White House

Cayman account dogs Jacob Lew, Obama’s treasury pick

White House Chief of Staff Jacob Lew
White House Chief of Staff Jacob Lew Abaca Press/MCT

President Barack Obama’s pick to head the Treasury Department faces a tough grilling Wednesday from Republicans looking to spotlight his time at Citigroup, the troubled financial institution rescued by taxpayers.

Jacob “Jack” Lew spent less than two years at Citi, from 2006 to 2008, but his time there has now provided fodder for administration critics. They’re especially focused on Lew’s disclosure filings from 2009 showing he’d been invested in a fund headquartered in the offshore tax haven of the Cayman Islands.

Here are some answers to questions likely to come up at his Senate Finance Committee hearing.

Q: Did Lew hide the fact that he had money in offshore tax havens?

A: Lew did not hide nor advertise it. In his prior confirmation hearing to become director of the White House Office of Management and Budget, Lew disclosed that among his investments was a Citibank employee investment fund called Citigroup Venture Capital International Growth Partnership II. The fund’s name sounds innocuous enough, but its address on file with the Securities and Exchange Commission is what’s riled the GOP.

Q: What’s significant about the Cayman Islands address?

A: Citi’s employee investment fund is listed at the Ugland House, listed by more than 12,000 companies as their place of business. In a statement Friday, Sen. Charles Grassley, R-Iowa, noted that Obama himself lambasted offshore accounts in 2009 and cited Ugland House as an example of what’s wrong with our tax system. “The irony is thick,” Grassley said.

Q: Does Lew still have money in the Cayman Islands?

A: The most recent disclosure filings provided to Senate Finance Committee suggest not. The White House said last week that Lew had $56,000 tied up in the fund and sold his stake for a loss of about $1,500 in 2010.

Q: Democrats hit presidential candidate Mitt Romney for unpatriotic offshore tax havens. Isn’t this the same thing?

A: Lew’s investment isn’t something he directed, it was an international fund established for employees of Citi. That’s a different scenario than establishing your own company in the Cayman Islands for investors in order to skirt U.S. taxes, which was the unproven allegation against Romney.

Q: What did Lew do at Citi and how’d he get the job?

A: This is likely to be a theme of interest to Republicans. Lew was recommended for a managerial job of at Citi by Robert Rubin, a storied banker, Citi board member and former treasury secretary in the Clinton administration.

Lew first served as chief operating office of Citi’s wealth management division and later as head of an alternative-investments division, collecting a nearly $1 million bonus in 2009. It’s that latter unit that was involved in the complex mortgage securities that nearly sunk the U.S. financial system. Critics are likely to press him about exactly what he did in a division whose errors helped necessitate a nearly half-trillion-dollar taxpayer bailout of Citi.

Q: Did Lew make the bad calls at Citi?

A: The errors predated Lew’s arrival. During his budget director confirmation hearings, Lew said he was not an expert on financial matters, begging off questions about the true cause of the 2008 financial crisis. Senators are sure to ask how an admitted non-expert on financial matters is now nominated to head the Treasury Department.

Q: Anything else that could trouble Lew’s confirmation?

A: By law, when Medicare’s finances are imbalanced, the director of the Office of Management and Budget is required to send Congress a plan to fix matters. Lew did not do that, and some Republicans suggest he’s violated the letter of the law. However, that’s something that happens routinely in the federal budget process. Past presidents have sent a proposed Medicare fix, but these are ideological documents and not an actual blueprint for legislation.