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Where the Money Lives: Vanity Fair Report Reveals Loopholes, Offshore Havens Behind Romney's Fortune

StoryJuly 11, 2012
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Republican presidential hopeful Mitt Romney is on the hot seat over where he stashes his vast personal fortune, estimated at up to $250 million. We speak with reporter Nick Shaxson, whose new Vanity Fair article, "Where the Money Lives," delves into the murky world of offshore finance and reveals loopholes that allowed Romney to skirt tax laws and store millions in foreign tax havens. The article has sparked the latest round of questions about Romney’s taxes and offshore accounts, amplified by Romney’s refusal so far to release more than one year’s worth of tax returns. [includes rush transcript]

This is a rush transcript. Copy may not be in its final form.

NERMEEN SHAIKH: We begin today’s show with a look at the fortune of Mitt Romney, one of the richest men to ever run for U.S. president. Where Romney stashes his personal wealth, estimated at up to $250 million, has been the focus of Democrats since Vanity Fair published a new piece called "Where the Money Lives." It delves into the murky world of offshore finance and reveals loopholes that allowed Romney to skirt tax laws and store millions in foreign tax havens. President Obama has tweeted three times about the article, saying, quote, "I don’t know of any American president who has had a Swiss bank account," end-quote. That’s originally a comment made by Romney’s former Republican presidential rival, Newt Gingrich.

The Vanity Fair article also draws attention to Romney’s refusal so far to release more than one year’s worth of tax returns. On Tuesday, the Obama campaign and top Democrats took to the airwaves and the internet with videos like this one.

BRIAN ROSS: Romney has gone to great lengths to keep secret many important details about his wealth, including whether he uses tax loopholes available only to the super rich.

A.B. STODDARD: This is really something that is not going to appeal to Americans, unless Mitt Romney comes out and says, "We must change our tax code because it is so gameable. I am one of the people who learned how to make an end run around the system. I have my money in other places around the world to avoid taxes. And so, we have to fix this problem." That’s not what he’s doing, and so people are going to react negatively to this.

JOHN KING: Your father, he released his tax returns, and for not one year, but for 12 years. And when he did that, he said one year could be a fluke, perhaps done for show. Will you follow your father’s example?


AMY GOODMAN: That Obama campaign video includes a clip of Romney from a CNN Republican presidential primary debate in South Carolina in January, responding to the moderator, CNN’s John King. Now such ads have put Romney back on the hot seat. Despite reports of a still struggling economy and high unemployment, a new poll shows Obama has extended his lead over Romney to 6 percentage points. Speaking to Radio Iowa late Monday, Romney answered his critics about his secretive accounting.

MITT ROMNEY: I realize that the president’s failure to actually reignite the economy makes it hard for him to discuss his own record, and so he’s going to try and attack me on every personal basis he can come up with. With regards to any foreign investments, I understand—and you understand, of course—that my investments have been held by a blind trust, have been managed by a trustee. I don’t manage them, don’t even know where they are. Those—that trustee follows all U.S. laws. All the taxes are paid, as appropriate. All of them have been reported to the government. There’s nothing hidden there. There’s nothing—if, for instance, you own shares in, let’s say, Renault or in Fiat, you still have to pay taxes, you still have to disclose that in the United States. So, you know, I understand. The president is going to try and do anything he can to divert attention from the fact that his jobs record is weak and he has no plan to make things better.

AMY GOODMAN: Well, for more, we’re joined by investigative reporter Nick Shaxson, whose new article for Vanity Fair magazine is what began this latest round of questions about Romney’s taxes and offshore accounts. It’s called "Where the Money Lives." Nick Shaxson is also author of Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens. He’s joining us via Democracy Now! video stream from Zurich, Switzerland.

Nick Shaxson, welcome to Democracy Now! OK, tell us, where does the money live?

NICHOLAS SHAXSON: Hi, good morning.

Really, what my article explored was a series of questions. I mean, what—what you come out with is a series of questions. This is a very secretive set of investments. I mean, there is a lot of information available. He’s required to make public disclosures. He’s required to—well, he’s released a tax return, one year’s tax return. So there is a certain amount of information out there. But that information, in turn, has generated a lot questions.

There are investments all over the place, in the United States and overseas. There are a number of investments that are routed through tax havens. You have to do a bit of digging to find that, to find out where a lot of those investments are. There was, as you mentioned, a Swiss bank account that came up that didn’t have any particular tax resonance, because it was disclosed. But, you know, it didn’t look good, and it made a big splash.

My article also found some—found some—a corporation, for example, based in Bermuda that had not been disclosed before, that only suddenly popped up in the tax return, the 2010 tax return, which he released under pressure during the Republican primaries. And this Bermuda corporation raises a lot of questions which journalists before have asked him, and I’ve asked him, and there has been no reasonable answer about this.

So—and there are a number of investments by Bain Capital, the company that he set up and left in—nominally left in 1999, that invests through places such as the Cayman Islands, so that it’s a very, very complex picture. He has—on his tax return, he has page after page after page of foreign entities reported, and it is—you know, it’s been a sort of Byzantine task trying to unravel what’s going on in there.

NERMEEN SHAIKH: Nicholas Shaxson, you mentioned Bain Capital, that Romney left Bain Capital in 1999. But as you point out in your piece, as recently as this June, he earned two million—Romney earned $2 million in new income from Bain, despite having left the company 13 years ago. How is that possible?

NICHOLAS SHAXSON: Well, he was—he was running Bain Capital from—he set it up in 1984 and ran it 'til 1999, where he left to run the Salt Lake City Olympic program. After he left in ’99, there is some question as to whether or not he left full operation—operational management. The Romney camp said he did. There's a bit of stuff in the media at the moment questioning that. Until 2001, it appears that he may have had some operational management over the—over the Bain Capital itself.

After that, he did leave—definitely, for sure, left operational management of Bain Capital, but he continues to receive income from it. Bain Capital has a number of—lots of funds, investing in all sorts of different things, many of them routed through the Cayman Islands. And those funds will generate returns. They will generate profits interest, which he receives over time, and he has been receiving—he has been receiving money. And as you mentioned, there’s a new payment, became—came to light fairly recently. So he’s continuing to receive a stream of income.

There has been no release of information about what exactly his severance agreement was with Bain Capital. What is his relationship with the company? He has been asked this. His campaign has been asked this, and they have not come back with any good answer. So it may be that—you know, there was a new entity that appeared on his tax return, new Bain Capital entity, that appears to give him the potential to receive more income for many years to come, but there’s been no clarity about this. So, we just don’t know exactly how long his relationship is going to be with Bain Capital. If he’s elected president, then it may be that he’d continue to receive substantial income from them while he’s president. So, a lot of questions arising.

AMY GOODMAN: I want to play clip of Vice President Biden joking about Romney’s reluctance to release more than two years of tax returns. This is Biden on Tuesday addressing the National Council of La Raza’s annual conference.

VICE PRESIDENT JOE BIDEN: When his father was a candidate for president in 1968, his father released 12 years of tax returns, because he said — and I quote — "One year could be a fluke, perhaps done for show," end of quote. That was his father. His son has released only one year of his tax returns, making a lie of the old adage, "Like father, like son." He wants you to show your papers, but he won’t show us his. It’s kind of fascinating.

AMY GOODMAN: Vice President Joe Biden. Nick Shaxson, let’s talk about this issue of taxes. As you write in your article, it was Mitt Romney’s father, George Romney, in 1967, ahead of his presidential campaign, who released 12 years of tax returns, saying, when explaining why so many years he released, "One year could be a fluke, perhaps done for show." That was Mitt’s father, George Romney. Why is releasing tax returns so significant? What do you learn from them, and what don’t we know about Mitt Romney?

NICHOLAS SHAXSON: Well, I think that point about releasing only one year is very significant. I mean, for example, the Swiss bank account that pops up on the 2010 tax return, then—it was closed again after that, and it’s now closed. The 2011 estimate that was produced revealed that that had been closed. And so, that was something that just kind of popped up and then went out of existence. So, you know, one year just gives you a snapshot.

But the thing about income and taxes, income is a very flexible thing. When you’re rich and you have wealthy tax advisers, you can massage your income. You can shift it around from year to year. You can play all sorts of games with it. So, unless you have a pattern, unless you’re able to establish a pattern over a number of years to see what is—you know, what is—where the income is going and establish that, you know, as a sort of regular pattern, then it’s very difficult to say anything for sure. I mean, he could have—you know, he could have shoveled a lot of income from one year into another year and made it look a particular way. We just don’t know. So it’s very important to get, you know, a lot more information than has been produced by Mitt Romney.

AMY GOODMAN: We’re going to break and then come back to this discussion. Our guest is Nick Shaxson. He has written a very interesting piece in Vanity Fair called "Where the Money Lives." We’ll be back with him in just a minute.


AMY GOODMAN: Our guest is Nick Shaxson. His latest piece in Vanity Fair has created quite a firestorm, "Where the Money Lives." In fact, President Obama has tweeted it several times. And you’ve been accused of being a Obama stooge, just, you know, writing this piece for Obama. Your thoughts about President Obama, Nick?

NICHOLAS SHAXSON: Well, personally, I—when Obama was elected, I guess I was quite hopeful. I mean, as a British person, I’m an outside observer to all of this. I must say I’ve been somewhat disappointed in him since he was elected, particularly because of his closeness to Wall Street. I think, you know, he’s done some good things, for sure, but I’m—you know, the sort of high hopes I—and, I know, many others—had of him have been rather, you know, not—he hasn’t followed through. And I think the closeness to Wall Street is a particular problem.

And I think this is very relevant to the debate about Mitt Romney. I think one of the things that Mitt Romney epitomizes is the kind of—the whole financialization of corporations, where corporations, instead of—you know, where managers kind of turn their attention away from producing, you know, better goods and better services and for better prices and, you know, building productivity and long-term growth of companies. There has been a turn toward seeing companies through financial lenses, through Wall Street lenses, where, you know, you can extract—you know, shareholder value is the kind of god of everything, and you view everything through that prism, so it doesn’t matter if you start extracting big loans out of—you know, borrow huge amounts of money out of the companies and pay yourself a special dividend, as Bain Capital and many other private equity companies have done. That is seen to be a good thing. But, you know, this is part of a whole kind of process of financialization, which I think is something that Mitt Romney really epitomizes. And I think, you know, Obama is certainly not—he doesn’t epitomize that, but I think, still, his closeness to the financial sector is a worry for me.

NERMEEN SHAIKH: One of the things that you point out, Nicholas Shaxson, in your piece is Romney’s average personal tax rate, which you say is 15 percent, substantially lower than what most middle-income Americans pay. Can you explain how that’s possible?

NICHOLAS SHAXSON: Yeah, the main reason for that is the way—this is about the U.S. tax code. This is the way that privileged people like Mitt Romney and other—and hedge fund managers and private equity titans receive their income. They receive it as a thing called carried interest, where—which many people would argue is just like ordinary income. It’s just like a salary earned by anybody else and should earn, you know, the top tax rate, but instead, for historical reasons and reasons of lobbying, it is taxed at a very low rate of 15 percent. Mitt Romney’s tax rate is a little bit lower than that. He has—for various other reasons, he has deductions and earns other kinds of income, as well. But it’s not too far off 15 percent. But carried interest is—the tax treatment of carried interest is the sort of central reason why his tax rate is so much lower than many Americans.

AMY GOODMAN: Let’s play a clip of reporter Ryan Grim on MSNBC saying the deficit Romney opposes is caused in part by the use of offshore tax havens to dodge U.S. taxes.

RYAN GRIM: One reason we don’t have that money is that so many rich people can afford sophisticated accountants who can hide the money in offshore tax havens, and then they can hire lobbyists who then write loopholes into the tax code. And now he wants to run for president, complaining about the deficit and saying that the tax code is too complicated. I mean, at some point, you know, you’ve just got to say, "Wait a minute. What you talking about here?"

AMY GOODMAN: How common is Mitt Romney’s use of these tax havens? How does the tax code shape what he and the extremely wealthy pay in taxes and what they’re able to avoid paying, Nick Shaxson?

NICHOLAS SHAXSON: Well, it is pretty common, and particularly for financial players. There is this kind of image that has grown up over the years of tax havens as kind of exotic side shows to the global economy. What my research discovered was that tax havens are much, much, much bigger than almost anybody realizes, that the offshore system has grown absolutely enormous. It is now right at the heart of the global economy. If you look at all of the stuff that Wall Street is doing, if you look at the number—you know, which companies have got the biggest number of subsidiaries in offshore tax havens, it’s banks, it’s the financial sector, it’s Wall Street, the city of London.

So, tax havens, if you want to understand the power—if you’re worried about the power of the financial sector, as I and many other people are, then you have to look at tax havens. Tax havens are essentially, in many ways, a kind of escape route. And it’s not just about taxes. There is this—you know, it has been estimated that the United States is losing 100 billion U.S. dollars a year to tax havens, through legal and illegal tax games that are played by individuals and corporations.

But there is much more to it than that. There is this issue of the complexity of the tax code. And essentially, what happens is, is tax havens, what they are is they provide escape routes, escape routes from the responsibilities of society, whether those responsibilities are taxes or financial regulations or criminal laws or disclosure rules or whatever. And so, financial sector players, in particular, are able to take their money offshore and to do things they’re not allowed to do at home.

What happens next is that the supposedly onshore country will then put in place a defense against that, so United States has all sorts of defenses against tax haven erosion. But then the lawyers and the accountants and the financial players will find ways around those new laws, those defenses. And bit by bit, the whole game becomes more and more complicated. And these—so these places, such as the Cayman Islands, are zero tax kind of platforms where financial players put their money, and then they start kind of playing this game of trying to find ways through the U.S. tax code.

And, you know, and trying to stop this—trying to stop the erosion of tax haven is like kind of playing—trying to play a game of whack-a-mole. You know, you knock one thing down, and then one pops up elsewhere. So they’re very, very slippery kind of entities to deal with, slippery jurisdiction to deal with. And politically, they’re very difficult to deal with, as well, in countries around the world, because it is generally the wealthiest and most influential members of society who use tax havens, and so they are quite often the biggest supporters of tax havens. So, politically, it’s very difficult to get real change that really cracks down properly on this.

And so, what you have is a reduction of the tax bill and reduction of the regulatory burden on the wealthiest members of society, the biggest corporations. And as a result, other people, you know, smaller companies, small businesses, individuals have to pay higher tax as a result. It’s a great big kind of distortion in the whole economic system. And the fact that Mitt Romney is so kind of steeped in this system and is such a friend to this system is, for me, profoundly worrying.

NERMEEN SHAIKH: But, Nicholas Shaxson, is it in fact unclear, then, whether Mitt Romney has broken any laws in paying the tax rate that he has?

NICHOLAS SHAXSON: OK, in paying the tax rate that he has, what we get down to—and this is kind of the crux of my article. It has been asserted repeatedly by the Romney camp and by the Republican Party and by many others that Romney, OK, he’s a kind of clever financial acrobat—he can do all these backflips and has fantastic accountants—but he’s never actually broken any laws. That’s the kind of assertion, that’s the mantra, and it has been generally accepted in the U.S. media, that assertion.

What my article—one of the things—the main things my article sought to do was to question that, say, "Is that really true? Is that actually true?" And the answer to that question of whether or not he broke any laws is not completely straightforward. Essentially, in the area of tax and in various other areas, the dividing line between what’s legal and what’s illegal is usually not very clear. There’s usually a kind of fuzzy grey zone between the two. And when you’re talking about offshore tax havens, that grey zone is often quite big. And I think one of the reasons my article has been so widely read is that it kind of establishes a pattern—in the area of tax but in other areas, too—that Mitt Romney appears to be very confident striding into this grey zone, where you can’t directly say, "OK, you’ve broken the law there," but you can say, you know, "Come on, that’s going a little bit—pushing it a little bit far." And in some cases, he seems to have been really quite robust, quite even aggressive, in pushing into this grey zone. And I think that’s something that hasn’t really yet—you know, hadn’t really yet been properly appreciated, and I think it is an important pattern to look at.

AMY GOODMAN: Mitt Romney makes more than the median U.S. household income in just five hours. In an average work year, there are 2,080 work hours. He made $21.7 million in 2010. The median household income is about $50,000. It will take the median household 433 years to make what Romney made in 2010. And, Nick Shaxson, now that’s not illegal, by any means. It puts him certainly in a very different category than other Americans. But you end your piece by talking about—saying that "Bain Capital has said it did everything required by the U.S. government ... U.S. law doesn’t require Bain to enforce the tax laws of its investors’ home countries, but the presence of Swiss trustees, Bahamas trusts, [and] Panama corporations would raise red flags with any tax authority." It’s what Mitt Romney says about this, you say, is what’s of concern. Nicholas?

NICHOLAS SHAXSON: Yes. This is a very important point. People see offshore tax havens as kind of, you know, shady little islands somewhere, and there’s certain element of truth to that. But one of the things that I explore in my book, Treasure Islands, is that, over the decades, over the past few decades, particularly since the 1970s, the United States has itself been turning itself, quite deliberately, into a tax haven in its own right, a gigantic tax haven, attracting foreign money, a lot of illicit foreign money, from overseas through offering things such as special tax exemptions and secrecy, financial secrecy. The United States is one of the biggest offerers of financial secrecy in the world. Both at a federal level, these facilities are offered, and at a state level, with states such as Delaware and Nevada and Wyoming kind of offering very, very low-cost, but very strong forms of secrecy through corporations. And this is a profoundly difficult thing.

And one of the—one of many vehicles through which this illicit money can come in is the private equity business. There is no requirement on private equity companies to enforce the tax laws of other countries. A filing that I uncovered during my research was—showed exactly these strange entities in the Bahamas and in, you know, Swiss trustees and Panama. All of these places are renowned tax havens, renowned places where—which offer—one of their big selling points is secrecy. And these investors that came in, we don’t know exactly who they are. We have some ideas. We know that some of them came from El Salvador, a country which at the time was suffering a terrible civil war. We don’t know if these investors were evading their home countries’ taxes, but it’s possible. And the presence of these, you know, Panama, Swiss and Bahamas entities certainly does raise red flags, and it is profoundly worrying.

AMY GOODMAN: Nick Shaxson, we want to thank you very much for being with us. His latest piece in Vanity Fair about Romney’s fortune is called "Where the Money Lives." Nicholas Shaxson is also author of the book, Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens_. You can go to our website at to see our have">interview with him about this. He was joining us from Zurich, Switzerland. Thanks so much for being with us.

When we come back, we’re going to look at the secretive organization called ALEC and how more and more corporations are leaving it, and then we’re going to have a debate on a new Israel government report that says the settlements are legal. Stay with us.

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