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23 Aug

Mitt Romney’s Taxes and Tax Havens

Gawker publishes audits of Mitt Romney’s offshore financial accounts

950 pages of documents contain internal audits and financial involving Bain Capital and Romney’s personal fortune

mitt romney bain

Mitt Romney’s wealth is held in a convoluted series of holding companies in tax havens including the Cayman Islands and Luxembourg, as well as the US. Photograph: Jewel Samad/AFP/Getty Images

Mitt Romney‘s offshore financial holdings are coming under new scrutiny following the publication of internal audits and private letters related to his $250m fortune.

On Wednesday New York-based website Gawker published 950 pages of documents that paint a complex picture of the Republican presidential candidate’s finances.

His wealth is held in a convoluted series of holding companies in tax havens including the Cayman Islands and Luxembourg, as well as the US. Romney’s investments include stakes in funds invested in high-risk derivatives like the credit default swaps that contributed to the credit crisis, and an investment vehicle that loaned money to the parent firm of the National Enquirer, a racy US tabloid.

Romney has been consistently attacked by Democrats for refusing to release more details of his finances, and his offshore accounts have become the subject of attack ads now running across the US. Romney has so far released two years of partial tax returns and furiously denounced Democratic claims that in some years, he paid no tax at all.

The documents published by Gawker, some of which have surfaced before, make clear that tax avoidance is a primary aim of some of his investments. Romney and his wife, Ann, are both investors in a Cayman Island-based fund called Bain Capital Fund VIII. There is no suggestion of any illegality.

The fund has assets of $3.7bn and according to the documents “intends to conduct it operations so that it will not be engaged in a United States trade or business and, therefore, will not be subject to United States federal income or withholding tax on its income from United States sources”.

A recent investigation by Vanity Fair magazine concluded that Romney had $30m invested in the Cayman Islands alone. Bain Capital, Romney’s former employer, controls at least 138 funds in the Caymans.

The Romneys are also investors in Absolute Capital Return Partners, a Delaware-based partnership that uses a technique called equity swapping to avoid tax. Equity swaps allow investors to exchange gains and losses on investments without taking ownership of the asset. The Internal Revenue Service has expressed concerns that swaps may have allowed investors to avoid paying billions of dollars on dividends.

Mitt Romney’s individual retirement account (IRA) held between $1m and $5m in Absolute Return in 2011 and earned between $100,000 and $1m. In 2006, the Ann Romney Trust held between $100,000 and $250,000, and reported earnings of zero, according to the documents.

So far Romney has not commented on the documents. But when he issued his tax returns, Romney’s campaign team issued a statement defending his record as a “successful businessman” who complied with the tax code and “has not only added value to our economy through his investment and business activity, but he has paid millions in taxes every year to the US government.”

In an interview to be published Sunday, Romney says one of the reasons he has restricted access to his financial records is that he does not want to disclose how much money he and his wife have donated to the Mormon church.

“Our church doesn’t publish how much people have given,” Romney told Parade magazine. “This is done entirely privately. One of the downsides of releasing one’s financial information is that this is now all public, but we had never intended our contributions to be known. It’s a very personal thing between ourselves and our commitment to our God and to our church.”

The Bain Files: Inside Mitt Romney’s Tax-Dodging Cayman Schemes

The Bain Files: Inside Mitt Romney's Tax-Dodging Cayman Schemes

[Image by Jim Cooke; photo via Getty]

Mitt Romney’s $250 million fortune is largely a black hole: Aside from the meager and vague disclosures he has filed under federal and Massachusetts laws, and the two years of partial tax returns (one filed and another provisional) he has released, there is almost no data on precisely what his vast holdings consist of, or what vehicles he has used to escape taxes on his income. Gawker has obtained a massive cache of confidential financial documents that shed a great deal of light on those finances, and on the tax-dodging tricks available to the hyper-rich that he has used to keep his effective tax rate at roughly 13% over the last decade.

Today, we are publishing more than 950 pages of internal audits, financial statements, and private investor letters for 21 cryptically named entities in which Romney had invested—at minimum—more than $10 million as of 2011 (that number is based on the low end of ranges he has disclosed—the true number is almost certainly significantly higher). Almost all of them are affiliated with Bain Capital, the secretive private equity firm Romney co-founded in 1984 and ran until his departure in 1999 (or 2002, depending on whom you ask). Many of them are offshore funds based in the Cayman Islands. Together, they reveal the mind-numbing, maze-like, and deeply opaque complexity with which Romney has handled his wealth, the exotic tax-avoidance schemes available only to the preposterously wealthy that benefit him, the unlikely (for a right-wing religious Mormon) places that his money has ended up, and the deeply hypocritical distance between his own criticisms of Obama’s fiscal approach and his money managers’ embrace of those same policies. They also show that some of the investments that Romney has always described as part of his retirement package at Bain weren’t made until years after he left the company.

Bain isn’t a company so much as an intricate suite of steadily proliferating inter-related holding companies and limited partnerships, some based in Delaware and others in the Cayman Islands, Luxembourg, and elsewhere, designed to collectively house roughly $66 billion in wealth in its many crevices and chambers. When Romney left in 1999, he and his wife retained significant investments in many of those Bain vehicles—he claims they are “passive investments” and that they are managed in a blind trust (though the trustee isn’t blind enough to meet federal standards of independence). But aside from disparate snippets of information contained in his federal and Massachusetts financial disclosure forms, his 2010 tax returns, and SEC filings, the nature of those investments has been obfuscated by design.

When he disclosed his finances to the U.S. Office of Government Ethics in 2007, Romney took care to publish the underlying holdings of many funds he invested with—after disclosing his $1 million-plus stake in “GS 2002 Exchange Place Fund LP,” for instance, he listed six pages of individual equities the fund held, from Panera Bread Co. to Tribune Co. But when it came to the Bain investments, he simply listed the value of his investments in odd-sounding entities like “Sankaty High Yield Partners II LP” with no indication of what was inside. In an accompanying note, he claimed that he had tried and failed to get the information: “The filer has requested information about the underlying holdings of these funds and values and income amounts for these underlying holdings. However, the fund managers have informed the filer in writing that this information is confidential and proprietary, and has declined to provide such information.”

That information—for Sankaty and 20 other funds—is now available here, in the form of 48 documents totaling more than 950 pages. They consist predominantly of confidential internal audited financial statements from 2008, 2009, and 2010, as well as investor letters from the same period, for Bain entities that Romney has previously disclosed owning an interest it. Owing to the timeframe—during and after the catastrophic economic meltdown of 2008—some of the investments show substantial losses. One limited partnership had even entered into liquidation as of October 2008 after failing to meet certain payments owed to partners. Others show astronomical gains.

The documents are exceedingly complicated. We don’t pretend to be qualified to decode them in full, which is why we are posting them here for readers to help evaluate—please leave your thoughts in the discussion below. We asked an attorney who specializes in complex offshore corporate transactions, including ones involving Cayman Island entities, to review them and help us understand them. (We also asked the Romney campaign. It hasn’t responded yet.) The full set can be read here.

Here’s what we’ve found so far:

Equity Swaps, AIVs, and Mitt Romney’s Other Tax-Dodging Tricks

Mitt Romney’s Endless ‘Retirement’ Package

How Mitt Romney Puts His Money Where Obama’s Mouth Is

Derivatives, Short Sales, and Mitt Romney’s Other Exotic Financial Instruments

Mitt Romney Is the National Enquirer‘s Banker

bain filesmitt romney

John CookThese documents are part of a package on Mitt Romney’s Bain holdings. For the full report, go here.

For a detailed look confidential financial information from the various funds Romney has invested in, go here. To search through the whole batch, look below. And to add your thoughts to the discussion, go here.

One Response to “Mitt Romney’s Taxes and Tax Havens”

  1. 1
    DGarr Says:

    Release the tax returns, Mr. Romney.
    Now.

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