By Pam Martens and Russ Martens: May 18, 2016
Last month the Washington Post compared the state of U.S. political campaigns to that of the Gilded Age, noting that 41 percent of the money raised by SuperPacs by the end of February came from just “50 mega-donors and their relatives.”
New evidence suggests that tax avoidance may be at the center of what some of these mega-donors are expecting in return for that largess to Presidential and Congressional candidates.
Take the case of Priorities USA, the SuperPac supporting Hillary Clinton’s campaign. It has already raised $67 million and just four hedge fund billionaires have ponied up 40 percent of that amount.
Hedge funds already receive a perverse form of taxation known as “carried interest” that allows their winnings to be taxed at rates lower than those paid by some plumbers and nurses. This cozy tax scheme allows managers of hedge funds and private equity funds to have much of their income taxed as long term capital gains rather than the almost double tax rate that would be applied if it were treated as wage income.
Now, new questions are being asked about why some of these hedge fund billionaires are turning up in the notorious Panama Papers leak. The leak resulted from a whistleblower turning over 11.5 million files from the Panamanian law firm, Mossack Fonseca, relating to offshore accounts in secrecy jurisdictions. The documents were provided to the German newspaper Süddeutsche Zeitung, which then shared the information with the International Consortium of Investigative Journalists (ICIJ). A searchable public database for a portion of the leaked documents has been set up by the ICIJ, leading to almost daily new revelations.
The U.S. Public Interest Research Group (USPIRG) notes that “while not all of the transactions and accounts arranged by the [Mossack Fonseca] firm were illegal, many helped extremely wealthy individuals dodge billions of dollars in taxes through the use of offshore ‘shell’ companies and other methods.” ICIJ has noted that 36 Americans implicated in fraud or other financial crimes show up in the database.
Three of Hillary Clinton’s largest donors to the Priorities USA SuperPac have turned up in the Panama Papers database or earlier leaked documents pertaining to offshore companies now housed in the ICIJ database.
Hedge fund billionaire George Soros has donated $343,400 to the Hillary Victory Fund, a controversial joint fundraising effort between Hillary, the Democratic National Committee and state committees, as well as donating a whopping $7 million to her SuperPac, Priorities USA. The Panama Papers show George Soros tied to Soros Holdings Limited, whose agent is Mossack Fonseca, and lists the British Virgin Islands for its registration. Another company tied to Soros is Soros Finance Inc., which shows registration in Panama and also lists Mossack Fonseca as its agent.
Employees of hedge fund Paloma Partners have donated $4 million to Hillary’s SuperPac, Priorities USA. At least $2.5 million of that came in two checks written in 2015 by S. Donald Sussman, the founder of the hedge fund. Sussman also gave $343,400 to the Hillary Victory Fund. Sussman and Paloma Partners turn up in the ICIJ offshore database from a document leak in 2013. Both he and his hedge fund are shown as connected to a company called Simply Radiant Limited which was registered in the British Virgin Islands with an agent called Portcullis Trustnet.
Billionaire hedge fund owner, David E. Shaw, wrote a check for $750,000 to Hillary’s SuperPac, Priorities USA, on March 31, 2015 and another in the identical amount on February 12, 2016 according to Federal Election Commission records. Three entities tied to Shaw turn up in the earlier leaked offshore accounts in the ICIJ database: an account in the name of David E. Shaw, a Shaw Family Trust I, and Mid Ocean Company.
Executives, employees and family members of Citigroup are the second largest lifetime donors to Hillary Clinton’s political campaigns over the course of her career, according to the Center for Responsive Politics. On Monday, Wall Street On Parade reported on the octopus of ties that Citigroup’s Private Bank in Miami has to the Panama Papers, with dozens of offshore corporations showing Mossack Fonseca as their agent while using the address of “Citigroup Private Bank, 201 South Biscayne Blvd., Suite 3300, Miami, Florida 33131” as their official address, according to the ICIJ database.
In January and March of this year, hedge fund billionaire James Simons wrote two checks to Hillary’s SuperPac, Priorities USA, for $3.5 million each, matching the $7 million Soros has also contributed. Simons is the founder of hedge fund Renaissance Technologies and also runs a so-called “family office” where he manages his own wealth, known as Euclidean Capital. We could not find Simons in the ICIJ database but we did find his hedge fund, Renaissance Technologies, in the Wall Street On Parade database – and not in a good way.
Renaissance Technologies became the target of an investigation by the Senate Permanent Subcommittee on Investigations, culminating in a charge of avoiding $6.8 billion (that’s billion with a “b”) in taxes. The Senate Subcommittee took testimony at the July 22, 2014 hearing from Steven M. Rosenthal, a Senior Fellow at the Urban-Brookings Tax Policy Center in Washington, D.C. Rosenthal explained the scheme as follows:
“I have been asked to evaluate the character of the gains of the Renaissance hedge funds based on my review of materials provided by the Subcommittee staff. The Renaissance hedge funds traded often, more than 100,000 trades a day, more than 30 million trades a year, and they traded quickly, turning over their portfolio almost completely every 3 months. Because the hedge funds adopted a short-term trading strategy, we would expect their gains to be short term. But the hedge funds, with the help of Barclays and Deutsche Bank, wrapped derivatives around their trading strategy in order to transform their short- term trading profits into long-term capital gains. This tax alchemy purported to reduce the tax rate on the gains from 35 percent to 15 percent and reduced taxes paid to the Treasury by approximately $6.8 billion. I believe the hedge funds stretched the derivatives beyond recognition for tax purposes and mischaracterized their profits as long-term gains.”
Forbes currently puts James Simons’ net worth at $15.5 billion, making his political donations a very cheap investment in the overall scheme of things.
Hillary Clinton was asked about the revelations in the Panama Papers. According to the Guardian newspaper, Clinton responded:
“Some of this behavior is clearly against the law and anyone who violates the law anywhere should be held accountable. But it is also scandalous how much is actually legal. That is why last year I proposed a plan to shut down the so-called private tax-system for the mega wealthy. We are going after all these scams and making sure everybody pays their fair share in America. I am going to hold them accountable.”
Anyone who thinks Hillary Clinton is going to hold her mega-donors accountable should probably put their campaign contributions under their pillow for the tooth fairy. Those who care to pursue a more positive path might want to sign the petition set up by USPIRG, supporting their plan to raise billions of dollars in public financing of campaigns. Another viable solution would be to send your political contribution to the one Presidential candidate not taking money from SuperPacs funded by tax-scheming billionaires, Senator Bernie Sanders.