LawFlash

Higher Education Community Faces Federal Scrutiny of Financial Ties to China

May 13, 2020

Both individuals and higher education institutions could face criminal and civil liability if they are not in compliance with federal law in the administration of federal grants and expenditure of federal research dollars, as recent cases tied to simultaneous research in China show.

Federal law enforcement continues to focus on China’s efforts to recruit and pay professors at US universities. Investigations have resulted in significant prosecutorial activity, including a new indictment and guilty plea in recent days. Not only do universities and faculty face potential criminal exposure and civil claims by whistleblowers and the US Department of Justice (DOJ) under the False Claims Act, but they could also lose important sources of federal funding for critical research activities. In light of the vital importance of scientific research in combatting the coronavirus (COVID-19) pandemic, and continued strain on aspects of the US–China relationship, the higher education community can expect to see sustained focus by US law enforcement on these matters.

Federal Scrutiny on Thousand Talents Program and Related Chinese Initiatives

In 2008, China launched its Thousand Talents Program (TTP) in support of its declared goal to become the dominant global superpower by 2050. According to reporting and US congressional investigations, TTP is a state-supported effort that incentivizes faculty at American universities to conduct research in conjunction with Chinese universities and national science and research institutes.

At the same time that these professors—many of them American citizens—have been compensated for research activities in China, their work has also been supported by grants from US government initiatives or federal funding agencies like NASA. Some professors receiving foreign payments have failed to disclose those payments to both their US university employers and the US government, despite being obligated to do so.

The US government has deemed the Chinese TTP a “threat” that potentially undermines “the integrity of the American research enterprise,” encourages theft of intellectual property, and endangers national security, especially if American professors share sensitive or confidential research with the Chinese government.[1]

Sustained Investigative and Prosecutorial Focus

Against that backdrop of federal policy concerns, DOJ has pursued criminal charges against multiple individuals arising from research payments from China. DOJ has pursued multiple criminal theories, charging professors with wire fraud (18 USC § 1343),[2] federal program bribery (18 USC § 666) statutes,[3] making false statements in a matter within the jurisdiction of an executive agency (18 USC § 1001),[4] conspiracy to defraud the United States (18 USC § 371),[5] and criminal false claims (18 USC § 287).[6]

Just this week, there have been two new developments in this area.

  • On May 11, Arkansas federal prosecutors announced the arrest of Simon Ang, a professor of engineering at the University of Arkansas-Fayetteville, who was charged with wire fraud. The criminal complaint alleges that Professor Ang made false statements to the university and concealed outside positions at a Chinese university and with Chinese companies as well as his engagement in the TTP. Professor Ang’s research was funded through several federal program grants, including one recent NASA grant. Because Professor Ang certified to NASA that he complied with his funding institution’s policies, his alleged failure to report his professional engagements in China meant that he caused wire transfers based on fraudulent misrepresentations to be sent from NASA to the university.[7]
  • Also on May 11, federal prosecutors in Georgia announced that Xiao-Liang Li, a former human genetics professor, had pleaded guilty to filing a false tax return, after originally being charged with federal program bribery. While receiving funding through National Institutes of Health (NIH) grants, Professor Li simultaneously had been receiving compensation from Chinese universities for overlapping research through the TTP. Professor Li received such compensation but never reported it to his former university or on his federal tax returns. Further, Professor Li certified that he was working full time for the US university during certain periods when he was actually in China, and was paid by Chinese universities for a majority of that time. Professor Li was sentenced to one year’s probation and was ordered to pay more than $35,000 in restitution.[8]

Employers’ Exposure

In parallel with criminal prosecutions of individuals, institutions themselves may face criminal exposure for aiding and abetting, conspiring in, or otherwise participating in these violations, as well as civil liability under the False Claims Act and other statutes and regulations, depending on the individual facts and circumstances.

For example, in December 2019, DOJ announced a $5.5 million False Claims Act settlement with an independent biomedical research institution, stemming from allegations that it had submitted NIH grant applications and progress reports without disclosing that two of its researchers had been funded simultaneously by Chinese government grants. Although the institution had previously maintained it was only obligated to disclose this information if it determined that a budgetary, commitment, or scientific overlap existed between the federal and Chinese grants, the NIH requires “disclosure of all financial resources available in support of an individual’s research endeavors.”

Even where prosecutors are unable to bring charges, however, universities and research institutions face the risk of time-consuming, potentially costly investigations by law enforcement into both an individual’s conduct and the institution’s involvement. In February 2020, for example, the US Department of Education announced it was launching investigations of two Ivy League universities for alleged failure to report hundreds of millions of dollars in foreign gifts and contracts. Furthermore, such alleged breaches of federal funding requirements may also jeopardize an institution’s ability to obtain critical research funding in the future.

How Should Colleges and Universities React?

DOJ has made clear that it “remains vigilant over programs such as the Thousand Talents program that recruits professors and researchers to work for China.” Law enforcement’s sustained attention on this issue creates key compliance challenges for US universities, research institutions, and researchers.

Of course, international research collaboration is not illegal in and of itself, and can advance science and global public health initiatives. Universities also seek to promote academic freedom wherever possible. But universities must be diligent in ensuring compliance with applicable federal law in the administration of federal grants and expenditure of federal research dollars.

In furtherance of those efforts, institutions should adopt and enforce reporting requirements for faculty, including reporting of external professional engagements (with other universities, research institutions, and private enterprises, both American and foreign); all grants and research projects with which they are involved; and any potential conflicts of interests arising from financial or nonfinancial benefits.

Institutions should also consider reviewing current conflict of interest documents to ensure that they are capturing all information necessary to make an informed judgment about whether a conflict exists, and asking clear, precise questions designed to elicit information about potential conflicts.

Universities can take steps to ensure they are adequately monitoring the grants they administer. One large institution has created new university-wide committees to review grants involving sensitive research topics and that pose “elevated compliance risks,” and to overhaul how the school administers its federal research grants, including by requiring online training for grant compliance and the submission of all research proposals for internal review.

Finally, schools should have plans in place to conduct internal investigations, respond to federal law enforcement inquiries, and remediate any issues that do arise.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Beijing
K. Lesli Ligorner

Chicago
Megan R. Braden
Tinos Diamantatos

Dallas
Sheila A. Armstrong
Danny S. Ashby
Steve Korotash

Houston
B. Scott McBride
John W. Petrelli

Miami
Alison Tanchyk

New York
Kelly A. Moore
Martha B. Stolley
Daniel B. Tehrani

Philadelphia
Meredith S. Auten
John C. Dodds
Lisa C. Dykstra
Rebecca J. Hillyer
Matthew J.D. Hogan
Ryan P. McCarthy
Zane David Memeger
John J. Pease, III
Kenneth A. Polite, Jr.
Margaret Erin Rodgers Schmidt
Shevon L. Scarafile
Eric W. Sitarchuk

Shanghai
Todd Liao

Washington, DC
Douglas W. Baruch
Giovanna M. Cinelli
Brad Fagg
Kathleen McDermott
Scott A. Memmott
Matthew S. Miner
Kenneth J. Nunnenkamp
Jennifer M. Wollenberg
Howard J. Young



[1] See Threats to the U.S. Research Enterprise: China’s Talent Recruitment, United States Senate Committee on Homeland Security and Government Affairs, Permanent Subcommittee on Investigations (Nov. 18, 2019).

[2] See, e.g., United States v. Hu, No. 3:20-cr-00021 (E.D. Tenn. Feb. 25, 2020).

[3] See, e.g., United States v. Tao, No. 2:19-cr-20052-JAR (D. Kan. Aug. 21 2019); see also US Dep’t of Justice, Former West Virginia University Professor Pleads Guilty to Fraud That Enabled Him to Participate in the People’s Republic of China’s “Thousand Talents Plan” (Mar. 10, 2020).

[4] See, e.g., United States v. Lieber, No. 1:20-mj-02158-MBB (D. Mass. Jan. 27, 2020); United States v. Hu, No. 3:20-cr-00021 (E.D. Tenn. Feb. 25, 2020).

[5] See, e.g., United States v. Zhang, No. 7:17-cr-00073-MFU (W.D. Va. Nov. 21, 2017).

[6] See id.

[7] See United States v. Ang, No. 5:20-mj-05006-MEF (W.D. Ark. May 8, 2020).

[8] See United States v. Li, No. 1:19-mj-01007-RDC (N.D. Ga. Nov. 21, 2019).