Can We Trust Treasury Secretary Jack Lew?
Stay up to date with the latest headlines via email.
Along with its sandy beaches and quality snorkeling, the Cayman Islands’ reputation as an offshore tax haven for corporations, banks and hedge funds has become so well-known its financial institutions now are featured in travel brochures as yet another tourist attraction.
So as we traveled across the Caribbean this week – including a stretch paralleling the south coast of Cuba past Guantanamo Bay and the Sierra Maestra mountains, where Castro and his revolutionaries once hid out — we made a stop in George Town on Grand Cayman Island. A short walk along the shore took us to 335 South Church Street, a location made famous by Barack Obama a few years ago and more recently, Jack Lew, during his confirmation hearings to become Secretary of the Treasury.
There you’ll find Ugland House, a five-story office building that, according to a 2008 report from the US Government Accountability Office (GAO), houses 18,857 corporations, about half of which have billing addresses back in the States. It’s the business world equivalent of one of those circus cars that’s packed with more clowns than you thought possible. In 2009, Obama said of Ugland House, “either this is the largest building in the world or the largest tax scam in the world.”
In Foreign Policy magazine in January 2012, Joshua Keating wrote that in reality Ugland is neither but, “… the building makes a mockery of the U.S. tax system.”
Keating noted that the Caymans have no direct taxes, it only costs some $600 to set up a company address there – while the company does business around the world — and that “the Caymans also allow U.S. non-profit entities like pension funds and university endowments to invest in hedge funds without paying the ‘unrelated business income tax,’ which could be as high as 35 percent if those funds were based in the United States.” He also cited “concerns that the complexity and lack of transparency in Cayman Islands transactions can make tax evasion and money laundering easier, though,” he adds, “… the vast majority of Cayman Islands transactions are entirely legal.” This is what the Internal Revenue Service euphemistically described to the GAO as “the Cayman Islands’ reputation for regulatory sophistication.”
Ugland House offers one-stop shopping — it’s also headquarters for the international law firm Maples and Calder, experts at greasing the wheels for corporations wishing to do business via the Caymans. Recently, for example, it was announced that Maples and Calder is serving as Cayman Islands legal advisor to Seven Days Inn, a budget hotel chain in China. In a deal worth an estimated $688 million, Seven Days is being taken private by a consortium, the members of which include the Carlyle Group, the asset management company – third largest private equity firm in the world — whose past advisors and board members have included George H.W. Bush, former Secretary of State James Baker, former Defense Secretary Frank Carlucci and former British Prime Minister John Major. The consortium has lawyers in the Cayman Islands, too.
Wheels within wheels. One of the thousands of entities registered at Ugland House is Citigroup Venture Capital International, a private equity fund in which our new Treasury Secretary Jack Lew invested $56,000 while he was an executive at Citigroup. He sold the investment, at a loss, for $54,118 in 2009 when he joined the Obama administration. Asked at his Senate confirmation hearing whether he knew that Citigroup had a presence in the Caymans – 121 subsidiaries, in fact, including the fund in which he had invested — Lew professed, “I do not recall being aware of any particular Citigroup subsidiaries located in the Cayman Islands.”