Foreign Gift and Contract Reporting

A: When receiving the benefit of a contract with or gift from any entity, institutions have a duty to conduct reasonable due diligence to determine whether the gift or contract involves a foreign source. Without strong evidence to the contrary that a legal entity is not operating substantially for the benefit of or under the auspices of an institution, the institution (not the intermediary) must report gifts or contracts that benefit the institution. When an institution receives the benefit of a qualifying gift or contract with a foreign source, it must be reported, regardless of whether it passed through an intermediary. DoE recognizes that legal entities that operate substantially for the benefit or under the auspices of an institution may serve purposes other than as a pass through entity, and they may have separate governing boards, but there is a rebuttable presumption that when these entities receive money or enter into a contract with a foreign source, it is for benefit of the institution and must be disclosed if the $250,000 threshold is met. Institutions have a duty to conduct reasonable due diligence on the source of the funds that it receives from any entity, including legal entities that operate substantially for the benefit or under the auspices of an institution. “If in exercising this due diligence they determine that certain gifts/contracts from these legal entities did not benefit the institution, they do not need to report the items.” (RPC 30–day) DoE is aware that the purpose of some institutions’ ‘legal entities’ (as articulated in its articles of incorporation for example) is to serve as an intermediary for certain gifts or contracts. See http://www.usmf.org/about/ and https://leadbyexample.tamu.edu/txam-foundation.html.

Q2: How do I know if a source is a subsidiary, affiliate, or agent of a foreign entity?

A: Institutions must exercise due diligence and make a good faith effort to make this determination. A good faith effort is fact-dependent and should entail the care and attention that a reasonable person would expect to be undertaken in the circumstance. Since affiliate relationships are not always obvious, units should:

make their own determination using information supplied by the sponsor/donor or using information otherwise available to the unit, including any Penn State databases or use of third-party resources such as Dun & Bradstreet or:
ask the sponsor/donor to certify whether they are a foreign source, including a subsidiary or affiliate of a foreign source. Units could request negative certification as an option (e.g., where the sponsor/donor certifies that they are not a foreign source as defined by Section 117).

Foreign sources include a U.S. person or entity that acts as an agent of a foreign source. Institutions do not have to report gifts from or contracts with U.S. citizens or entities that act on their own behalf and not as an agent of a foreign source. Institutions have a duty to exercise due diligence and to make a good faith effort to determine whether a gift or contract involves an agent acting on behalf of a foreign source.

Q3: What types of contracts are considered reportable?

A: Report agreements entered into with a foreign source pursuant to which the foreign source is acquiring property or services from the University that, in the aggregate, meet the statutory minimum.  Property includes goods. 

Per DOE guidance, intellectual property license fees from a foreign licensee of a University patent would generally be included in the statutory definition of contract.
Per DOE guidance, data or materials being transferred via purchase, lease, or barter for use in research would generally be included in the statutory definition of contract.
Per DOE guidance, contributions of services, the fair market value of which meet the statutory minimum, are to be reported as contracts.

If your contract involves the purchase of goods from a foreign source, per DOE guidance, you do not need to disclose this contract. Please email OGC if you have any questions.

Q4: Are Material/Data Transfer Agreements (MTAs/DTAs) reportable?

A: Pending further clarification by DoE, agreements that do not involve the provision of funds to Penn State, or for which the valuation of materials provided to Penn State is unknown, do not need to be reported. MTAs/DTAs should be included in Section 117 reporting if they involve receipt from a foreign source of materials that have a known value.

Q5: Are in-kind contributions reportable?

A: Yes, if they have a known value.

Q6: What is considered a “restriction or condition” on a gift or contract?

A: DoE considers restrictions or conditions to be reportable if the gift or contract requires the:

employment, assignment, or termination of faculty
establishment of departments, centers, research or lecture programs, or new faculty positions
selection or admission of students
award of grants, loans, scholarships, fellowships, or other forms of financial aid restricted to students of a specified country, religion, sex, ethnic origin, or political opinion

Note: All conditions that apply must be reported and indicated and a brief narrative of the conditions.

Q7: Do research agreements and affiliate membership programs in which Penn State research results are presented meet the definition of a restricted or conditional gift or contract?

A: A restricted or conditional gift or contract requires the establishment of “departments, centers, research or lecture programs, or new faculty positions.” Research contracts (which include grants) from a foreign source in support of a research project proposed and defined by Penn State are reportable, but do not normally meet the definition of a restricted or conditional gift or contract. An example of a contract that does meet the definition is one that requires the establishment of an institute or center as a condition of funding, as opposed to generalized support for a variety of research projects or students. With regard to affiliate membership programs, members are generally not in the position of requiring that Penn State establish any research or lecture programs, rather, they are invited by Penn State to participate in a University program, over which Penn State has full control and discretion, including whether or not to establish or maintain such program. As such, membership affiliate agreements with foreign sources must be reported, but they do not generally fall into the definition of restricted/conditional.

Q8: Should an institution report the maximum potential amount of a contract upon signing, or should it wait to report the contract once payments that reach the $250,000 reporting threshold are received?

A: If the institution determines that the contract has the potential to meet the threshold, the institution must report the contract at the time that the institution “enters into” it. For example, a contract may be fully executed, but funds not transferred until certain terms of the agreement are fulfilled, or the contract amount might be contingent upon various factors such as the number of patients enrolled in a clinical trial.

Q9: What if the information requested is proprietary information, or names of an anonymous donors?

A: Section 117 requires institutions to report the amount of both contracts and restricted or conditional contracts. DoE is required to withhold confidential business and financial information requested under the Freedom of Information Act pursuant to 5 U.S.C. 552(b)(4) and 34 CFR 5.11 and will strictly adhere to this prohibition with regard to the names and addresses collected pursuant to Section 117. Title 34 CFR §5.11(e), requires DoE to communicate with an institution as part of the FOIA process and these procedures would be followed in response to a FOIA request for nonpublic information submitted under Section 117 to determine what is appropriate to disclose in the specific situation.

Q10: Should contracts and grants be reported by project period, or budget (calendar year) period?

A: The full amount of the contract should be reported in the reporting period in which it is signed. This eliminates the burden of tracking a contract over time and the appearance of non-compliance, even though individual performance periods might not meet the reporting threshold.

Example: A $600K contract for a five-year period is less than $250K in any given calendar year (budget period) since it will be spread over five years. In this example, if the contract was executed in March, units should report the full $600K on the next report, at the end of July.

Q11: How do we calculate amounts aggregated by sponsor?

A: Units should use the final contract signature date or gift acceptance date to determine which contracts or gifts to report in any given reporting period. The examples below show how a unit should calculate the totals. Note that reporting start and end dates are only required for contracts; gifts only require the receipt date.

Example 1:
A unit receives three distinct contracts from Foreign Source A in the January-June reporting period.

Award 1 – Contract $90,000 Received 2/3/19 (Start Date 2/2/2019 – End Date 11/30/2019)
Award 2 – Grant – $100,000 Received 3/8/2019 (Start Date 1/12/19 – End Date 12/30/2019)
Award 3 – Clinical Trial – $110,000 Received 6/1/2019 (Start Date 3/3/2019 – 3/3/2024)

Since the aggregate of all gifts and contracts by the sponsor ($300,000) for the time period to be reported exceeds $250,000, all three transactions should be reported.

Example 2:
In the January-June reporting period, a unit receives a total of $200,000 from Foreign Source B, and $60,000 from the same foreign source in the July-December reporting period.

Foreign source B would not be reported in the Jan-June report. However, because the tally from the first six months of a calendar year rolls over to the next six months of a calendar year for the purpose of determining whether a foreign source should be reported, the entire $260,000 should be reported in the July-December report.

Example 3:
In the January-June reporting period, a unit receives a total of $800,000 from Foreign Source C, and $300,000 from the same foreign source in the July-December reporting period.

Since the unit should have already reported the $800,000 from Foreign Source C in the January-June report, only the additional $300,000 needs to be reported in the July- December report. In other words, values previously reported should not be repeated.

Example 4:
A unit reported $800,000 in support from foreign source D in the January-June reporting period, and then receives another award for $60,000 in the July-December period.

The additional $60,000 should be reported in the July-December report because it needs to capture all amounts in excess of $250,000 in a calendar year.

Q12: Must we report the gift donor name of a foreign source that has requested anonymity?

A: To the extent that the unit has or could reasonably obtain the donor’s identity, this information must be reported. The unit should clearly indicate that the gift was anonymously provided since DoE will not make anonymous donors’ identities or addresses available to the public.

Q13: Do we need to report Huawei USA funding?

A: Gifts and contracts from subsidiaries and affiliates of foreign legal entities acting on behalf of a foreign source are reportable. For ease of reporting and consistency, units should treat ALL affiliates and subsidiaries of foreign legal entities as foreign sources for purposes of Section 117 reporting. Therefore, gifts and contracts from Huawei USA that meet or exceed the reporting threshold should be included.

Q14: For restricted or conditional gifts or contracts, how we interpret “the employment, assignment, or termination of faculty?”

A: Contracts or grants in support of a Penn State proposed and defined scope of work do not generally fall into the category of restricted/conditional. While sponsors often require prior approval for a change in key personnel, these awards do not normally dictate that Penn State must hire particular people, and Penn State normally retains full control of whom it decides to employ. The prior approval requirements normally focus on having a knowledgeable person leading the project. Therefore, the mere fact that a Penn State employee is paid under a research contract or grant does not mean that the contract/grant should be considered restricted or conditional. If, however, the purpose of the award is for the “employment, assignment, or termination of faculty” (rather than for the performance of a research project, for example), then it should be reported as restricted or conditional. Similarly, a gift that establishes an endowed chair usually does not create a new position, it normally provides support for the chair holder’s scholarly activities. Only those that would require the creation of a new position would be considered “restricted.”

Q15: Should we report funds that are originally domestic but flow through a foreign entity, and if so, how should this be reported?

A: Since the contract is with the foreign entity, this is a reportable transaction. The foreign entity from which the institution receives the funds is the foreign source for reporting purposes.

Q16: Should start-up packages for investigators and institutional research grants be included?

A: Yes, they should be included if they are funded by a gift or contract from a foreign source.

Q17: Should we report royalties received from a foreign source?

A: Yes. Licensing agreements fall under the definition of contracts and are reportable.

Q18: Are tuition payments made by foreign students to the University considered reportable?

A: DoE sees tuition payments as “contracts” between the foreign student and the University. The threshold could be met if a foreign source pays tuition for multiple students and the aggregate amount exceeds the $250,000 threshold. Grants from foreign sources for financial aid, payment of lab and other fees must also be reported should be subjected to the due diligence process.

Q19: What if a unit missed reporting a transaction or a reporting area needs to be corrected?

A: Institutions should immediately file missed reports or correct previously submitted reports. Please contact Marie Sullivan at mjs920@psu.edu with questions or to request changes.