“Disclosure For Thee But Not For Me”: Romney Using Ethics Exception To Limit Disclosure Of Bain Holdings
Republican presidential front-runner Mitt Romney, whose wealth has become a central issue in the 2012 campaign, has taken advantage of an obscure exception in federal ethics laws to avoid disclosing the nature and extent of his holdings.
By offering a limited description of his assets, Romney has made it difficult to know precisely where his money is invested, whether it is offshore or in controversial companies, or whether those holdings could affect his policies or present any conflicts of interest.
In 48 accounts from Bain Capital, the private equity firm he founded in Boston, Romney declined on his financial disclosure forms to identify the underlying assets, including his holdings in a company that moved U.S. jobs to China and a California firm once owned by Bain that filed for bankruptcy years ago and laid off more than 1,000 workers.
Those are known only because Bain publicly disclosed them in government filings and on the Internet. But most of the underlying assets — the specific investments of Bain funds— are not known because Romney is covered by a confidentiality agreement with the company.
Several of Romney’s assets — including a large family trust valued at roughly $100 million, nine overseas holdings and 12 partnership interests— were not named initially on his disclosure forms, emerging months later when he agreed to release his tax returns.
There is no indication that Romney is violating any rules, and his advisers note that his reports have been certified by the Office of Government Ethics, which reviews the disclosures required of presidential candidates.
Romney spokeswoman Andrea Saul said the disclosure “completely and accurately describes Governor Romney’s assets as required by the law.” She said Romney does not know the details of his investments since he turned them over to a trustee to manage, and that ethics officials confirmed that “everything … was reported correctly” and completely.
Several outside experts across the political spectrum, however, say Romney’s disclosure is the most opaque they have encountered, with some suggesting the filing effectively defeats the spirit of disclosure requirements.
“His approach turns the whole purpose of the ethics statute on its ear,” said Cleta Mitchell, a Republican lawyer who has represented dozens of candidates and officials in the disclosure process, including Romney’s leading challenger for the GOP nomination, Rick Santorum.
Romney’s fortune and his association with Bain are frequent topics in the presidential campaign, with opponents charging that the way he accumulated much of his wealth — through leveraged buyouts that in some cases ended in bankruptcy and layoffs — is at odds with the interests of working-class Americans.
The ties to Bain, a private firm known for its reticence, put Romney in a rare category exempting him from the transparency rules that apply to most candidates.
Like all nominees for federal office, Romney is covered by the statute that mandates disclosure of assets. But since the 2004 campaign — when Democratic presidential candidate John Kerry declined to disclose some of his wife’s holdings — the Office of Government Ethics has permitted nominees and presidential candidates to postpone revealing underlying assets in investment accounts that have a legally binding confidentiality agreement.
Bain routinely asks its investors to sign such agreements.
But after a nominee is in office, the ethics agency requires that any undisclosed assets be sold as a way to meet conflict-of-interest requirements.
The implications for Romney, if elected, are uncertain because sitting presidents are not subject to the conflict-of-interest sections of the ethics law. Although still subject to the disclosure requirements, a president cannot be compelled by OGE to sell undisclosed assets, according to an OGE official. Romney’s would be the first presidency to face this circumstance, according to the official, who spoke on condition of anonymity because of the sensitivity of the topic in an election year.
Romney does disclose underlying assets in his accounts held by financial firms other than Bain, such as Goldman Sachs. But his advisers say Bain holdings, the source of most of his wealth, are kept confidential at the request of Bain management for proprietary business reasons. Romney’s attorneys asked Bain officials to release information about the funds, but the request was denied, according to Saul.
When he talks about Bain, Romney promotes the image of a jobs generator spawning megastores such as Staples and Sports Authority , which serve as emblems of Bain’s extraordinary financial success.
But some other Bain-affiliated companies have a history of controversy. Romney is invested, for example, in DDI, a company in California once owned by Bain that filed for bankruptcy in 2003 and laid off more than 1,000 workers.
Company chief executive Mikel Williams said the firm has returned to profitability and is expanding, in part because of recent support from Bain and others.
Romney also has holdings in Sensata Technologies, a high-tech sensor control firm that has moved U.S. manufacturing jobs to China. A Sensata spokesman declined to comment.
Most of Romney’s holdings in Bain accounts are impossible to identify because of the confidentiality rules imposed by Bain, but his investments in Sensata and DDI were revealed through Securities and Exchange Commission filings.
Saul said it is unfair to link the candidate to such firms because “Governor Romney has not had any role at Bain Capital since he left over a decade ago,” and has turned over “control and overall management” of his investments to a trustee.
Ethics office’s ‘double standard’
Under pressure, Romney recently released hundreds of pages of tax returns for 2010 and estimated returns for 2011. A comparison of those returns with his federal and state “personal financial disclosure” reports and corporate filings at the SEC revealed dozens of discrepancies – and provided a window into what might emerge if Romney revealed the assets he holds in Bain accounts.
“I don’t know what legal authority exists for the federal ethics office to allow Mitt Romney not to disclose these assets,” said Mitchell, the Republican campaign lawyer. “The statute intends for presidential candidates to publicly disclose underlying assets.”
She said she views the OGE’s exception as a “double standard” that allows very wealthy candidates to avoid disclosure because they are more likely to have their assets in accounts covered by a confidentiality agreement.
By comparison, she said, her congressional clients are required to report every asset unless they qualify for one of the few exceptions described in the law.
One indication of the lack of specificity in Romney’s disclosures is the size of his report. In 2011, it ran 27 pages, compared with 123 pages filed by Ross Perot before he announced his presidential bid in 1992 and 51 pages filed by Henry Paulson, former chief executive of Goldman Sachs, when he was nominated as Treasury secretary in 2006.
Steve Pagliuca, a current Bain managing director who sought election to the U.S. Senate in 2009, and filed a 94-page disclosure. He too was denied permission to release underlying assets in Bain accounts, according to a source familiar with the matter, who spoke on condition of anonymity because he was not authorized to speak on the topic.
Romney is not the first presidential candidate to say he is unable to list underlying holdings in a private equity account. But he is the first to do so for such a large portion of his overall assets.
“I have never seen anything like this,” said Joe Sandler, a Democratic Party lawyer who has shepherded candidates and nominees through the disclosure process for 26 years. “Romney’s approach frustrates the very purpose of the ethics and disclosure laws,” he said. Sandler served as general counsel to the Democratic National Committee when Kerry ran for president.
As a senator, Kerry continues to say he cannot list assets in a Bain account held by his wife, Teresa Heinz Kerry, which his staff says is in compliance with Senate rules.
When he was running for president, Kerry did not list assets in Bain and half a dozen other private equity and hedge fund accounts — some valued over $1 million. A Kerry aide, who spoke on condition of anonymity because she was not part of the presidential campaign, said, “In this case, Senator Kerry wasn’t a beneficiary of Heinz family trusts, had no role in their management, and preexisting confidentiality agreements governing proprietary information were a unique issue.”
New Jersey Sen. Frank Lautenberg (D) does not list underlying investments in several private equity accounts his wife owns — and he provided no explanation with his disclosure report. His chief of staff, Dan Katz, said information on accounts owned by trusts connected to Lautenberg’s wife have proved unobtainable so far, but the senator has been told he is in compliance with Senate rules.
Senate Ethics Committee officials said they could not comment on individual members.
When he ran for the Senate from New Jersey in 2000, Jon Corzine, a former chief executive at Goldman, initially declined to release tax returns, citing confidentiality obligations to his firm. William Canfield III, a former Republican counsel to the Senate Ethics Committee, said at the time that the New Jersey millionaire had a special obligation to disclose, in part because of his extraordinary wealth.
“Mr. Corzine has to understand, while he retains some privacy rights, he has given up a substantial number of them in holding himself out for public office,” Canfield said at the time. Canfield has gone on to private practice and advised federal candidates, including Texas Gov. Rick Perry.
A spokesman for Corzine, who ultimately released his tax returns, declined to comment.
The purpose of disclosure
The 1978 Ethics in Government Act requires candidates to publicly disclose their wealth in broad ranges and to list the assets in most partnerships, trusts and pooled investment funds.
The purpose is to allow the public to identify potential conflicts of interest and the personal economic priorities of candidates and elected officials, said Fred Wertheimer, the longtime advocate who worked to enact the measure in the aftermath of the Watergate scandal.
Mitchell and several other Washington campaign lawyers say they advise candidates to reveal underlying assets, divest them if they cannot be disclosed or choose not to seek public office.
“My clients have had fund managers squawk about their ‘proprietary information’ and I’ve always been told, ‘There is no choice — the law requires disclosure,’ ” Mitchell said.
Canfield, the former Senate ethics lawyer, will not comment on Romney’s assets. But, he said, “I always counsel my clients to err on the side of disclosure” and to note on ethics forms “the same description of assets they would disclose to the IRS.” Doing so, he said, is in keeping with the spirit of the law and prevents embarrassing questions about discrepancies.
Romney’s tax forms showed holdings in a Swiss bank account, a real estate trust and nine offshore accounts not named on the public disclosure reports. In addition, 12 Bain accounts described as “fund” investments on the disclosure were identified as “partner” investments to the IRS.
Romney’s attorneys subsequently amended the disclosure to acknowledge the Swiss bank and the real estate accounts. The other assets, Romney aides said, were too small to report or had been listed, under other names, on the public disclosure. The general explanations were accepted by government ethics reviewers as were the amendments.
“Any document with this level of complexity and detail is bound to have a few trivial inadvertent issues,” Saul said at the time.
In his disclosure reports, Romney’s lawyers noted that he retired from Bain in 1999, is now a “passive investor” and “has not had any active role with any Bain entity.”
Romney’s tax returns indicate that he and his wife received “carried interest,” a controversial form of compensation that provides a share of profits to Bain managers and is taxed at the lower capital gains rate.
Romney’s compensation from ongoing Bain deals results from a retirement agreement when he left the company in 1999 allowing him a stake in Bain’s new investment funds for a decade after.
By: Tom Hamburger, The Washington Post, April 5, 2012
“Rich American Exceptionalism”: Whose Swiss Bank Account Hedges Against The American Dollar?
No, that’s not a trick question. Yes, the answer is that easy. Of course, it’s Mitt Romney.
According to the manager of his trust, Mitt Romney’s Swiss bank account wasn’t an exercise in tax avoidance—rather, it was a hedge against a decline in the dollar. I’m not qualified to say whether or not his explanation is the full truth, but it certainly doesn’t provide evidence that Mitt Romney hates America. Obviously, an investment that bets on the decline of the dollar might not sound good, but when you have as much money as he does, you’re going to end up placing bets that might not be great soundbites for a campaign. In substantive terms, Romney is going to have a much bigger problem explaining why Bain profited from destroying companies than he will have explaining this.
But while the mere existence of the Swiss bank account doesn’t by itself raise questions about Mitt Romney’s loyalty to America, it provides one hell of a way to respond to Romney when he engages his his now-familiar attacks on President Obama’s loyalty. Despite all the attention paid to Newt Gingrich’s “food-stamp” line, Mitt Romney himself is no stranger to the hate card. His preferred formulation: that President Obama doesn’t believe in American exceptionalism, that he seeks to “poison the American spirit”, and that he wants to turn America into Europe and “keep us from being one nation under God.”
Of course, Mitt Romney is nothing like that at all. He’s just the kind of guy who bets on America’s decline to protect his own ass.
“Blind Trust Ruse”: Romney Does Not Dispute He Profited From Foreclosures In Florida
ThinkProgress reported Wednesday that former Massachusetts Gov. Mitt Romney (R) has profited from thousands of Florida foreclosures through a Goldman Sachs investment fund. Former House Speaker Newt Gingrich (R) blasted Romney on the trail today for those investments, and re-upped those attacks in tonight’s CNN debate.
Romney attempted to explain away the investments, saying he didn’t control them because they were part of a blind trust:
GINGRICH: Governor Romney has investments in Goldman Sachs, which is today foreclosing on Floridians. So maybe Governor Romney, in the spirit of openness, should tell us how much money he’s made off of how many households that have been foreclosed by his investments.
ROMNEY: First of all, my investments are not made by me. My investments for the last 10 years have been in a blind trust, managed by a trustee. Secondly, the investments they’ve made, we’ve learned about this as we made our financial disclosure, have been made in mutual funds and bonds. I don’t own stock in either Fannie Mae or Freddie Mac. There are bonds the investor has held through mutual funds. And Mr. Speaker, I know that sounds like an enormous revelation, but have you checked your own investments? You also have investments through mutual funds that also invest in Fannie Mae and Freddie Mac.
Watch it: http://youtu.be/A8Dg4wpZNRo
Notably, Romney never denied the charge that he made money off of foreclosures. Later in the debate, Romney was asked about the $3 million he kept in a Swiss bank account before it was closed in 2010. Again, Romney attempted to brush aside the question, saying, “I have a trustee” who manages a blind trust.
Romney’s reliance on blind trusts is interesting, considering it was he who called them “a ruse” when running against former Sen. Ted Kennedy (D) in 1994. And as ABC News noted, the trusts are “not so blind,” since they have been noted on his financial disclosure forms. The trusts are also maintained by Romney’s personal lawyer and don’t meet federal standards for elected officials. Romney’s original investments into Fannie Mae and Freddie Mac, meanwhile, were never in a blind trust.
By: Travis Waldron, Think Progress, January 26, 2012
Romney Failed To Disclose Swiss Bank Account Income
Mitt Romney‘s campaign is amending the financial disclosure forms he filed in 2007 and 2011 to acknowledge that a Romney trust held a Swiss bank account, a detail that had been missing from both reports.
“An amendment is being filed to address this minor discrepancy,” a campaign official told ABC News in an email Thursday in response to questions about the apparent omission.
The discovery that the Romneys had $3 million in an account with the Swiss bank UBS came only after the Republican presidential candidate released his tax returns for 2010 on Tuesday. The campaign had maintained that it was not necessary to disclose the Swiss account because Romney’s money manager, Brad Malt, had shuttered it in early 2010.
Several Republican election lawyers told ABC News Thursday that the account still needed to be disclosed because a Romney trust earned about $1,700 in income on the account during 2010. The campaign’s decision to amend the forms was first reported by the Los Angeles Times.
At the same time, questions from ABC News about undisclosed income that appeared on Newt Gingrich‘s tax return have led Gingrich to announce that he, too, will be amending his financial disclosure report. Gingrich’s returns showed he received $252,500 in wages from Gingrich Holdings Inc. in 2010, but those wages do not appear anywhere on his presidential disclosure report.
“An internal account review found the need to amend the reporting,” said a Gingrich campaign official. “It was done immediately.”
Romney also decided to amend the report from his 2007 run for president, a decision first reported by the New York Times. Those who track the finances of presidential candidates said they found the failures to disclose these key financial details distressing. Bill Allison, editorial director of the non-profit watchdog group the Sunlight Foundation, said the whole purpose of the disclosure reports is for candidates to provide an honest look at their finances to voters.
“Obviously, if you don’t give them the information before the vote, it defeats the whole purpose of disclosure,” Allison said.
Melanie Sloan, executive director of the non-partisan group Citizens for Responsibility and Ethics in Washington said she, too, was dismayed — noting that while in Congress, Gingrich had been called out for failing to include information on his disclosure reports.
“You’d think someone once sanctioned by the House of Representatives … would be a little more careful with his financial disclosure forms,” she said.
The discovery that Romney’s vast holdings included an account in Switzerland, a country long notorious for helping the very wealthy hide their assets, came during his release of his tax return earlier this week. Malt, who oversees Romney’s blind trusts, acknowledged during a conference call with reporters that he decided to shut down the Swiss account because he worried it could create a headache for Romney’s campaign. “It might or might not be consistent with Governor Romney’s political views,” he said. “The taxes were all fully paid … it just wasn’t worth it. And I closed the account.”
That suggests, Allison said, that the campaign had a motivation to exclude any evidence of the Swiss account from the candidate’s forms. The Romney campaign called the omission an oversight.
Allison noted that there is generally no penalty for a candidate who leaves something off a disclosure report, and then goes back to amend the report if the missing information is discovered.
“Nobody is going to get into trouble for this,” he said. “That is the problem with the disclosure system.”
By: Matthew Mosk and Brian Ross, The Blotter, ABC News, January 26, 2012
Three Key Questions Raised By Romney’s Tax Revelations
Mitt Romney’s campaign has tried desperately to put a lid back on the can of worms that burst open weeks ago when the one-time GOP presidential front runner declined to release any of his tax returns.
But by actually releasing his 2010 return, and an estimation of his 2011 return, camp Romney has provided reporters with some, but not all, of the answers they’re looking for as they try to paint a complete picture of the finances of one of the wealthiest candidates for President in U.S. history.
Romney’s revelations confirm that his effective tax rates in the past couple years have been as low or lower than those of workers with truly modest means. They also confirm that he’s availed himself of truly complex tax strategies designed to boil his liability down to the lowest level allowed by the country’s heavily rigged, labyrinthine tax code. And we know, too, that these are things Romney didn’t want voters to know — at least not yet.
But they raise a series of new questions that will likely require Romney to disclose several years’ worth of additional tax returns if he wants to answer them satisfactorily. Here are three big ones that touch generally on the theme of Romney’s efforts to reduce his tax burden by taking advantage of areas of the law that simply aren’t available to most people.
How Low Do They REALLY Go
Romney’s effective tax rate was 13.9 percent of his adjusted gross income (AGI) in 2010, and is expected to be slightly higher in 2011. Set aside for now the fact that for a high net worth individual like Romney, AGI often understates what you might call “true” income — meaning these effective tax rates probably overstate Romney’s 2010 and 2011 tax liability. It turns out that in 2009, in the wake of the financial crisis, Romney very likely managed to get his effective tax rate much lower than 13.9 percent. In 2010, Romney carried over $4.9 million in capital losses from 2009. This is a consequence of the tax code’s leniency toward investors who take hits in bad years. But as tax lawyer Ed Kleinbard told reporters during a Tuesday conference call organized by the DNC, “that means he paid no tax on any of his capital gains in 2009, including tax on his carried interest in 2009.” That’s not necessarily because Romney actually lost money in 2009, either. As Kleinbard explained, a common tactic for Americans with capital gains is to “harvest” — by selling off certain investments that lose value investors can count the losses against gains elsewhere in their portfolios. If those losses exceed the gains by more than a certain amount, they roll over into the following tax cycle. Unless Romney had significant sources of non-investment income, that suggests his effective tax rate in 2009 was much lower than 13.9 percent. And remember, he jokes he’s been unemployed for years.
That UBIT Bit
One of camp Romney’s chief claims has been that his offshore investments haven’t been covers for deferring or avoiding U.S. taxation. But as described, here, there is one tax strategy that could have allowed Romney to avoid a big, 35 percent tax on unrelated business income, as it pertains to his massive individual retirement account — if that account is invested in an offshore entity. When asked Tuesday if Romney has ever benefited from this strategy, his trust adviser Brad Malt said, “I don’t know the answer to that — let us get back to you on that.” We haven’t received an answer yet, but we’ll pass it along when we get it.
Swiss Amiss?
Romney’s 2010 tax return reveals a Swiss bank account. “It is listed because I set that account up for diversification in 2003 when I became trustee of the blind trusts,” Malt said. “It is a bank account. Nothing more, nothing less. An ordinary bank account. It earns some income which is fully reported on the form 1040. In the 2010 tax return, you’ll see approximately $1,700 in interest earned by this account, which is reported. The tax is fully paid just as if this were a U.S. bank account. Nothing more complicated than that. By the way, I did close this account in early 2010. It no longer exists.”
Some reports suggest that the account was closed for political reasons, but Malt said “I regularly review Governor Romney’s investments just in connection with my periodic reviews, I decided that this account wasn’t serving any particular purpose….Again, taxes were all fully paid etc. But it just wasn’t worth it. And I closed the account.” Tax experts have noted to TPM in recent days that U.S. law changed shortly before then, to make it harder for U.S. persons to avail themselves of tax havens. Shortly thereafter the IRS gave people secreting their money abroad a time window for compliance. Taking camp Romney at its word, that wasn’t really their concern. Even if the account existed for purposes of diversification that could be politically embarrassing in and of itself, constituting a bet against U.S. currency. But to fully answer the question, we’d need to know if that bank account is declared in the years before the law changed. Camp Romney did not respond to a request for comment on this point Tuesday.
By: Brian Beutler, Talking Points Memo, January 25, 2012
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