Donor due diligence:

Causes of reputational risk: The rise of university and nonprofit scandals


The rise of university and nonprofit scandals highlight the increased need for effective donor due diligence.

In recent years, universities and non-profit organisations have faced reputational damage after accepting donations from donors with questionable moral character. This has resulted in a decline in the number of people willing to donate.

At universities, the impact of admissions on funding can have far-reaching consequences that can affect resources for research, scholarships, facilities, and future fundraising, as exemplified by the University of Oxford.

In 2021, the university was asked to speak to its Jewish students after it accepted a £6 million donation from the family of Oswald Mosley, who led the British Union of Fascists in the 1930s.

The education secretary at the time, Nadhim Zahawi, said students deserved an explanation. Major philanthropists and four British Nobel laureates also urged the university to reconsider. An Oxford professor even said that accepting the donation showed universities had lost their moral compass, and may need to be reformed.

Last year, Nguyen Thi Phuong Thao’s planned £155 million donation to Linacre College, Oxford, and the proposed name change to ‘Thao College’, led to a number of negative media reports. The Vietnamese billionaire’s ties to the Communist Vietnamese government and her company Sovico’s supposed involvement in energy and weapons contracts with Russia were particularly contentious and led to an investigation by the Department for Education.

The university came under fire again last year when the student newspaper revealed it accepted more than £3 million in donations from the oligarch Vladimir Potanin, one of Russia’s richest men. He is a close ally of Putin and was accused in the UK Parliament of “robbing assets from the Russian people”.

The quick succession of these scandals reflects the rapidly growing risk of reputational damage for universities and nonprofits. What might have been overlooked previously may well cause an outcry today.

But an investigation by The Telegraph in 2017 uncovered many cases where top universities in the UK accepted sponsorships from regimes like Saudi Arabia, Qatar, and Kuwait. Although these regimes were accused of terrorism links or human rights violations, there was no objection at the time.

But an investigation by The Telegraph in 2017 uncovered many cases where top universities in the UK accepted sponsorships from regimes like Saudi Arabia, Qatar, and Kuwait. Although these regimes were accused of terrorism links or human rights violations, there was no objection at the time.

In 2020, it was revealed that Jesus College at Cambridge accepted £200,000 from the Chinese state and even the Chinese company Huawei. Interestingly, this didn’t spark any controversy.

The bottom line is, accepting these donations today might pose far more of a reputational risk than we’ve ever seen before.


Due diligence matters more than ever

Laws, regulations and attitudes are rapidly evolving. Ever-escalating volumes of online data allow anyone to investigate a donor. A single tweet or post can quickly go viral and damage an organisation’s reputation, sometimes irreparably. 

The Higher Education (Freedom of Speech) Bill, which is soon to come into effect, will require UK higher education institutions to report any financial arrangements over £75,000 they have with individuals or organisations overseas “to ensure that UK values cannot be compromised”. 

Leading British universities have accepted more than £7 million of funding from Russian sources over the last five years, according to OpenDemocracy. And, at least £3.4 million came from donors with close links to the Kremlin.

But students are more aware than ever. In both the UK and the US, they are taking a proactive stance and confronting issues of transparency or possible collusion with authoritarian regimes through their university newspapers and social media. The same goes for the general public and donors. 

Recent GDPR data protection laws add to the need to do due diligence properly.  Breaching these laws can lead to fines and reputational damage, but they also increase compliance teams’ workloads.

Due diligence obstacles

A 2021 study, Paying for a world class affiliation: Reputation laundering in the university sector of open societies, found that many UK institutions’ donor due diligence is not comprehensive, despite the growing risks to their reputations.

The authors found that only seven out of seventeen Russell Group universities had independent gifts committees and published the guidance they used to assess donations. At the others, senior leaders or managers approve donations.

Enterprise risk management and due diligence can be time-consuming and overwhelming, particularly for organisations that receive a high volume of donations. Fundraising departments often rely on manual searches when checking for risk, which leaves them unable to conduct in-depth research and unable to keep up with evolving regulations.

As a result, these universities and nonprofits are at risk of losing donations or even being fined.

Avoiding reputational risk

Transparency and accountability are essential in managing donor relations and preserving universities’ and nonprofits’ reputations.

After the furore over Nguyen Thi Phuong Thao’s planned £155 million donation to Linacre College, the development team at Linacre College was praised by the (DfE) for the depth of their due diligence. Their thorough, explainable and fully-auditable process has helped them ride out the scrutiny and negative publicity, regardless of whether the donation goes ahead or not.

Tools such as Xapien help universities and nonprofits protect their reputations by automating research, so they can be sure donors are who they say they are, and won’t damage their reputations later on.

What’s Xapien, and how does it work?

Xapien is an easy-to-use online platform that fully automates online research so you can make sound, fact-based judgements, and provide clear proof of due diligence. Just like a human, it reads and analyses information from millions of pieces of online media, news articles, leak sites, corporate records, and more, but at unparalleled speed and scale. It delivers meaningful insights, set in context, in a concise and easily shareable report, saving you the painstaking work of finding, reading, and assembling the full picture.

How Xapien helps minimise risk

In-depth due diligence

Crimes, bankruptcy or sanctions are not the only risks that make a donor unsuitable… It’s important to know if donors are connected to extractive industries, countries with poor human rights records, and other ESG factors before starting to build a relationship. 

But to fully understand these risks, you need to go beyond watchlist screening and consider a wider range of data. This is a huge amount of information for researchers to process, and it’s slow and difficult when done manually.

With Xapien it can be done in minutes, so fundraisers can proceed with confidence that the information they are using is accurate, free from error, and comprehensive.

Xapien joins dots that analysts can miss by reading and learning with each search. For instance, if a news article identifies a business associate, Xapien will make the link to corporate data which gives a date of birth that could previously have been missed. That will then confirm an entity has been sanctioned.

Xapien’s technology identifies every face in every image on every page and article it processes. Fast neural networks extract the key features and match them across every other facial feature we have.
When websites or news articles mention a person or company, they usually only use their full name once. After that, they use pronouns or descriptors like ‘he/she/it’ or ‘the billionaire businesswoman’ to refer to them. Xapien’s machine-learning models can identify and connect these references. This allows us to determine whether any risks or facts associated with ‘her’ actually pertain to the subject of interest or not.

It also analyses every mention of your subject in an article and examines the linguistically associated words to understand their true meaning. This flags genuine risks that are directly or indirectly related to your subject, avoiding false positives. Essentially, you can select the risks that matter to your organisation.

And, Xapien doesn’t just highlight sanctioned or criminal entities, it flags when an individual is mentioned in media articles as a ‘close friend’ of a problematic figure. For example, it could flag Vladimir Potanin’s Kremlin links long before he was added to a sanctions list. Traditional sanctions checks would not flag these risks.

Rapid due diligence

One of the main barriers to effective due diligence is a lack of time. When research is automated, fundraisers save hours that can be used to analyse, make decisions and build relationships.

Dartmouth College was often left exposed to risk due to a lack of time which led to a lack of in-depth research. Analysts used to perform background checks on prospects to understand their profiles but limited their research to one hour per prospect. 

As a result, reports only “scratched the surface”  and were often done late in the solicitation process, causing awkward conversations if problematic information was found. The analysts would search for the prospect’s name and add keywords such as ‘investigation’ or ‘scam’, and then use databases to check sanctions lists.

Today, with Xapien, analysts simply enter a name and press go. Detailed, readable, easily shareable reports are ready in less than ten minutes, saving them hours of research. Details that they might have missed are included in the reports. The direct/indirect risk section of the report allows the team to quickly discount irrelevant risks that they would previously have spent hours reading through.

le and comprehensive (not to mention fully-sourced and traceable) report to base informed decisions.

“Xapien does in eight minutes what would take a manual researcher eight hours to produce. We go into fundraising with our eyes open. It reduces the element of surprise as much as possible.”

– Michael Foote
Executive Director of Research and Prospect Management,
Dartmouth College

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