Bloomberg Law
March 29, 2019, 8:01 AM

INSIGHT: How to Avoid the Next College Admissions Scandal—Risk Compliance Matters

Arthur D. Middlemiss
Arthur D. Middlemiss
Lewis Baach

Many headlines label the participation of the colleges and universities named in the recent admissions scandal as “unwitting.” But when does unwitting participation turn into willful blindness?

When, in a prosecutor’s view, does an institution lose “victim” status and instead suffer blame for turning a blind eye or failing to prevent misconduct? Banks, for example, lost their victim status long ago: regulators and prosecutors are inclined to blame the bank when customers launder money, under the theory that the bank should have had controls in place to prevent the misconduct.

In the scandal’s wake, schools—including elite high schools—must do more than simply declare they are victims, express remorse, and walk away, as if this were a one-off, unfortunate but likely-not-to-be-repeated incident. It’s not. Just last year, the Department of Justice brought corruption charges against 10 people, including four Division 1 NCAA men’s basketball assistant coaches.

More Susceptible to Bribes

In this case, why were the coaches of “lower-profile” sports targeted, such as water polo, sailing, tennis, and soccer? Presumably, the coaches are paid less, and are thus more susceptible to bribes.

Another likely reason: the lower-profile sports were targeted because no one recognized the risk. The self-evaluation required in a meaningful assessment of vulnerabilities could well have identified the weak spot, and resulting controls would have made the current scandal harder to pull off.

This is not to say that schools are necessarily to blame when an employee is corrupted. There is no specific regulatory regime that imposes compliance obligations on them, unlike banks. And even with common-sense controls, a bad actor could still game the system. Nevertheless, to avoid blame going-forward, the schools should better manage their risk.

Need for Better Compliance

Cost-efficient compliance measures are not difficult to contemplate.

For one, schools could conduct more robust testing of applications. Reportedly, to fake applicants’ athletic credentials, applicants’ faces were posted over images of athletes taken from the internet. It would not be difficult or expensive for someone outside the athletic department to pick a random sample of applications and call each applicant’s high school coach—the equivalent of a reference check.

Large donations to athletic programs also were allegedly used to influence application decisions, e.g., a $40,000 donation to support a school volleyball program. A procedure that required someone to ask about the source of funds for large donations would be neither hard to design nor execute.

After the scandal emerged, I realized I had personal experience with a sort of corruption in college sports. Out of high school, I was asked to think about playing football at a college with a Division III program. The school didn’t offer football scholarships, but it did have scholarships for its Division I sports programs.

I was told it might be possible to get a scholarship for the cheerleading team, to support the school’s Division 1 basketball program. It was suggested that, after football season, an “injury” would get me out of cheerleading duties. I didn’t attend the school but, looking back, this casual invitation to participate in fraud underscores the endemic risk in the admissions process and the need for intelligent controls.

A tone-from-the-top that expressed zero tolerance for corruption, and training that explained there would be dire consequences if anyone engaged in misconduct, might have nipped the whole episode in the bud.

Change Is OK

There is a tendency to fight back against controls: our employees are honest, let’s not overreact, this is a problem that could never happen here. Individual betrayal is always surprising, and hurtful, but it does not follow that we should be surprised when confronted by corruption.

The misconduct of a particular individual, whom we never suspected might be corrupt, may be unexpected, but is anyone really surprised at the revelation of a corruption scandal in the school admissions process? Everyone just thinks it’s going to happen somewhere else.

We recognize, for example, that government ministers with the authority to hand out high-value contracts present corruption-related risk —someone might bribe the minister to get a contract. If the government minister shows up at a bank with huge sums of unexplained wealth, questions should be asked. That does not necessarily mean that particular government minister is corrupt, and it certainly does not mean that all government ministers are corrupt. But we need to recognize the risk, and build intelligent controls to guard against it.

Like it or not, those with authority to influence who gets into college present corruption risk and controls are required.

If schools ignore these risks and refuse to build intelligent controls, they face a real danger that the next time a scandal explodes, the prosecutor or regulator, or the court of public opinion, may determine that the word “unwitting” no longer describes their involvement.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Arthur D. Middlemiss is a partner at Lewis Baach Kaufmann Middlemiss PLLC , New York, and practices in the area of financial crimes compliance, focusing on providing strategic counsel to foreign and domestic entities seeking to mitigate regulatory, criminal and reputational risk in the areas of anti-money laundering, anti-bribery and corruption. In previous roles, Middlemiss was a managing director and the Director of the Global Anti-Corruption Program at JPMorgan Chase, responsible for designing and executing an enterprise-wide compliance program to mitigate corruption-related risk.