The biggest operator of for-profit higher education schools is investigating an $18 million charitable donation in Turkey and whether some of the money was diverted to a government official.
Baltimore-based Laureate Education, Inc. said in a securities registration filed with the SEC last week that an affiliate in Turkey made the donation to a charitable foundation.
The Turkish government encouraged the donation, the company said.
The charitable foundation that received the donation disbursed the funds “at the direction of a former senior executive at our network institution in Turkey and other external individuals,” Laureate said.
The money went to a third party without Lureate’s knowledge or approval, according to the disclosure.
Laureate’s audit committee launched an internal investigation in June 2016.
The donation may have violated the Foreign Corruption Practices Act and Turkish laws, according to the company.
The disclosure said,
The investigation concerns the facts surrounding the donation, violations of the Company’s policies, and possible violations of the FCPA and other applicable laws in what appears to be a fraud perpetrated by the former senior executive at our network institution in Turkey and other external individuals.
The investigation is trying to determine if the money was fraudulently diverted and if any went to a government official.
Laureate has a network of about 70 campus-based and online universities. With about a million students, it’s the biggest operator of for-profit higher education programs.
It has affiliates in the Americas, Europe, Africa, Asia, and the Middle East. Revenue last year was about $4 billion.
Former President Bill Clinton served as Laureate’s honorary chancellor for five years beginning in 2010. “During his term, President Clinton visited 19 Laureate campuses in 14 countries,” the company said in its registration statement.
Financial backers of the company include Henry Kravis, George Soros, Steve Cohen, and Paul Allen, according to the Washington Post.
KKR’s investment in Laureate is more than $700 million, WaPo said.
Laureate said it removed a senior executive at its Turkey affiliate. The executive had blocked Laureate’s access to financial records in Turkey.
The company disclosed the investigation to the DOJ and SEC in September.
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Here’s the full FCPA disclosure from Laureate Education, Inc.’s Form S-1 filed with the SEC on December 15, 2016:
Laureate Education, Inc. We are conducting an internal investigation of one of our network institutions for violations of the Company’s policies, and possible violations of the U.S. Foreign Corrupt Practices Act and other applicable laws. A violation of these laws and regulations could subject us to penalties, harm our reputation and materially adversely affect our business, financial condition and results of operations.
As previously disclosed, during the fourth quarter of 2014, we recorded an operating expense of $18.0 million (the value of 40.0 million Turkish Liras at the date of donation) for a donation by our network institution in Turkey to a charitable foundation. We believed the donation was encouraged by the Turkish government to further a public project supported by the government and expected that it would enhance the position and ongoing operations of our institution in Turkey. The Company has learned that the charitable foundation which received the donation disbursed the funds at the direction of a former senior executive at our network institution in Turkey and other external individuals to a third party without our knowledge or approval.
In June 2016, the Audit Committee of the Board of Directors initiated an internal investigation into this matter with the assistance of external counsel. The investigation concerns the facts surrounding the donation, violations of the Company’s policies, and possible violations of the FCPA and other applicable laws in what appears to be a fraud perpetrated by the former senior executive at our network institution in Turkey and other external individuals. This includes an investigation to determine if the diversion was part of a scheme to misappropriate the funds and whether any portion of the funds was paid to government officials. As of the date of this prospectus, we have not identified that any other officers or employees outside of Turkey were involved in the diversion of the intended donation. Although we are pursuing efforts to recover the diverted funds, there is no assurance that we will be successful.
We have been advised by Turkish counsel that, under Turkish law, a Foundation University may not make payments that cause a decrease in the university’s wealth or do not otherwise benefit the university. Given the uncertainty of recovery of the diverted donation and to mitigate any potential regulatory issues in Turkey relating to the donation, certain Laureate-owned entities that are members of the foundation that controls our network institution in Turkey have contributed an amount of approximately $13.0 million (the value of 40.0 million Turkish Liras on November 4, 2016, the date of contribution) to our network institution in Turkey to reimburse it for the donation.
As a result of the investigation, which is ongoing, we took steps to remove the former senior executive at our network institution in Turkey. Because of the complex organizational structure in Turkey, this took approximately one month and during that period our access to certain aspects of the business including the financial and other records of the university was interrupted. The former senior executive is now no longer affiliated with our network institution and we again have access to the financial and other records of the university.
In September 2016, we voluntarily disclosed the investigation to the U.S. Department of Justice (the “DOJ”) and the SEC. The Company intends to fully cooperate with these agencies and any other applicable authorities in any investigation that may be conducted in this matter by them. The Company has internal controls and compliance policies and procedures that are designed to prevent misconduct of this nature and support compliance with laws and best practices throughout its global operations. The Company is taking steps to enhance these internal controls and compliance policies and procedures.
The investigation is ongoing, and we cannot predict the outcome at this time, or the impact, if any, to the Company’s consolidated financial statements or predict how the resulting consequences, if any, may impact our internal controls and compliance policies and procedures, business, ability or right to operate in Turkey, results of operations or financial position. If we are found to have violated the FCPA or other laws governing the conduct of our operations, we may be subject to criminal and civil penalties and other remedial measures, which could materially adversely affect our business, financial condition, results of operations and liquidity.
Richard L. Cassin is the publisher and editor of the FCPA Blog.