Jack Lew’s Footprints in Cayman Sand

Jack Lew, the new U.S. Treasury Secretary, follows in the footsteps of other Wall Street insiders to hold that position. His Cayman accounts and “golden parachutes” also may make it hard for him to put himself in the shoes of average Americans, as Michael Winship notes.

By Michael Winship

Along with its sandy beaches and quality snorkeling, the Cayman Islands have a reputation as an offshore tax haven for corporations, banks and hedge funds – something so well-known that Cayman 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 (where detainees from the “war on terror” are imprisoned) and the Sierra Maestra mountains (where Fidel Castro and his revolutionaries once hid out) — we made a stop in George Town on Grand Cayman Island.

U.S. Treasury Secretary Jack Lew.

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 U.S. 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.

Jack Lew is… so deeply immersed in the old boy nexus of Wall Street and government as to have little comprehension of how, in the midst of a soaring Dow Jones, so many millions struggle to make ends meet.

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.”

That may seem odd, given that, as Bloomberg News and others noted, Lew was managing director and chief operating officer of Citi Global Wealth Management, then moved in 2008 to Citi Alternative Investments, “which managed billions of dollars in private-equity and hedge-fund investments” — the kinds of deals that are as common in the Cayman Islands as piña coladas.

Granted, Lew has said on several occasions that he wasn’t responsible for Citigroup’s investment decisions. And true, $56,000 to many is minuscule compared to the aforementioned $688 million Chinese hotel deal, and may seem even less when stacked up against an estimated up to $11.5 trillion in offshore assets held worldwide. But as Iowa Republican Chuck Grassley pointed out to Lew at the Senate confirmation hearings, with his toe dipping into Cayman Islands-based funds, “You invested more money there than the average American makes in a year.”

And that’s the problem. Jack Lew is, by all accounts, a decent guy and dedicated public servant, but like so many of our recent treasury secretaries – Robert Rubin, Henry Paulson, Timothy Geithner – so deeply immersed in the old boy nexus of Wall Street and government as to have little comprehension of how, in the midst of a soaring Dow Jones, so many millions struggle to make ends meet. Nor, we fear, much willingness to resist when the next fiscal meltdown hits and the banks once more demand taxpayer billions to be taken off the hook they baited themselves.

In the weeks leading up to his swearing-in at Treasury, we learned how New York University, a non-profit, gave Jack Lew more than a million dollars in mortgage loans when he became executive vice president of operations there and a $685,000 severance when he left the university to join Citigroup – all at a time when student tuition fees were going through the roof (and NYU was receiving a kickback: .25 percent of net student loans from the bank it was pushing to students as a “preferred lender” — Citigroup).

And we learned that Lew’s multimillion-dollar Citigroup contract included a $944,518 bonus if he moved on to a “full time high level position with the U.S. government or regulatory body.” (Remember, too, that in the years while Lew happened to be there, Citigroup’s stock lost 85 percent of shareholder value as it received $45 billion in taxpayer bailout cash.)

Jack Lew and his employers have provided seemingly logical explanations for all of these — Kevin Drum at Mother Jones magazine was told that Lew’s Citigroup bonus for moving to a government job, negotiated up front before said job happened, “avoids the problem of voluntarily either paying or not paying a big bonus to someone who will exercise power over it in the future.”

So keep your eye on Jack Lew’s stewardship of the nation’s bankbooks. You may know him by the company he keeps. As the poet wrote, no man is an island — Cayman or otherwise.

Michael Winship, senior writing fellow at the public policy and advocacy group Demos, is senior writer of the weekly pub;ic television series, Moyers & Company. Check local listings or go to www.billmoyers.com.

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4 comments on “Jack Lew’s Footprints in Cayman Sand

  1. Erica Stuart on said:

    I was not excited about Lew appointment, I also felt that after the experience we had with his friends, it would have been nice to have a person familiar with the honest side of hard working, producer of goods and services instead of cleaver speculators, BUT, Grasley association of Lew $56.000.00 saving to annual salaries of average Americans is a bit off reasonable comment. As for his reward by Citigroup questionable “bonus” Chaney got thirty millions from that industrial complex company to make sure they received military contracts. That required a war to keep going and that Chaney did. It is a sewer out there.

  2. Otto Schiff on said:

    The love of money is the root of all evil.

  3. F. G. Sanford on said:

    ALERT: It’s time to expose the Cayman Island billionaires and blood-sucking vultures who are paying millions to sell the hoax of austerity measures to the American people! They have deceptively re-named earned benefits like Social Security as “entitlements”, misleading the working class into believing that their economic civil rights are the cause of our government’s financial woes. People like the despicable billionaire misanthrope Pete Peterson and his cronies have joined together to create a phony organization called “Fix the Debt”. This is a lobbying conspiracy which passes itself off to the public, and especially our youth, with a glitzy campaign falsely represented as a “grass roots movement”. It would have us believe that our grandparents’ greed is the source of financial collapse and that retirees are squandering our economic futures. Pete Peterson and his “Fix the Debt” cronies are the economic powerhouse behind the old, weird, decrepit personalities steering the so-called “National Commission on Fiscal Responsibility and Reform”, Alan Simpson and Erskine Bowles. These two austerity ghouls resemble no living persons more than characters like Grandpa Munster or Uncle Fenster, and what they propose has as little in common with economic justice as those characters have will real human beings. Social Security has contributed ABSOLUTELY NOTHING to the public debt, and it is fiscally solvent until 2035. Any attempt to manipulate these benefits IS A FRAUD! Simply removing the cap on Social Security tax above $105,000.00 and making billionaires like Pete Peterson pay their fair share would solve any problems beyond 2035. What these truly evil vampires want to do is convince you that you don’t deserve what you paid for, while THEIR financial schemes have bankrupted the government. They have bought and paid for political influence. John Boehner clearly speaks for them. And, they are in the process of manipulating President Obama into MORE CONCESSIONS which will worsen the economy. Their goal is to create such economic misery that they will inherit the influence needed to control the economy themselves. FIGHT BACK! Demand a ONE PERCENT Wall Street Sales Tax. Wall Street billionaire Pete Peterson is scheming to “Fix the Debt,” but if he wins, we lose. Don’t let this decrepit old skinflint steal your American Dream! Fight Back! Check out PetersonPyramid.org for a story about a really, really scary old vampire.

    • incontinent reader on said:

      Great ideas. A Wall Street sales tax is long overdue and would reverse the budget deficit very quickly. As for the Cayman Islands, the U.S. government has always had the leverage to compel full disclosure of everything, even if it did not have to make it the next Granada mission; and given that it has played fast and loose with notion of nation sovereignty for years, why not? we’re breaking every law in the book. At least this one would be in furtherance of a good policy.