Offshore tax havens aren’t just for the global elite, it turns out. Local government officials have sent hundreds of billions of dollars of public sector workers’ retirement savings to the same white shored beaches used by the rich and famous. If local governments instead held public funds in Public Banks, they'd avoid steep hedge fund manager fees, avoid "shenanigans" risk, and be able to extend credit to make money for the public good instead of for billionaires.
David Sirota and Lydia O’Neal posted in the International Business Times their recent investigation into the tidal wave of cash that has flowed from public pension systems into private equity, hedge funds, venture capital firms and real estate — more than a third of which flows through vehicles housed in the Caymans.
“With so many of the investments now running through a maze of shell companies ... the outflow creates the conditions for rampant fee abuse and financial shenanigans — and prevents pension officials and law enforcement officials from even knowing exactly where billions of dollars of public money is being held.
“The additional risks related to investing in funds established, regulated and custodied in tax havens are real,” former SEC attorney Edward Siedle has warned.
Public pension plans, university endowments and other nonprofits have funneled a massive $1.8 trillion into these “alternative investments.”
In South Carolina, for instance, the annual report for the government workers’ retirement system listed nearly $60 million invested in a Cayman-based fund run by Reservoir Capital Partners, which received more than $2 million in fees from the state last year. In New Jersey, state investment officials have in recent years committed more than a quarter-billion dollars of state pension money to hedge funds based in the Cayman Islands and Bermuda, the country at the center of the Paradise Papers controversy. And in Texas, a 2015 report from the teachers retirement system showed the state paying a combined $13 million in fees to Cayman-based funds run by Bain Capital and Soroban Capital Partners.
Siedle told IBT that Wall Street firms may set up shell corporations in tax havens “not to help public pension fund investors, but really to protect the managers from taxes and regulations.”
Last spring in Sante Fe, the Brass Tacks Team discovered through a Freedom of Information Act request that the City of Sante Fe has an overnight account in the Cayman Islands through their bank agreement with Wells Fargo. It made the Team wonder why Sante Fe would need an account like this.