Mitt Romney’s Offshore Bank Accounts
At least some of Mitt Romney''s investment money sits in offshore accounts in the Cayman Islands. Does it matter?
As if his tax returns weren’t already enough of a perception problem for him, ABC News reported last night that one of the embarrassing details in the returns is the fact that part of Mitt Romney’s continued investments in Bain Capital include money parked in accounts in Cayman Islands:
Although it is not apparent on his financial disclosure form, Mitt Romney has millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven.
A spokesperson for the Romney campaign says Romney follows all tax laws and he would pay the same in taxes regardless of where the funds are based.
As the race for the Republican nomination heats up, Mitt Romney is finding it increasingly difficult to maintain a shroud of secrecy around the details about his vast personal wealth, including, as ABC News has discovered, his investment in funds located offshore and his ability to pay a lower tax rate.
(…)
As one of the wealthiest candidates to run for president in recent times, Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune. In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.
Official documents reviewed by ABC News show that Bain Capital, the private equity partnership Romney once ran, has set up some 138 secretive offshore funds in the Caymans.
Romney campaign officials and those at Bain Capital tell ABC News that the purpose of setting up those accounts in the Cayman Islands is to help attract money from foreign investors, and that the accounts provide no tax advantage to American investors like Romney. Romney, the campaign said, has paid all U.S. taxes on income derived from those investments.
“The tax consequences to the Romneys are the very same whether the fund is domiciled here or another country,” a campaign official said in response to questions. “Gov. and Mrs. Romney have money invested in funds that the trustee has determined to be attractive investment opportunities, and those funds are domiciled wherever the fund sponsors happen to organize the funds.”
Bain officials called the decision to locate some funds offshore routine, and a benefit only to foreign investors who do not want to be subjected to U.S. taxes.
Tax experts agree that Romney remains subject to American taxes. But they say the offshore accounts have provided him — and Bain — with other potential financial benefits, such as higher management fees and greater foreign interest, all at the expense of the U.S. Treasury.
Even if it’s the case that Romney doesn’t receive any significant tax benefit from these offshoring maneuvers, it’s yet another problem for Romney related to money. Just like the 15% tax rate issue, there’s no allegation that he’s doing anything improper or illegal, but it all contributes to a perception of Romney that the Democrats will obviously try to play up when the General Election rolls around. The other problem for Romney is that it’s hard to explain what this is even all about. When most people hear “offshore accounts” they think tax dodgers and people hiding wealth and I’ll bet that’s the first thought that entered the minds of many people when this headline started appearing on the newswires last night. For Romney to explain this it’s going to take more than a sound bite, and it’s going to involve intricate details regarding foreign investments that are going to sound totally unfamiliar to the average voter, especially in an era when the economy is still weak and the jobs is still struggling to come back.
Steve Benen is obviously not a Mitt Romney fan, but I think the point he makes here is largely correct:
It doesn’t exactly help paint a picture of Romney as a “man of the people,” and it serves as a reminder of the importance of the tax returns the former governor is so eager to keep hidden. It now appears we have a Republican frontrunner who amassed a vast fortune after laying off thousands of American workers, wants to give himself another tax cut, owns multiple luxury homes, and stashes cash in the Caymans — all while pursuing an agenda that would make things tougher on American’s working class.
This is exactly the message you’ll be hearing from the Obama campaign and its surrogates during the General Election if Romney is the nominee, which is why Newt Gingrich is likely to jump on this as another questionable detail that should bring Mitt Romney’s electability into question. Of course, Gingrich has electability problems of his own but for conservatives looking to find someone to take down Mitt Romney this will all ring very true.
All of this is happening, of course, before Romney has even released his tax returns, which is yet another reason why he needs to release his returns and his financial disclosure forms sooner rather than later. National Review emphasized this point quite emphatically in an editorial published last night. Until he does that, the leaks and the questions will just continue and the reporters will not give up.
UPDATE (James Joyner): Not that it matters in terms of the optics questions Doug raises above, but Megan McArdle points out that there’s really no tax advantage to individuals in offshoring.
All of these things are true, but they do not add up to tax evasion, or even tax avoidance. Corporations do not have to pay taxes on income unless they repatriate the money. Individuals, however, do. The quote sort of muddies the distinction–the returns, we’re told, could shed light on how “Romney and Bain” use offshore strategies to avoid taxes, but while I’m certainly not an international tax expert, from what I know, that the phrases “could shed light” and “and Bain” are doing a whole lot of work there.As far as I know, there are only a few ways to “shelter” income offshore, and they usually look very much like “sheltering” income onshore–which is to say that we do not tax people on unrealized capital gains. And for very good reason–just ask all the dotcommers with employee stock options who paid huge taxes to exercise those options, and then saw the value of those options fall to zero. The IRS didn’t give them their money back, either.[…]
The other way I know of to avoid taxes with an offshore strategy is to invest in a US corporation which doesn’t repatriate earnings, and therefore doesn’t pay taxes on this. Any of you who invest in GE, UPS, or Apple are enjoying this sort of tax shelter, and if you sold some of the stock, I suppose it would be technically accurate to say that your tax returns shed light on whether “George and Apple use offshore strategies to avoid taxes”, but this would not really be a very interesting statement. You still have to pay taxes if you want to get your hands on any of the money.Most of the writing I’ve seen today about this seems to be confusing the Cayman’s role as an offshore tax haven, and its other role as a headquarters for hedge funds. They are not entirely unrelated, but they are also not the same thing. Cayman, and a lot of other islands, became tax havens because they wouldn’t tell your government if you had money there. It’s not because there is some special tax break for investing there.
Geez, don’t the Republicans have anyone else they can bring from the wings? How did they end up with this field?
I’m no Romney fan, as is probably evident from my posts here, but I agree that he needs to release his tax returns now, rather than later, and needs to release more than his 2011 return. The longer he avoids doing so, the more it looks like he has something to hide. Romney already suffers from a big enough empathy gap that his dodges on the tax return issue only add to the bigger picture of him being an out-of-touch rich white guy who cares far more for the welfare of the one-percent than the rest of us. If he doesn’t dispel this image soon, he’ll be toast in the general election, if he even makes it that far.
What is it about the Republicans these days that prevents them from fielding better candidates?
Drip…drip…drip…. The optics get worse and worse.
@Fiona:
What you said, but I don’t think he can do it. The well oiled weather vane is just too polished.
@Anon:
They really believe their own Bullsh!t.
@Anon:
Anyone sane was drummed out as a RINO in the late 2000’s?
Why stash money offshore if there’s no tax benefit from it?
Because these offshore corporations, which are little more than mailboxes, allow foreign capital to invest in the United States without paying United States taxes on the resulting income. Romney isn’t dodging taxes…he is helping others dodge taxes…preventing the United States from collecting the revenue…and making enormous profits because of it…on which he then evidently pays a 15% effective tax rate.
So in a nutshell: Romney says while campaigning that we don’t have a revenue problem we have a spending problem…so we must abolish Medicare per the Ryan plan…while at the same time he is aiding foreigners in not contributing to the revenue stream.
The biggest problem Democrats have is explaining that on a bumper sticker. Once Americans understand it…
@OzarkHillbilly:
My sister has said that the only reason Romney wants to be president is so that he can cross it off his bucket list.
@Hey Norm:
“Mitt for President (of the Cayman Islands)”
The problem is that because of years of demagouging on this issue, people don’t realize that nearly everyone with any sort of savings has money offshore somewhere. e.g. You own any PIMCO mutual funds in your IRA or 401k? Guess where most of your money is. Likewise, most pensions will have some money in offshore hedge funds.
This is because any investment bank that wants to do business internationally will have to put their funds in a low tax country so that, for example, they can accept a German’s money without having to withhold US taxes on them.
The issue isn’t having money there, it’s having money there and not reporting it, and I’ve not seen anything to indicate Romney has been cheating on his taxes.
The Romney campaign should have been able to see this coming. The either didn’t or couldn’t come up with anyway to mitigate it.
Not sure what Romney’s plan is, postponing releasing his tax returns until he has won the Republican primary and then be saved in the general election by enormous SuperPACs?
Or promising that he will release them and then re-neg on the promise after he has won the nomination?
Drip…drip…drip….
indeed.
From CBS News report:
First wrap your head around a 20% cut in descretionary spending.
Then consider that he wants to do this while helping foreign investors avoid paying US taxes.
I wonder if Doug would consider this one of those;
I am sure the bastions of tax paying, you know them as the Kennedys, didn’t hide any of their ill gotten loot off shore, or dodge taxes, or cheat inheritance taxes. It is just that it is ok for dems to do so while the press looks the other way.
Stormy Dragon,
“The issue isn’t having money there, it’s having money there and not reporting it, and I’ve not seen anything to indicate Romney has been cheating on his taxes.”
Since no one beyond Romney’s campaign has seen his tax returns, how would anyone know?
@Stormy Dragon:
Aren’t individual mutual funds separately incorporated? As I understand it, my Vanguard SP500 fund is a separate legal entity, and while Vanguard Inc may need overseas holdings, a fund investing only in US securities probably does not.
Should US politicians on the other hand hold “emerging markets growth funds?”
Interesting question. They might be hedging their bets, but not really showing high confidence.
@Moosebreath:
It was on his financial disclosure form (which is how the news knows about it). If he was hiding income on his tax returns, it’s unlikely he’d have reported it there.
@ Stormy…
The US is a low tax country compared to Germany…and most other developed nations for that matter.
http://www.flickr.com/photos/centeronbudget/5622173530/sizes/o/in/photostream/
It’s not about paying lower taxes…it’s about paying no taxes to the US at all. And as to your point…the people running my 401K are not also threatening to abolish Medicare per the Ryan plan and slash discretionary spending by 20%.
@ cbtrce…
The Kennedy’s never slashed discretionary spending by 20%. Medicare didn’t exist when JFK was President…but I doubt he would have tried to abolish it if it had.
One reason that Romney may not release his tax returns for this year is that it is possible that he is actually paying less than 15%. He may have blurted out a number that was bad but not too bad (very Romney like) hoping that would do it.
I have heard of one investor who makes the kind of money Romney does ($10’s of millions a year) that pays 11% in taxes. There are a lot of ways to reduce tax liabilities some of which are legal, some are legal but ugly (reasonable people would think it should be illegal) and some are illegal but not currently prosecuted. It can take years for the IRS to finally crack down on scheme’s.
Once Romney releases his taxes, it will be gone over with a fine tooth comb and every little tax deduction he takes will be debated.
I just dont see how Romney is electable in 2012 baring a complete collapse in the economy (which is unlikely but there is a none zero chance). Obama hatred has blinded the repubs to how bad their candidate is. This is going to be a long, strange, and ugly election
@Hey Norm:
Apparently, it has tax benefits for some foreign investors over a fund domiciled in the US.
So I wake up to news that Newt Gingrich asked his wife for an open marriage and Mitt Romney has been squirreling money away in the Caymans? What’s next, I win the lottery?
FWIW, I think the fair way to judge this, when all facts become available, will be “degrees of separation.”
I have no accounts with my name in the Caymans, so no “zero degree of separation” holdings. My direct holdings probably do not have Cayman accounts, so no “one degree of separation” holdings. Now, my mutual Fund may own Ford Motor Company, which may have money there (would they really?), in which case I’d have a “two degrees of separation” holding. And of course I was not a principal, putting money there under my order.
If Romney just holds shares that someone else placed there, it may be no big deal. Of course, if he was a principal at Bain, as they sheltered US earnings off-shore … it could be a bigger problem for them.
@john personna:
Two of Vanguard’s 3 S&P 500 funds are located offshore:
http://www.vanguard.com/jumppage/insurance/investments/offshore.html
@john personna:
See, this is the statement that I expect is wrong for a lot more people than realize it.
@Stormy Dragon:
Any reason you chose the “institutional” list?
@Stormy Dragon:
My individual/admiral funds aren’t actually on your list.
@Stormy Dragon:
And I certainly get 1099s from Vanguard and pay US tax on my holdings. If you are going to turn this into a “tax shelter” for me of some kind, you are going to have to split hairs very, very, fine.
That’s really the key with respect to Romeny. How much of it will be a closely held or managed tax shelter, and how much of it will be splitting hairs?
@Ron Beasley: “The Romney campaign should have been able to see this coming. The either didn’t or couldn’t come up with anyway to mitigate it.”
The two are mutually reinforcing. Because it’s extremely hard to defend, even to themselves, it becomes something they just don’t think about.
Mike
If you own Apple you should divest immediately as they have about 83 BILLION held overseas, anyone jumping their s^%t about it? No, as Apple donates to the left political causes. If your funds hold Apple, you hold Apple, therefore you hold overseas money that isn’t taxed.
At least Romney paid taxes on the money held off shore, do you think the Kennedys, Pelosi et al do? As to the rate, that is the long term cap gains rate of 15% which would be expected as Romney doesn’t draw a paycheck right now.
@cbtrce:
Well, the Apple problem is one of repatriation, which is a bit different than tax sheltering. As I understand it they made the money overseas, but are shy about returning it to the US and paying taxes. And of course, as long as shareholders big up their stock in appreciate of that $83B, Apple has no need to move it. They gain money here, as people buy their shares, in part “because” of that money there.
If you have a good solution to overseas profits and repatriation I’d love to hear it.
@cbtrce:
Re. “Kennedys, Pelosi” I promise to support neither for President, OK? 😉
@john personna:
I googled Vanguard offshore to see if Vanguard has anything offshore and that came up first.
@Stormy Dragon:
Dammit. Why is the edit button still broken?
{Testing this out. – JHJ}
@Stormy Dragon:
According to Wikipedia, an American depositary receipt is a mechanism by which foreign companies, for instance Sony, trade on US markets.
Are you sure the SAI is saying the fund is and ADR, as opposed to trades in ADRs?
@cbtrce: Which member of the Kennedy clan is running for President this year?
@ cbtrce…
Again…no one is accusing Romney of doing anything illegal. The only question raised here is if you agree with Romney that we should abolish Medicare, and make $500B in spending cuts that will directly affect US citizens, so that foreign investors can continue to not pay US taxes.
It’s really a simple choice…and it is the choice that Romney is asking people to make…not Pelosi or the Kennedy’s or any one else that you don’t like.
Republicans crack me up…on one hand it’s terribly evil that 47% of the country (the poor, the sick, and the elderly) do not pay federal income taxes…but at the same time they think it’s perfectly OK for foreign investors not to.
@ Stormy…
Agreed…I like the Edit feature far better than the “Helpful or Unhelpful” feature.
Oh man…if Romney’s tries to handle this by saying stuff like, “Well, it’s not illegal or immoral,” he’s toast. His Cayman accounts may indeed be completely legal (I personally don’t see anything immoral about it anyway) but the guy is auditioning to be President of the United States. Not-illegal and not-immoral is kind of the minimum we expect, is it not?
Romney’s version of noblesse oblige is refraining from hand sanitizer after shaking hands with sub 500K market capitilization.
@john personna:
What I’m saying is the funds rules specifically allow it to, rather than going out an buying shares of stock directly, to buy deposit receipts on stock being held by some foreign entity. It then later goes on to say that in terms of reporting it won’t distinguish between the two. So when the annual report says that X% of the fund is invest in Apple (for example), there’s no way to tell if that’s actual Apple shares or deposit receipts for Apple shares being held by someone else.
It should be pretty obvious why they’d want to separate to do this. It means the fund can be organized as a three headed hydra, with the heads representing the deposits for the American customers, the European customers, and the Other customers, and the body being the actual pool of stock which is located who knows where.
And maybe they’re not actually taking advantage of this, but they have the power to and you have no way of telling if they are or aren’t exercising that power.
@Stormy Dragon:
I think it’s simpler than that. I think most mutual funds are US entities, which buy stocks listed on US exchanges. For US companies that is straightforward, but when foreign corporations are “reflected” on a US exchange some special vehicles are used.
Regardless, we agree that there are straightforward ways to move money to the Caymans (call your banker and move your money directly) and there are “six degrees of separation” scenarios.
If Romney has six degrees, I think I can give that a fair call. If he or Bain made the move more directly, while not illegal, it might not be the sort of exemplary behavior we hope for in our national leaders.
@Stormy Dragon: In what way is it broken? I just appended a test edit to your comment, using the EDIT button.
@Herb: Well, illegal, certainly. But for something to be neither illegal nor immoral, the question then becomes: So, what’s wrong with it?
We’re left with, “It looks bad to people who don’t understand things.” Acting on that basis would probably be wise but, ironically, doing so is usually cited as Romney’s chief failing. That is, he’s a politician rather than a normal person.
The edit function doesn’t even show up in Chrome. Haven’t seen it in weeks.
@James Joyner:
Well, consider the story “sure, I made money downsizing US companies, and sure, I stuffed my winnings in offshore banks.”
If it proves to be that stark it isn’t that it just “looks bad to people who don’t understand things.” It’s more like we accept that some people are that kind of slimeball. We just don’t elect them President.
Here might be the reason for the offshore accounts:
Do foreign banks, e.g., those in the Caymans, don’t fall under this rule? Pretty sure they don’t.
@michael reynolds:
Ditto for linux Opera.
@James Joyner:
Greed isn’t considered immoral?
@sam:
No edit button for windows Opera either.
Re. Megan McArdle’s comment that people who follow the law have no benefit in going to the Caymans … sort of begs the question then why some folks do go to the Caymans.
@PJ: Ah. I’m getting it in Chrome–but only when logged in. Which is how I generally view the site.
I’m using IE 8 – no edit button shows.
@James Joyner: “But for something to be neither illegal nor immoral, the question then becomes: So, what’s wrong with it? ”
If Romney were to content himself with being an insanely rich international businessman, nothing would be wrong with it. But he’s aspiring to national public office, the executive office, in which his main responsibility will be enforcing the nation’s laws. And yet, here is he in the Caymans, doing everything in his power to shield his foreign investors from those laws. What’s wrong with that? That’s a built-in conflict of interest.
When Romney’s sitting in the Oval Office, who’s he going to be looking out for? His foreign investors or the American people?
@cbtrce:
You want to defend your guy by beating up on a group of Dems who are all dead and served office decades ago?
Be my guest!
I’m in IE8 (64 Bit) and I don’t see it.
If you actually watch the ABC News Report you linked to at the beginning of the article, Romney didn’t have offshore accounts either. Romney owned shared in Bain Capital Managment funds, and those funds had offshore accounts.
As an example: in my 401k right now, I have 9% of my funds in the PIMCO Commodity Real Return Strategy Fund (PCRAX). If you look up their major holdings you find 13.2% of that fund is in something called Pimco Cayman Cmdty Fd Ltd Instl.
This is exactly analogous to Romney’s current situation. He is in an investment fund that has some portion of its assets in the Caymans. Unless he’s failing to report any returns on that fund to the IRS, there is nothing out of the ordinary about this.
@Stormy Dragon:
Wouldn’t the analog be if you invested directly in Pimco Cayman Cmdty Fd?
Oh, and if you were a founder of it?
From that quoted article:
Is there a non-tax or non-disclosure based reason to do this? Wikipedia can name one:
So, to be fair, assuming that all i’s are dotted and all t’s crossed on the tax issue, the reason for off-shoring might be to escape financial regulation.
That would probably play well with those on the right who wish we had the regulation of the Caymans …
@James Joyner:
See, yet another elite who’s completely lost touch with the plight of the common edit-buttonless masses. ;>
It amazes me that it continues to be news every time we “find out” that Mitt Romney is rich. Get over it. He’s rich, he pays his taxes according to the prevailing rates. Now I agree he should release his tax returns now, but I simply can’t get over the fact that people have now determined that financial success somehow disqualifies someone from serving in government. Don’t we usually look for successful people to be President? .
@tv22:
Flip side, why won’t the right listen to Warren Buffet? He’s rich, and a success, right?
Gee, that’s brilliant. I guess the millions upon millions of people who voted for Obama in ’08 had no idea he is a multi-millionaire. Or that almost all of the Democrats in Congress are millionaires. Nope, we had no clue.
I keep wondering when the smart conservatives are going to show up.
Forget about edit, how about spell check? Not asking anyone to split the atom here, just some basic functionality…
I get spell check in Firefox. I tried to edit a comment about a week ago, said I wasn’t allowed to.
Doug
I’ve been on the road nonstop this week and have had no time to look into the facts of this case. And I didn’t even read the thread given the miserable quality of comments on PE issues. But you should be aware that Cayman Island funds have been set up to accommodate foreign investors due to regulatory requirements.
The political issue is obvious, and the complete lack of desire on the part of commenters here to even minimally educate themselves on the relevant issues. Just t rolls. but it is the typical legal solution to the regulatory issue, and is of no economic consequence. It’s a classic workaround of I’ll thought out regulation.
But slobbering fool commenters can now continue….
Ps –
If I wasn’t clear. Cayman funds for foreign investors and US side by side funds. All with the same economic provisions.
@Drew:
Again, our house “expert” ignores the research:
Yes, Wikipedia also lists Cayman domicile as convenient to foreign investors, but it says something else drives “most offfshoring”.
@john personna:
Given he feels free to expound on the merits of a comment thread he admits he hasn’t read, you can imagine how accurate his opinions on more complex matters are likely to be.
@ Drew…
They shield foreign investors from US taxes, and are even called Blocking Corporations…but
Emphasis mine. $100B a year…but that is of “no economic consequence” to Drew Trump.
As Mr. T said…I Pity the Fool.
Jp and Norm –
You are relying on Wikapedia etc? Embarrassing. I’m no tax law expert, but our current fundraising effort is looking into a Cayman Island side by side fund for one, and only one, purpose: to accommodate regulatory considerations for Canadian and other foreign entities due to regulatory preclusions to US fund entities.
Sorry to burst your bubble, but the economics are absolutely no different. But who am I to believe? Some of the finest accounting, tax and legal PE fund documentation entities in the world………………or a couple internet malcontents?
But that’s what the comments section of OTB has become. Lightweight trolls.
Who should I believe…Citizens for Tax Justice…or Drew…a hyper-partisan troll that is constantly spewing mis-information. hmmm…
@Drew:
I think if you are going to attack Wikipedia you should attack the logic of their argument, rather say than just declaring yourself a bigger expert.
It is certainly true that regulation provides a burden, right? Even if one wants to stay within the law there is a cost to internal monitoring as well as whatever SEC filing is required. We can certainly see the logic that off-shoring reduces costs, and also certainly frees the company from restrictions.
Are you, perversely given your political leanings, arguing the US based companies are at no disadvantage in this regard?
(Note that Wikipedia agrees that your purpose in the Caymans is one motivation, they just don’t agree that it is the main motivation.)
Romney’s problem isn’t so much that he’s been financially successful, but rather, how he’s achieved that success…
If banking money offshore is done to “foreign investors who do not want to be subjected to U.S. taxes,” then there IS a cost to the U.S. – loss of tax revenue from what would otherwise be domestic investing by foreign companies.
People, don’t you get this?
Romney has to see if he can come up with an answer to this one.
He can’t and won’t.
I am reposting here.
Ileft out the word “attract” in first sentence in original posting.
Thanks folks!
If banking money offshore is done to attract “foreign investors who do not want to be subjected to U.S. taxes,” then there IS a cost to the U.S. – loss of tax revenue from what would otherwise be domestic investing by foreign companies.
People, don’t you get this?
Romney has to see if he can come up with an answer to this one.
He can’t and won’t.