Oligarchy

DARK MONEY

I was interested by the New York Times story about Patagonia founder Yvon Chouinard giving away his company, so it could dedicate profits to fighting climate change in perpetuity. Naturally, as someone who thinks more billionaires should be using their money to fight climate change, I’m inclined to think such behavior is great. But the more I read of the subsequent commentary about how he gave his company away, the more I stopped approving of it quite so much.

He moved 98% of Patagonia’s shares to Holdfast Collective (not the same as the already-existing-but-different Holdfast Collective that makes military certificates, judging by the statement on its website), which is designated a “501(c)(4)” under the U.S. tax code and can make unlimited political donations. The family’s voting stock meanwhile went to the Patagonia Purpose Trust, which will decide the direction of the company and make sure it keeps doing what it should. The family and/or its nominees will control the trust, and thus retain control of the company’s direction and strategy. But they will no longer own it.

• “Instead of “going public,” you could say we’re “going purpose.” Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth,” said a statement from Chouinard.
• “I was in Forbes magazine listed as a billionaire, which really, really pissed me off,” he told the New York Times. “I don’t have $1 billion in the bank. I don’t drive Lexuses.”

The article was remarkably generous about the plan and treated Chouinard throughout as the national treasure that he is, but I was struck by one aspect, which is that the Chouinard family will pay just $17.5 million in tax on the gift, which doesn’t seem like very much for a transaction worth around $3 billion. I was not the only person to notice this little wrinkle.

Law professor Daniel Hemel pointed out that a gift of this nature would incur a tax bill of $1.2 billion if given to a purpose rather than a purpose-created entity, and he compared the structure of the deal to one from Republican donor Barre Seid, who also gave away his company to a 501(c)(4), and thus avoided a huge tax bill on his unrealized capital gains. Seid’s money went to the Marble Freedom Trust, which is run by the co-chairman of the Federalist Society. But he did not get a generous write-up in progressive publications. Quite the reverse.

• “Lawmakers must reform our charitable giving laws to ensure that public philanthropy is not abused either for extreme tax avoidance or for the advancement of personal political objectives,” demanded this blog post on Inequality.Org, along with the crosshead “the Essence of Dark Money,” when Seid made his grant.

There has been no such outrage about Chouinard doing more or less the same thing. Conservative writers have rather enjoyed highlighting the apparent hypocrisy in the different treatments accorded to the two philanthropic gifts — one from a progressive billionaire, and one from a conservative.

• “What can we conclude from this sorry episode? The value of philanthropy, for The New York Times, is intimately linked to the purpose of the gift. If the purpose is “bad,” like supporting a more-conservative approach to jurisprudence, the donor is a grifter who is receiving an undeserved “tax break” for his or her contribution. If the purpose is “good,” like supporting the fight against climate change, who cares if the gift was enhanced by avoiding the capital-gains tax?” asks this piece on Philanthropy Daily.

And I can’t help agreeing with them.

• “What the Chouinards are doing in terms of climate advocacy — they’re trying to save the planet. So, if I were them, I would like to think I would be as generous and do the same thing. So I do not mean to criticize them. I actually think they’ll probably use the money in a better way than if it went to the federal government and some of it went to fossil fuel subsidies. But one doesn’t want a constructed tax system predicated upon everyone being like the Chouinards,” said Professor Hemel.

Philanthropy is good, but democracy is better.

YACHTS

I am very grateful to everyone who writes in with thoughts about my newsletters, so an apology to James who points out that it’s incorrect to put “the” in front of the names of vessels (apart, apparently, from cross-channel ferries) as I did last week. If ever I am invited to dine on the yacht of an oligarch — which is admittedly an unlikely prospect — I shall at least not now disgrace myself unknowingly. There does of course remain a chance that I would disgrace myself knowingly, but that’s a risk I’m prepared to take.

Thanks also to Tom, who directed my attention to the fate of Roman Abramovich’s yachts, which are worth a combined $1.2 billion, but which I left out of last week’s round-up. Two of the yachts — Halo (57 meters) and Garcon (67 meters), both owned via BVI-registered Wenham Overseas Ltd — were frozen in Antigua in March, but then released when the Antiguan courts realized the jurisdiction has no sanctions legislation.

• “Halo’s interior design can be described as both “contemporary” and “futuristic” and is the first superyacht project by design studio Benardi Peschard. Accommodation is for a total of 12 guests across six cabins, comprising a main deck owner’s suite with its own private office, a VIP cabin on the bridge deck and four convertible king-sized guest cabins on the main deck,” it says here.

Solaris (140 meters) and Eclipse (162 meters!!) both escaped being blocked, and now all four are safely swimming in Turkish waters where they are not at not risk of being disturbed. I’m slightly stunned by the prospect of anyone owning four superyachts, particularly since I’ve just realized that Abramovich could moor them all in a circle and — with some careful preparation — use them as a running track, since their combined length is slightly more than 400 meters. That also means that, cumulatively, they are longer than the longest vessel in existence.

Turkey has become the go-to destination for Russian oligarchs keen to keep their yachts safe from meddlesome Westerners, thanks to its government’s traditional policy of being friends with anyone prepared to give it money. A key component of that is Turkey’s willingness to sell passports with even less due diligence than Antigua, in exchange for a mere $400,000 investment in Turkish real estate, which is less than any self-respecting oligarch could earn from chartering out one of his yachts for a week.

In a remarkable demonstration of Recep Tayyip Erdogan’s determination to play both sides against the middle, and the middle against anyone who’ll take a bet on it, he declared this week a desire for Turkey to join the China-led Shanghai Cooperation Organization, despite being a member of NATO. This is a little like joining the GRU while still working for the CIA, and it’s hard to see how it could work, despite some remarkable fence-sitting in the Turkish president’s public pronouncements.

• “Judy, we have to see this for what it is. Not only the Ukrainians are dying, but there are so many casualties on the Russian side as well,” he told PBS journalist Judy Woodruff this week, in an interview chockfull of whataboutist wonders of that nature. Contrast for example what he has to say about the man he calls “my dear friend Putin” and what he has to say about Sweden, which is apparently “a cradle of terrorism.”

Erdogan’s Putin-friendly policy may finally be catching up with him, however. Last week the U.S. Treasury sanctioned the chief executive of Russia’s National Payment Card System, which runs Mir, the Russian payments processor set up in 2014 as an alternative to Visa or Mastercard. The Office of Foreign Assets Control sent some well-aimed shots over the bows of good ship Erdogan.

• “Non-U.S. financial institutions that enter into new or expanded agreements with NSPK risk supporting Russia’s efforts to evade U.S. sanctions through the expanded use of the MIR National Payment System outside the territory of the Russian Federation… OFAC is prepared to use these targeting authorities in response to supporters of Russia’s sanctions evasion, including Russia’s efforts to expand the use of NSPK or the MIR National Payment System outside of the territory of the Russian Federation,” it said.

Turkey’s İşbank, which is privately-owned, and DenizBank, which operates in Turkey but is owned by the government of Dubai, moved quickly to suspend all Mir operations. Three state-owned banks VakıfBank, Ziraat Bank and Halkbank appear to still accept the cards which, considering the consequences of being sanctioned by OFAC, is bold. Perhaps they’re counting on the fact that the U.S. government won’t want to sanction entities owned by the government of a member of NATO, even if its president is happy to walk arm in arm with Vladimir Putin. That’s not a wager I’d want to stake my own economy on though, to be honest.

On a sidenote, Mr. Erdogan would like people to stop calling his country Turkey and start calling it Türkiye, which has usefully taught me how to do an umlaut on my computer (hold down ‘option’, then press ‘u’ followed by the letter you need).

• “Flip through the Cambridge Dictionary and ‘turkey’ is defined as ‘something that fails badly’ or ‘a stupid or silly person,’” explains state broadcaster TRT, which — judging by the number of times it fails to use the umlaut in Turkiye, including in the headline — appears to be struggling with the directive itself.

I am, however, determined to keep improving my command of language. So, in any yacht chat next week, I’ll not only avoid the definite article in relation to the names of vessels but also refer to sanctions-dodging in Türkiye, rather than in Turkey. Perhaps that will make it okay.

WHAT I’M READING

I continue my voyage into the world of money laundering, and as such I am reading Willful Blindness, How a network of narcos, tycoons and CCP agents Infiltrated the West by Sam Cooper, which is a racy and entertaining look into how untold billions of Chinese-origin wealth bought real estate, influence and luxury goods along Canada’s Pacific coast. I’m hoping to visit Vancouver later in the year, so if there’s anyone over there in British Columbia who’d like to talk me through how the local criminal economy functions, please drop me a line.