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.
"His personal finances are a poster child of what's wrong with the
American tax system," said Jack Blum, a Washington lawyer who is an
authority on tax enforcement and offshore banking.
On Tuesday, Romney disclosed that he has been paying a far lower
percentage in taxes than most Americans, around 15 percent of his annual
earnings. It has been Romney's Republican rivals who have driven the
tax issue onto center stage. For weeks, Romney has cited a desire for
privacy as his reason for not sharing his tax returns -- a gesture of
transparency that is now expected from presidential contenders.
"I can tell you we follow the tax laws," he said recently while on the
campaign trail in New Hampshire. "And if there's an opportunity to save
taxes, we like anybody else in this country will follow that
opportunity."
But tax experts tell ABC News there are other reasons Romney may not
want the public viewing his returns. 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.
Rebecca J. Wilkins, a tax policy expert with Citizens for Tax Justice,
said the federal government loses an estimated $100 billion a year
because of tax havens.
Blum, the D.C. tax lawyer, said working through an offshore investment
vehicle allows the investor to "avoid a whole series of small traps in
the tax code that ordinary people would face if they paid tax on an
onshore basis."
Wilkins agreed, saying the "primary advantage to setting those funds up
in an offshore jurisdiction like the Cayman Islands or Bermuda is it
helps the investors avoid tax."
"It helps U.S. investors avoid U.S. tax," said Wilkins, "it helps
foreign investors avoid taxes in their home country, so it's not illegal
or improper to set those funds up in a foreign jurisdiction, but it
makes it more attractive to investors because it helps them avoid paying
taxes on that income."
Bain Accounts in the Cayman Islands
Bain's presence in the Cayman Islands is not something the firm advertises. The Los Angeles Times
first disclosed
Romney's offshore accounts in 2007, during his initial run for the
presidency. ABC News found references to the firm's accounts in the
Caymans in the footnotes of securities filings. When ABC News went to
the office address listed for Romney's Bain funds, lawyers in the
Caymans were not eager to answer questions.
Asked if he could confirm the existence of the Bain accounts, David
Byrne, the chief marketing officer for the law firm Walkers, listed on
documents as Bain's Caymans' representative, said he could not. "No, I
can't at all," said Byrne. "Unfortunately, I can't comment at all on
that."
There is now less secrecy than there was even two weeks ago surrounding
Romney's tax rate. The money he made through Bain investments was taxed
as capital gains at a 15 percent rate, instead of the higher tax rates
borne by most Americans. Newt Gingrich told reporters Wednesday that his
income was taxed at 31 percent.
The so-called "carried interest" rule has been the source of extensive
debate in Washington, with opponents criticizing the allowance to tax
those earnings at 15 percent a glaring loophole that benefits only the
wealthiest Americans. Under the carried interest rule, income that is
determined to be capital gains – like the profit reaped by hedge fund
managers -- is subject to the lower 15 percent rate.
Wilkins said Romney's arrangements reminded her of the now famous
remarks by billionaire financier Warren Buffet, who revealed in 2007
that he was paying taxes at a lower rate than his receptionist.
"Well, I think it's the issue that is sort of on the front page every
day, when we look at the Occupy Wall Street movement and that people are
really losing patience with the idea that a lot of multinational
corporations have and a lot of wealthy people have that while they
benefit from everything this country has to offer … they don't seem to
be willing to pay their fair share," she said.
Romney, who left Bain in 1999, has confirmed that his earnings largely
come from investments, and the tax rate he pays is consistent with that
"because my last 10 years, my income comes overwhelmingly from some
investments made in the past, whether ordinary income or earned
annually. I got a little bit of income from my book, but I gave that all
away. And then I get speaker's fees from time to time, but not very
much."
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