Until recently, most universities might have thought that the topic of money laundering was solely of academic interest for courses in law, criminal justice, or accounting. It is becoming increasingly clear, however, that colleges and universities may be facing increasing risk of exposure to handling criminal proceeds when they accept large cash payments for student tuitions. Two recent sets of developments in Canada and Great Britain show that that risk is more than speculative, and that universities need to revise their policies for accepting currency to minimize that risk.
2019: British Columbia Colleges and Universities
In 2019, a report commissioned by the British Columbia Attorney General took note of “the willingness of private colleges in Greater Vancouver to accept cash for tuition fees and for other purposes.”[1] Although some British Columbia post-secondary institutions did not accept cash, or accepted cash up to a defined limit, the report identified a concern with “international students paying tuition and other expenses in cash, overpaying into their student account, seeking refunds by cheque, and the use of agents.” Among other reported actions:
- “some students bring only cash to pay for their tuition and expenses, and sometimes attempt to pay for multiple semesters in advance[;]”
- “students have been known to register in person and, after paying their fees, will withdraw from the institution and receive an institutional cheque in reimbursement of their fees[;]”
- “students have registered from abroad and will then withdraw before the deadline for refunds, utilizing an agent to collect their refund cheque[;]” and
- “some overseas students will appoint an educational agent, a nominee, or a proxy to register on their behalf, pay their tuition, and later withdraw and collect their refund.”[2]
In one case, a student who was required to pay a CDN $150 charge showed up at the college with $9,000 in cash in a duffel bag, and asked to deposit the $9,000 (less the $150 charge) with the college.
The report led directly to the British Columbia government asking dozens of colleges and institutions in the province to place an immediate halt on accepting large cash payments from individual students, and to provide the government with copies of their current policies for handling cash transactions. In addition, the British Columbia Attorney General stated that the government was considering requiring all British Columbia businesses to report cash transactions greater than $10,000 to the national Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).[3]
2021: British Colleges and Universities
Recently, The Times published an extensive report on the results of its investigation into British universities accepting cash payments from students. According to The Times, “[a]t least 49 British universities let students use banknotes to pay £52 million in fees over the past five years, including millions from China, India, Russia and Nigeria.” Since 2015, Chinese students reportedly accounted for £7.7 million in banknote payments to British universities, followed by Indian students (£1.8 million), Nigerian students (£1.5 million), and Pakistani students (£1.2 million), although some universities did not report students’ nationalities in connection with cash payments.[4]
The Times report also stated that while all universities said that they had strong due-diligence procedures in place to avoid the possibility of money laundering through cash receipts, universities had widely differing policies regarding receipt of large cash payments from students. One Scottish university, which reported taking in £700,000 in banknotes, said “that it would allow students who could not pay electronically to bring cash to campus.” Many universities “set limits on how much they will take at one time in cash from students,” while other universities had accepted cash payments in the past but had stopped doing so, either because of the COVID-19 pandemic or potential exposure to money laundering risks.[5]
These policies appear to put British universities at risk of contravening the United Kingdom’s anti-money laundering (AML) regime. A number of British universities have adopted AML policies that indicate that they are subject to the United Kingdom Money Laundering Regulations.[6] Among other compliance concerns under the Money Laundering Regulations, according to The Times, institutions that take in large amounts of cash may have to register as “high-value traders”.[7]
Under the United Kingdom Money Laundering Regulations, a “high-value trader” “is any business or sole trader that accepts or makes high value cash payments of €10,000 or more (or equivalent in any currency) in exchange for goods.”[8] It is far from clear whether access to and credit for university courses would constitute “goods” within the meaning of the Money Laundering Regulations. Nonetheless, the prudent course for British universities is to assume that they are potentially subject to treatment as high-value traders if they accept such cash payments and to avoid that treatment by ending acceptance of cash payments greater than some de minimis amount.
Implications for U.S. Colleges and Universities
To date, there have been no reports of U.S. colleges and universities similarly accepting large amounts of cash as tuition payments for either U.S. or foreign students. There is no reason, however, for U.S. educational institutions to wait for such reports to take a hard look at their cash-acceptance policies.
There is no clear guidance on the extent to which U.S. universities may be subject to federal AML regulations. Colleges and universities do not clearly fall within the definition of “financial institution” in the Bank Secrecy Act (BSA).[9] Nor – with the possible exception of for-profit universities – do they appear to constitute “trades or businesses” within the meaning of the BSA, for purposes of the Form 8300 requirements for reporting receipts of cash greater than $10,000.[10]
Member institutions in U.S. state university systems, for example, might believe that they are components of state governments rather than “trades or businesses.” At least one state university, however, has concluded that it is subject to Form 8300 reporting requirements,[11] and a private university has adopted an AML policy saying that it is the university’s policy to comply with AML and sanctions obligations imposed by federal agencies.[12]
To anticipate and head off potential money laundering risks that acceptance of large cash amounts can create, the easiest course for U.S. colleges and universities would be to prohibit all cash-in transactions with U.S. currency – whether for tuition, fines, or other fees – greater than some de minimis amount. There is no reason that any person who legitimately owed some debt to a college or university would be unable to effect payment through checks, payment cards, or electronic funds transfers. Nor is there any reason for a college or university to put itself in a position where it might be subject to Form 8300 reporting. Adopting this recommendation will cost colleges and universities nothing but reduce potential reputational and compliance risks substantially.
In addition, U.S. colleges and universities should review their current compliance policies and training to see whether they should be updated to address money laundering issues. Timely attention to these issues can help U.S. universities to ward off the problems that British Columbia and British universities have experienced.
Footnotes
[1] Peter M. German, Dirty Money – Part Two: Turning the Tide – An Independent Review of Money Laundering in B.C. Real Estate, Luxury Vehicle Sales & Horse Racing 266 (Mar. 31, 2019), https://cullencommission.ca/files/Dirty_Money_Report_Part_2.pdf (PDF: 3,618 KB).
[2] Id.
[3] “B.C. asks universities, colleges to review cash policies after money laundering report,” CBC (May 28, 2019), https://www.cbc.ca/news/canada/british-columbia/money-laundering-bc-schools-1.5152940.
[4] George Greenwood & Charlie Parker, “Money laundering fears as universities accept £52m in cash,” The Times (Feb. 22, 2021), https://www.thetimes.co.uk/article/money-laundering-fears-as-universities-accept-52m-in-cash-vrc7q6s9b (emphasis added).
[5] Id.
[6] See, e.g., Finance Division, University of Cambridge, Money Laundering Regulations (last accessed Mar. 5, 2021), https://www.finance.admin.cam.ac.uk/policy-and-procedures/financial-procedures/chapter-20-governance-compliance/relevant-legislation-3; University of Derby, Anti Money Laundering Policy (last accessed Oct. 30, 2020), https://www.derby.ac.uk/services/finance/external/policies/policy-anti-money-laundering/; University of Nottingham, Anti Money Laundering 2-5 (last accessed Mar. 5, 2021), https://www.nottingham.ac.uk/governance/documents/money-laundering-policy.pdf (PDF 191 KB).
[7] Greenwood & Parker, supra note 3.
[8] United Kingdom Government, Money laundering supervision for high value dealers, gov.uk (last updated June 28, 2017), https://www.gov.uk/guidance/money-laundering-regulations-high-value-dealer-registration#history.
[9] See 31 U.S.C. §5312(a)(2).
[10] See 31 U.S.C. §5312(a)(4); Internal Revenue Service, Form 8300 and Reporting Cash Payments of Over $10,000 (last accessed Mar. 5, 2021), https://www.irs.gov/businesses/small-businesses-self-employed/form-8300-and-reporting-cash-payments-of-over-10000.
[11] See Rutgers University, Cash Handling Policy (Form 8300) (last accessed Mar. 5, 2021), https://studentabc.rutgers.edu/cash-handling-policy-form-8300.
[12] See Office of Ethics, Compliance, and Privacy, George Washington University, Anti-Money Laundering (last accessed Mar. 5, 2021), https://compliance.gwu.edu/anti-money-laundering.
Jonathan J. Rusch is the Principal of DTG Risk & Compliance LLC and a Senior Fellow at New York University School of Law’s Program on Corporate Compliance and Enforcement.
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