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Global Shipping Business Tied to Mitch McConnell, Secretary Elaine Chao Shrouded in Offshore Tax Haven
The Paradise Papers reveal that Trumpโs Transportation Secretary Elaine Chao and Sen. Mitch McConnell have more ties to tax havens than previously known.
Lee Fang, Spencer Woodman February 5 2018, 6:00 a.m.
On June 6, 2016, Majority Leader Mitch McConnell joined his wife, Elaine Chao, now the U.S. secretary of transportation, at a ceremonyOpens in a new tab on the Harvard Business School campus to dedicate a new building emblazoned with the Chao family name. Funded by a $40 million gift from the Chao family and its foundation, the building would serve as a new hub for Harvardโs Executive Education program. But the familyโs generosity appears to have come at the expense of taxpayers โ the money, it turns out, would already have been in the public treasury had it not been sheltered from the government in complex offshore tax havens.
Over a period of five years, millions of dollars were quietly funneled to a Chao family foundation via two offshore firms that list a New York address but are not incorporated anywhere in the United States. Two entities with the same names, however, are incorporated in the Marshall Islands, known as one of the worldโs most secretiveOpens in a new tab offshore havens for firms seeking to avoid taxes and a preferred foreign locale for the Foremost Group, the Chao familyโs New York-based shipping business. The Foremost Group and a spokesperson for the Department of Transportation declined to comment on where the two donating firms are incorporated.
Chao, notably, has been a key voice in promoting the Trump administration economic policies, including the historic rewrite of the tax code โ a legislative accomplishment that is likely the pinnacle of McConnellโs congressional career. The reform shifted the corporate tax code to a territorial system, a move highly expected to rewardOpens in a new tab firms that funnel earningsOpens in a new tab through offshore tax havens, such as the Cayman Islands or the Marshall Islands. Speaking at the Davos World Economic Forumโs annual meeting in January, Chao called Trumpโs โAmerica firstโ policies โthe affirmation of American exceptionalism.โ Critics, she noted, โwho donโt want to listen to him can leave.โ
The connection between the offshore accounts and the donation to the Chao family foundation were found through a search of the Paradise Papers โ a trove of more than 13 million leaked documents from tax havens around the world obtained by German newspaper Sรผddeutsche Zeitung and shared by the International Consortium of Investigative Journalists with reporting partners around the world.
The documents reviewed by The Intercept highlight the extent to which Chaoโs family shipping business has made use of offshore jurisdictions. Chao also appears connected to her familyโs offshore firms in ways that have not been reported. Both a Chao family foundation website and her LinkedIn page list Chao as having chaired the foundation associated with the Harvard gift.
In response to a request for comment, Marianne McInerney, a spokesperson at the Transportation Department, said in an email that Chao was a volunteer chair for the foundation between 2013 and 2014 and that she โhad no day-to-day responsibilities and received no compensation.โ McInerney also said Chao has no affiliation with the family shipping business, the Foremost Group. โThe Secretary,โ she said, โcomplies with all applicable ethics requirements.โ
The Foremost Group did not respond to emails and calls requesting comment.
McConnell married Chao, the daughter of shipping magnate James Si-Cheng Chao, in 1993. James Chao fled the civil war in China to arrive in Taiwan, and shortly thereafter immigrated to the United States, where he began his building an international shipping business. Thanks to the Foremost Group, McConnell and Elaine Chao, one of Washingtonโs most politically powerful couples, are also estimated to be millionaires many times over. Though Chao has never played a leadership role in the company, her father gave the couple a gift of between $5 million and $25 million in 2008, according to PoliticoOpens in a new tab. McConnellโs net worth was about $26.7 million in 2016, according to a Center for Responsive Politics estimateOpens in a new tab.
The Chao familyโs use of offshore structures came to light in 2014 when The Nation reportedOpens in a new tab that the family business had routed ownership of its cargo ships through a series of opaque registrations in Liberia and the Marshall Islands. The Foremost Group fleet consists primarily of dry-bulk cargo ships carrying commodities, including coal, to ports around the world.
In 2016, ProPublica reportedOpens in a new tab that the Foremost Group had registered a total of 17 cargo ships offshore, mostly via subsidiaries registered in the Marshall Islands. This raised concerns that Chao may face a conflict of interest because her job as transportation secretary involves overseeing the Maritime Administration, which encourages shipping firms in certain sectors to register their vessels in the United States.
โThere is no conflict of interest,โ said McInerney. She said the department doesnโt regulate foreign-flagged ships, and regulations determine which trades require ships to fly a U.S. flag.
A longtime Republican activist, Chao is the first Asian-American woman in U.S. history to become a Cabinet member; she was appointed labor secretary by George W. Bush in 2001. She has also been active in her familyโs foundation, the Ruth Mulan Chu Chao Foundation.
In 2010, the foundation received its largest reported donation to date: $17 million from an entity called โForemost Holdings Corporation,โ which the foundationโs public filingsOpens in a new tab list as having the same address as the Foremost Groupโs headquarters in New York. Yet a review of state incorporation records found no entity called Foremost Holdings Corporation incorporated in New York โ or any U.S. state. Only one company by this name could be located, via a Paradise Papers search, and the firm is registered in the Marshall Islands.
And in 2014 and 2015, the Chao family foundation received two contributions totaling $12.5 million from โForemost Bulkers Group LLC,โ which also listed its address at the Foremost Groupโs New York headquarters โ this time with a โcare ofโ notation. In 2016, Foremost Bulkers Group LLC provided another $11,555,000 to the foundation. But, again, a records search found no firm by that name incorporated anywhere in the United States. However, a Foremost Bulkers Group, which also turned up in a search of the Paradise Papers, was registered in the Marshall Islands.
Public financial records filed by the foundation with the Internal Revenue Service give little indication where the two donor firms, Foremost Holdings Corporation and Foremost Bulkers Group LLC, are actually incorporated.
The foundation, in public filings provided to the New York attorney generalโs office, labeled donations from Foremost Bulkers Group LLC as contributions received from foreign organizations under exclusion code 24 from the IRS. The IRS guidelines for public foundations note that such contributions indicateOpens in a new tab that they are โfrom a trade or business not conducted in the United States and not derived from United States sources.โ
The Marshall Islandsโ corporate registry list both companies as still active.
Stephen Shay, a tax expert and professor at Harvard Law School, said he does not believe that there would be anything illegal about a foundationโs public tax forms listing an offshore contributor at the address of its U.S. domestic parent company, although such a move โwould not seem usual.โ Offshore firms try to avoid the appearance of a close business relationship with domestic parent companies, according to Shay, to avoid giving any impression that the offshore subsidiaries might have business activity in the United States that could trigger federal tax liability.
According to the Organisation for Economic Co-operation and Development, when it comes to sharing tax-related information with other countries, the Marshall Islands is one of the worldโs least compliant jurisdictions. In December, the European Union placed the island nation on a blacklistOpens in a new tab of 17 countries across the globe that failed to meet its standards for tax fairness and transparency.
The offshore firms that quietly donated to the Chao foundation are by no means an outlier in the shipping industry. More than 70 percent of large, privately owned U.S. ships are registered abroad, according to an analysis by ProPublica. The Marshall Islands is a popular corporate home for shipping firms, which, in addition to low taxes, enables these firms to skirt federal labor laws that would otherwise govern their shipping crews.
The new building for the Harvard Business Schoolโs Executive Education program was named the Ruth Mulan Chu Chao CenterOpens in a new tab, for Elaine Chaoโs mother. In a letterOpens in a new tab released at the dedication ceremony, former President George W. Bush praised Chaoโs father, the founder of the Foremost Group, for pursing the American Dream and thanked the family for โgiving back to the country that has blessed them so much.โ
The executive center is meant to be a place for Fortune 500 senior managers and Wall Street bosses to sharpen their financial skills. According to its website, it offers courses โ costing up to $80,000 for seven weeks of instruction โ intended to, for instance, help executives assess โthe competitive forces that distinguish highly profitable industriesโ and take โstrategic actions today that will position your firm for competitive advantage tomorrow.โ
Public filings report that the Ruth Mulan Chu Chao Foundation gave $20 million to Harvard in two payments, in 2012 and 2014, along with a donation of approximately $19.6 million in 2016.
Brian Kenny, a spokesperson for Harvard Business School, said in an email that the balance of the $40 million gift was paid in 2016. $5 million of the gift is dedicated to providing financial assistance to students of Chinese heritage, accordingOpens in a new tab to the university.
He said the Chao family had been longtime supporters of the school as alumni and participants in advisory groups. โConversations with the Chao family about philanthropy and engagement with the School more broadly spanned over four decades,โ Kenny said, โwell in advance of any notion of a new building.โ
Citing โrespect for the confidentiality of donors,โ Kenny declined to comment on the terms of the Chao family gift.
https://theintercept.com/2018/02/05/mitch-mcconnell-elaine-chao-offshore-paradise-papers/