Lew’s Cayman Islands Fund a Likely Issue at Confirmation Hearings

By JONATHAN WEISMAN

As recently as 2010, Jack Lew, President Obama‘s nominee to be the next secretary of the Treasury, had $56,000 invested in a CitiGroup venture capital fund based in the Cayman Islands’ notorious Ugland House, a building whose mailboxes are home to nearly 19,000 corporate entities, many of them tax shelters.
The investment has been in public documents for years and drew no attention when Mr. Lew was confirmed to be deputy secretary of state in 2009 and director of the White House Office of Management and Budget in 2010.
But the fund is coming to light as Mr. Obama and Congressional Democrats are zeroing on taxes lost to off-shore entities, including hedge funds, as a way to stave off $1 trillion in across-the-board spending cuts set to begin March 1.
Aides in both parties said it was quite likely to come up during his confirmation hearing Wednesday. Senate Democrats are struggling to come up with a package of spending cuts and tax loophole closings that could stave off the automatic spending cuts — known as sequestration — for at least three months. Tax breaks for hedge fund managers and offshore tax shelters are a prime target.
The Finance Committee held hearings in 2008 burrowing in on Ugland House, a nondescript white building in George Town, Cayman Islands, that shelters a bewildering number of corporate headquarters.
“Today we will take a look at some ostensibly crowded halls, those of the Ugland House in the Cayman Islands,” Senator Max Baucus of Montana, the committee’s chairman, said, opening the hearing. “That is a remarkable five-story building that the G.A.O. tells us has some 18,857 tenants. Today we will examine whether many of those tenants are feasting at America’s taxpayers’ expense.”
Mr. Lew divested himself of the CitiGroup Venture Capital International Growth Partnership in 2010. When confirmed as budget director in 2010, he sold the investment at a loss, for $54,418.
“Jack Lew paid all of his taxes and reported all of the income, gains and losses from the investment on his tax returns,” said Eric Schultz, a White House spokesman. “The existence of Mr. Lew’s investment is not news to the Senate. Mr. Lew disclosed the investment in his prior confirmations, before three separate committees. There are no new facts that provide a basis for senators to reach a different conclusion about Mr. Lew’s nomination than they reached twice before in this administration.”
Mr. Lew did not create, manage or operate the fund, officials said. Republican aides did not suggest any illegality or tax cheating with the disclosure. Indeed, Republicans on the Finance Committee had leaped to the defense of Henry Paulson, President George W. Bush‘s last Treasury secretary, when numerous Cayman Island investments surfaced during his confirmation.
Senator Charles E. Grassley of Iowa, then the Finance Committee’s ranking Republican, accused the president of hypocrisy.
“President Obama has been almost obsessively critical of offshore investments,” Mr. Grassley said. “He called Ugland House ‘either the biggest building or the biggest tax scam on record.’ That makes this Cayman Islands investment of his top official and now Treasury secretary nominee worthy of attention. The irony is thick. Members of the Finance Committee will question Mr. Lew about his foreign investments at the hearing.”