Financial Transparency Coalition

The New York Observer published today an intriguing article on New York City Mayor Michael Bloomberg’s $1.8 billion Bloomberg Family Foundation. The article states:

By the end of 2008, the Bloomberg Family Foundation had transferred almost $300 million into various offshore destinations—some of them notorious tax-dodge hideouts. The Caymans and Cyprus. Bermuda and Brazil. Even Mauritius, a speck of an island in the Indian Ocean, off the coast of Madagascar. Other investments were spread around disparate locations, from Japan to Luxembourg to Romania.

Why was the mayor’s flagship foundation sending hundreds of millions of dollars offshore? Neither the charity nor the mayor will explain. What is clear is that the issue could get prickly for Mr. Bloomberg, in part because his investment strategies have been so closely associated with Steve Rattner, the onetime boy wonder financier who remains under investigation by Attorney General Andrew Cuomo for his involvement in a state pension controversy. Last week, Mr. Rattner’s former firm, Quadrangle Group, took the extraordinary step of excommunicating him, saying in a statement that it “wholly disavow[ed]” Mr. Rattner over his role in securing state pension contracts—conduct the company called “inappropriate, wrong, and unethical.”

His investments, represented graphically:

These investments run much of Bloomberg’s foundation through legal offshore corporations for the purposes of tax evasion. $300 million is invested in foreign companies, which then invests the money in hedge funds. The money is eventually returned to the foundation, untaxed.

Two issues are raised here. First, while Mayor Bloomberg’s intentions may be admirable, there is nothing here requiring his investments to be well-intentioned. This loophole can be exploited by anyone. Second, it is unethical. The article continues,

But the Bill and Melinda Gates Foundation provides a contrast in its investment style. While the Bloomberg Family Foundation is hardly alone in embracing the savings provided by the offshore loophole—according to a 2007 New York Times piece, large universities like Yale and Duke, along with charities like the Rockefeller Foundation, engaged in the practice—The Times also reported that the Gates Foundation did not invest in offshore hedge funds.

“When instructing the investment managers, Bill and Melinda also consider other issues beyond corporate profits, including the values that drive the foundation’s work,” explains the Gates Foundation’s Web site. “They have defined areas in which the endowment will not invest, such as companies whose profit model is centrally tied to corporate activity that they find egregious.”

The difference between Bloomberg, who is from the world of finance, and Gates, who is from the world of business and technology, is that Mayor Bloomberg does not find the exploitation of tax evading loopholes to be egregious.