Illustration by Adi Emanuel

The Jewish Federations of the Caribbean

Like many charities, the federations invest offshore



The Jewish Federations in North America have major financial clout. Collectively they have over $16 billion in combined assets, which is roughly the same as Iceland's GDP and higher than that of Monaco or Cambodia, for example. Moreover, the federations' investment income – combined gains from cash investments, securities, gross rental income, and other returns – grew to almost $900 million over the four years from 2012 to 2015.  

Their revenue stems chiefly from donations, but donors cannot be sure how their dollars are invested.

In 2015, the federations had more than half a billion dollars in hedge funds and other vehicles famed mainly for secrecy, that operate from shelters like the Cayman Islands and Bermuda. Out of the federations' total assets, totaling some $9 billion, half a billion is not a small amount.

Click here to access all the Federations' 990 tax forms (Return of Organization Exempt From Income Tax), broken down by state and city.

Other nonprofit organizations also invest in offshore tax havens, just like businessmen and the murky sort of politicians exposed by the Panama Papers. Representatives of the funds argue that they have little choice. They have to put their assets somewhere, and the kind of major investment vehicles they need tend to operate offshore, to reduce their own tax bill. While nonprofits don't pay tax, investment vehicles do.

"Often working with professional investment advisors and investment committees, not-for-profits aim to maximize the return on their endowments and other funds," the JFNA commented. "A common method to achieve this result for many not-for-profits, including non-profit colleges and hospitals, is to invest in offshore vehicles."

Investing through funds operating in offshore tax havens is perfectly legal. However, it may beg questions about transparency.

Cleveland versus 'nuclear Iran'

The Jewish Federation of Cleveland, Ohio, is big. In 2015, the last year for which public data is available, it got $76 million in contributions and grants, owned more than $450 million in assets, and reported $15 million in investment income.

This federation invests through offshore vehicles, for 2015 reporting $138 million placed in offshore vehicles, including in Owl Creek Overseas Fund, Black Bear Offshore Fund, and Coatue Offshore Fund (all registered in the Cayman Islands), Lynx (Bermuda) and others.

Where investment vehicles of this sort put the federations' money is anybody's guess.

They say it takes money to make money and indeed, between 2012 to 2015, the Cleveland federation paid out $5.5 million, a substantial sum, on investment management and advice.

In 2015 it also reported $3.1 million in transactions with Cleveland Federation PI, which federation marcom manager Dahlia Fisher calls a “federation entity used for private equity investment purposes.”

In fact, Haaretz discovered that the Cleveland Jewish Federation has 62 "federation entities." Some are proper companies, some are foundations and 60 are listed at the Cleveland Federation's own address. That is decidedly unusual, but Fisher says it's because their financial records are maintained by Federation staff.

Though how their assets are invested by the offshore vehicles cannot be known, spending is more transparent. Take the Jews of Cleveland against the ayatollahs. Among its targets for spending, the Cleveland federation chose the local needy, Israel, and “preventing a nuclear Iran” (“Join us in protecting the people of the United States, Israel, and the world”.)

Surprise: They make money

Cleveland is no exception at taking shelter. The Indianapolis Federation, for example, invested $3.8 million in “Central America/Caribbean” in 2014. 

“Most alternative investment funds are set up in the Cayman/Caribbean Islands for tax purposes. This is a common practice with any investment,” the federation explained.

The federations tend to categorize such investments in their tax returns as “alternative investments”. That is, according to the San Francisco Federation tax return, parlance for "investments in hedge funds, private equity and real estate."

Other major offshore players include (all figures are rounded to the nearest million and relate to the year 2014): UJA (New York Federation - $253 million), the Chicago Federation ($127 million), Philadelphia Federation ($23 million), the Minneapolis Federation ($11 million) and the Pittsburgh Federation ($8 million).

As nonprofits, federations are exempt from sales, property and capital gains tax, but they do pay tax on gains from operations not related to their charitable missions. Investing through offshore hedge funds allows them to legally shelter investment income that would otherwise be taxable.

People feel disillusioned by nonprofits that achieve profit, because we expect them to adhere to a higher standard, explains Prof. Norman I. Silber of Yale, who researches offshore investments by nonprofits. But the practice is perfectly legal and quite the norm: The real problem is that the nonprofits' directors, let alone donors, may not realize the risks involved in offshore hedge funds. For instance, “How do they know there is no conflict of interest in their investments?” he says.

Federations also invest in taxable vehicles, not least Israeli government bonds: New York ($14 million in 2015), Miami ($8.5 million), Cleveland ($5 million) and Western Massachusetts ($4 million), for instance.

Some federations invest in real estate (Las Vegas Federation, $6.9 million worth of property investments in 2015), art (the Cleveland Federation, more than $400,000), "oil and gas" ($400,000 by the New York Federation during 2012).

More is invested via the Jewish Community Endowment Pool. Established by the Jewish Federation of Boston in 1997, the pool now handles more than $1.5 billion from various Jewish entities.

“Often working with professional investment advisers and investment committees, not-for-profits aim to maximize the return on their endowments and other funds,” explains Rebecca Dinar, JFNA’s associate vice president for strategic communications and marketing, "One common way to do that is to invest in offshore vehicles.”  

Lobbying

It isn't unusual for nonprofit organizations to field lobbyists, and indeed, a Haaretz investigation has found that 17 of the 138 U.S.-registered Jewish Federations list lobbying expenditures on their Form 990 tax-exemption returns. Some amounts were picayune. Some were impressively large.

The Jewish Federation of Youngstown, Ohio, for instance reported spending $6,643 on lobbying in 2014. That year the Chicago Federation spent $553,350 on it.

The Youngstown federation did not respond to multiple requests for comment. Chicago did: Lobbying helps the federation secure $400 million a year for its social-service agencies, which provides "important financial leverage for our donors," explains VP Aaron Cohen.

The federations generally hire lobbyists to promote issues in wide consensus, which are agreed upon by their umbrella organization, the Jewish Federations of North America. Such issues include fighting the BDS movement, and changes in health-care regulation that would jeopardize vulnerable members of the community.

This map shows spending by the individual Jewish Federations on lobbying, based on the federations' tax reports .

The Jewish Federations: Spending on lobbying, income from investments

Reporting for this story was supported by a grant from the Pulitzer Center on Crisis Reporting. Akela Lacy contributed to the research.

Click here for more:

Special report: What the Jewish Federations do with your money
Duplicated effort in the world of Jewish charity: What is it good for?
Inside transactions at the Jewish Federations

All in  the mishpucha: Family at the Federations
Jewish Federations Donated Millions to Israeli Settlements Over Four Years
Million-dollar salaries and personal loans: Perks of working for the Jewish federations

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