as well.
Because UK universities are not subject to the same AML rules as other sectors, they are especially vulnerable to kleptocrats and criminals seeking to offload their “unexplained wealth” and purchase an elite status for themselves and their children. Given this high risk, and the strong incentives of the universities to look the other way, the UK must take action to impose clear and appropriate AML requirements on UK universities. The present patchwork approach to individual university AML policies will not be sufficient to keep global money laundering at bay.
So glad someone finally wrote this. Suggested follow up: due diligence American universities exercise (or don’t) to curb same abuses.
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