PALO ALTO (CBS SF) -- Stanford University has been holding investment funds offshore to avoid higher taxes on its endowment for years and now students are demanding that the university divest and pay its fair share of taxes.
Stanford's offshore investments were publicly revealed by a trove of leaked documents, dubbed the Paradise Papers last month.
Stanford is one of many universities that grow its endowment by using "blocker corporations," or offshore feeder corporations used to invest in private equity or hedge funds to avoid U.S. trade or business income tax.
The Stanford Graduate Student Council is now calling for the university to divest from offshore blocker corporations.
A letter outlining the student council's requests was delivered to the Board of Trustees.
Stanford graduate students Kari Barclay and Alejandro Schuler co-authored the letter to the trustees. Barclay told CBS San Francisco he's hoping it will bring about greater investment transparency from the university, saying Stanford's "charitable mission shouldn't be an excuse for the university to hide their investments from public scrutiny or to support shady industries like fossil fuels or private prisons."
Offshore, But In The Sun
The Paradise Papers, comprised of millions of leaked documents originating from the offshore law firm Appleby, revealed that the university, working with San Francisco-based private equity companies Hellman & Friedman and Genstar Capital, invested undisclosed amounts of money in offshore blocker corporations.
The university has invested some part of its endowment in the offshore blocker corporation Genstar Capital Partners V HV in the Cayman Islands and has previously invested in H&F Investors Blocker in Bermuda.
Stanford President Marc Tessier-Lavigne acknowledged the offshore investments following the Paradise Paper revelation, but emphasized the important role those investments have in growing the university's endowment.
At a Stanford Faculty Senate meeting in November, Tessier-Lavigne said "it's fairly common ... for universities, foundations, other non-profit organizations [to] have a portion of their endowments invested in off-shore funds."
Tessier-Lavigne said he stands by the investment decision.
"When we do this, we do it in order to meet our fiduciary obligations to minimize tax burden within the limits set by the law," he said. "I think it's critical to emphasize that Stanford fully complies with the law in all of these matters."
Stanford graduate students have made it clear that they feel differently than their university president.
"I don't want these kinds of investments going on in my name," Barclay said. "If the university truly feels that their investments are nothing to be ashamed of, Stanford's investments should be made public for all to see. Otherwise, we risk Stanford becoming a hedge fund with a university attached, as the old joke goes."
Barclay said he feels private universities are behaving more and more like corporations.
"All around the Bay Area, we're seeing corporations skirting taxation, Apple being perhaps the most discussed example," Barclay said. "As a result, we're seeing our local, county, and state governments struggling for funding for infrastructure, public universities, and the like."
Taxing the Endowment
This week, Congress passed the GOP tax bill that will place a tax on the endowments of the top-endowed universities, including Stanford.
Stanford's endowment in 2017 was $24.8 billion, an increase of $2.4 billion over the last year.
Barclay said, "I certainly oppose those plans for increased taxation. Right now, university endowments aren't taxed unless they invest in private equity and hedge funds, and I'm only hoping that Stanford would shoulder the taxes on those forms of investment instead of hiding its money abroad."
House Republicans also proposed taxing the tuition that universities waive for graduate students who work in academic positions, as income. That proposal did not succeed in the final tax deal, but House Republicans have set their sights on other graduate student benefits in a proposed rewrite of the Higher Education Act.
Stanford graduate student Alejandro Schuler told CBS San Francisco that graduate students and the university administration have worked together to stop the proposed tax on the endowment and to counter Congress' proposal to tax graduate students' waived tuition as income.
This tax avoidance by the university, Schuler said, undermines that joint advocacy.
"Although it is a private university, it has a stated mission of public service. Unfairly enriching itself at the expense of those not fortunate enough to have access to offshore tax havens does not fit with that mission," Schuler said. "Arguing that transparency would undermine the competitive advantage of university investments is frankly ludicrous given the enormity of the endowment and how solidly in the black the bottom line is."
Schuler said any efforts the university can make to increase their investment transparency would go a long way and could even disprove reports that these blocker corporations serve to hide the university's investments in industries such as fossil fuels, which are notoriously unpopular on the Stanford campus and other college campuses across the country.
A Stanford University spokesman said its board of trustees received the letter, but that the university is heading into its winter recess and that the trustees have not yet responded to the letter or issued a statement about it.
By Hannah Albarazi - Follow her on Twitter: @hannahalbarazi.
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