Romney's Bain Capital under investigation for tax dodging

New York's attorney-general starts examining private equity firms

Bain Capital – the company formerly run by Republican presidential candidate Mitt Romney – is among a number of private equity firms being investigated for underpayment of taxes, according to a report in the Financial Times:

[New York's attorney-general, Democrat Eric] Schneiderman has issued subpoenas as part of an investigation into the “fee-waiver” strategy, in which executives invested management fees paid by investors back into one of the investment funds. Any profits on those fees would be taxed at the capital gains rate – a much lower tax rate than if it were treated as ordinary income. There is debate over whether the strategy is legal, aggressive or illegal. The strategy was risky and could have resulted in losses for the manager if the investment funds were not profitable.

The fact that Bain Capital is being investigated has led to some – including one "private equity executive" quoted by the FT – to brand the move as a political one, but other equity groups are being investigated as well, including KKR (part owners of Alliance Boots, amongst others) and Apollo Group (an education-focused firm which owns one of Britain's two private universities, BPP University College).

Bain is being roped into the investigation – run by the state's Taxpayer Protection Bureau – due to the hundreds of pages of the company's internal financial documents which were leaked by Gawker, which reveals that the Bain partners save more than $200m in federal income taxes and more than $20m in Medicare taxes.

The New York Times reports that there is widespread belief that the practice is not only legal, but ethically justifiable as well:

Tax lawyers have justified the arrangements by arguing that converting the management fees into carried interest, which could lose some or all of its value if a fund does poorly, entitles the managers to the lower capital gains rate, which is intended to help mitigate the risks taken by investors.

“They’re risking their management fee — they’re giving up the right to that management fee in any and all events,” said Jack S. Levin, a finance lawyer whose firm has represented Bain on some matters. Mr. Levin said he did not consider the practice risky or even aggressive.

“The I.R.S. has known that private equity funds have been doing this for 20 years,” he said.

If the move is politically motivated, it's likely to prove rather successful. Romney's tax status has been under examination since the day he made his first presidential bid, and he has been extremely unwilling to reveal anything but the barest minimum of information about it. The most compelling theory as to why is the suggestion that, in 2009, he may have taken advantage of an IRS amnesty into illegal Swiss bank accounts. And the status of Romney at Bain is similarly murky.

All of which is to say that the candidate has the whiff of financial impropriety floating around him most of the time, and it doesn't take much from, say, a Democratic attorney-general to make more bad news for him.

Obama and – Bane? Bain? Romney. Obama and Romney.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The 4 most unfortunate Nazi-EU comparisons made by Brexiteers

Don't mention the war.

On Tuesday morning, the Prime Minister Theresa May made her overtures to Europe. Britain wanted to be, she declared “the best friend and neighbour to our European partners”.

But on the other side of the world, her Foreign secretary was stirring up trouble. Boris Johnson, on a trade mission to India, said of the French President:

“If Mr Hollande wants to administer punishment beatings to anybody who seeks to escape [the EU], in the manner of some World War Two movie, I don't think that is the way forward, and it's not in the interests of our friends and partners.”

His comments were widely condemned, with EU Brexit negotiator Guy Verhofstadt calling them “abhorrent”.

David Davis, the Brexit secretary, then piled in with the declaration: “If we can cope with World War Two, we can cope with this."

But this isn’t the first time the Brexiteers seemed to be under the impression they are part of a historical re-enactment society. Here are some of the others:

1. When Michael Gove compared economist to Nazis

During the EU referendum campaign, when economic organisation after economic organisation predicted a dire financial hangover from Brexit, the arch-Leaver Tory MP is best known for his retort that people “have had enough of experts”.

But Gove also compared economic experts to the Nazi scientists who denounced Albert Einstein in the 1930s, adding “they got 100 German scientists in the pay of the government to say he was wrong”. 

(For the record, the major forecasts came from a mixture of private companies, internationally-based organisations, and charities, as well as the Treasury).

Gove later apologised for his “clumsy” historical analogy. But perhaps his new chum, Donald Trump, took note. In a recent tweet attacking the US intelligence agencies, he demanded: “Are we living in Nazi Germany?”

2. When Leave supporters channelled Basil Fawlty

Drivers in Oxfordshire had their journey interrupted by billboards declaring: “Halt Ze German Advance! Vote Leave”. 

The posters used the same logo as the Vote Leave campaign – although as the outcry spread Vote Leave denied it had anything to do with it. Back in the 1970s, all-Germans-are-Nazi views were already so tired that Fawlty Towers made a whole episode mocking them.

Which is just as well, because the idea of the Nazis achieving their evil empire through tedious regulatory standards directives and co-operation with French socialists is a bunch of bendy bananas.   

3. When Boris Johnson said the EU shared aims with Hitler

Saying that, Boris Johnson (him again) still thinks there’s a comparison to be had. 

In May, Johnson told the Telegraph that while Brussels bureaucrats are using “different methods” to Hitler, they both aim to create a European superstate with Germany at its heart.

Hitler wanted to unite the German-speaking peoples, invade Eastern Europe and enslave its people, and murder the European Jews. He embraced violence and a totalitarian society. 

The European Union was designed to prevent another World War, protect the rights of minorities and smaller nations, and embrace the tedium of day-long meetings about standardised mortgage fact sheets.

Also, as this uncanny Johnson lookalike declared in the Telegraph in 2013, Germany is “wunderbar” and there is “nothing to fear”.

4. When this Ukip candidate quoted Mein Kampf

In 2015, Kim Rose, a Ukip candidate in Southampton, decided to prove his point that the EU was a monstrosity by quoting from a well-known book.

The author recommended that “the best way to take control” over a people was to erode it “by a thousand tine and almost imperceptible reductions”.

Oh, and the book was Mein Kampf, Hitler's erratic, rambling, anti-Semitic pre-internet conspiracy theory. As Rose explained: “My dad’s mother was Jewish. Hitler was evil, I'm just saying the EU is evil as well.”
 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.