The document, authored by William Ferreira, Partner at Hogan Lovells, examines the legal, administrative, and strategic considerations associated with direct sponsor funding to affiliated overseas entities, as opposed to the traditional “unified” model in which such entities are integral extensions of US universities. It highlights growing trends, such as the PEPFAR program's push for channeling funds to “local” in-country entities and non-federal sponsors’ increasing preference for funding non-US institutions. These shifts offer benefits like eligibility for host-country government funding and mitigation of currency exchange losses, while sometimes aligning better with the operational expectations of researchers abroad.
However, the move toward direct funding raises complex questions, including whether the foreign affiliate should possess a distinct funding identity and have sufficient compliance infrastructure independent from the US parent institution. It challenges established practices regarding project credit, control, and liability—posing potential risks in governance, regulatory compliance, and tax exposure if too much or too little control is exercised. The document further addresses the implications for compliance in research, finance, and administration, and outlines mechanisms for maintaining oversight—such as board appointments and approving bylaws—while warning against overreach that might undermine status as a “local entity” or trigger legal complications like permanent establishment. Ultimately, the document offers a comprehensive overview of the legal and practical trade-offs institutions must consider when determining funding strategies for international affiliated entities.
