Charles Piller: Behind the Story on Offshore Investments by Leading Research Funders

Science writer Charles Piller, winner of a AAAS Kavli Science Journalism Award in 2016, wrote an investigative story in the December 7 issue of Science revealing huge offshore investments by top science funding organizations.

In his reporting, Piller found that such secretive investments sometimes end up supporting companies that create some of the very problems – such as health effects related to air pollution – that the private research funders are trying to address through their philanthropy. The lengthy story, the product of hundreds of hours of research, raised questions about transparency and accountability in the investment decisions of seven major funders of scientific research, including the Wellcome Trust and the Robert Wood Johnson Foundation.

Piller has worked as an investigative reporter for STAT, The Sacramento Bee and the Los Angeles Times. He based his Science article on tax returns, financial statements and the Paradise Papers, a collection of about 13.4 million documents, many of which were leaked from Appleby, an international law firm that handles offshore investments. 

In a Q&A, Piller discussed his process, his discoveries and the ramifications of his article.

Q. How did you get on to this story?

A. My editors were interested in whether wealthy, successful scientists or scientific entrepreneurs might have had large offshore investments. I had a relationship with people at the International Consortium of Investigative Journalists and connected with them to take a look at the Paradise Papers.

I soon realized that there was a richer angle, and one that hadn’t been written about before – what leading scientific grant makers are doing offshore, and what impact such investments might have on their philanthropic goals.

Q. How did your editors react to your wanting to shift gears? Was there any reluctance?

A. They wanted the best, most powerful story we could develop, and we pretty quickly agreed that a focus on grant makers offered a look behind the curtain at institutions that many readers of Science have relationships with. So it was a natural fit.

Q. How long did the project take you?

A. I began in February 2018 but wasn’t working all that time exclusively on this project.

Q. Did you ever doubt that it would all come together?

A. Not after I was able to do the initial digging in the Paradise Papers database that showed vast sums – billions of dollars – placed in offshore accounts by leading scientific grant makers. That was early in the process. Then I began to trace the origins of funds listed in the tax returns of those philanthropies, and the story began to fall into place.

Q. Given the volume of documents you reviewed, how many hours would you estimate you spent?

A. This project took roughly 400 hours – from conception to publication.

Q. What were the most time-consuming aspects of your work?

A. The first was calculating and verifying investments. In some cases, the records were clear, so that was easy. I calculated offshore investment totals conservatively, but some foundation offshore holdings are far larger than could be proven. For example, in tax returns, some foundations list holdings by numerical codes, not names. Others use abbreviated names, making them impossible to identify with certainty. Further complicating matters, many hedge funds and private equity firms use nearly identical names for multiple funds – some based offshore, others in the United States. I found, however, that by using a variety of sources – including the Paradise Papers, Securities and Exchange Commission registration filings, and registries for the Cayman Islands, Bermuda and other offshore havens – I could triangulate names and arrive at the only possible funds associated with some of the abbreviated entries. All of this required triple or quadruple checking for accuracy.

The second big challenge involved identifying specific, real-world effects of the investments that seem to counter the foundations’ high-minded contributions to research and health programs. That can be hard because the hedge and private-equity funds rarely advertise their holdings – they are secret by design. But in a few cases, I was able to learn which companies were the ultimate recipients of the investment funds from the foundations – such as Varo, the Swiss bunker fuel firm that the Wellcome Trust invests in via Carlyle International Energy Partners.

Q. How did you connect the investment fund to Varo, and what problem is associated with bunker fuel?

A. In this case, the Cayman Islands-based fund manager advertised its holdings on its website – a rare example of openness among those who operate in that world. Bunker fuel, one of the most polluting fossil fuels, has been associated with 250,000 premature deaths annually due to particulate pollution.

Q. What do you consider your article's main take-away?

A. These large foundations use their enormous largess to do good and advance scientific knowledge. But a narrow investing focus on maximizing returns can have damaging side effects that tend to undermine, or even subvert, those charitable goals. When esteemed institutions place vast sums in secretive offshore vehicles, they also give cover to criminal investors and to a system of secrecy and tax avoidance that can have a corrosive effect on society as a whole.

Q. Did you find any illegality?

A. Not on the part of the foundations or their investment partners.

Q. Why has tax avoidance become such a focus for some of these foundations, and does it mean they might have more money to distribute for research?

A. These foundations don’t use offshore funds primarily for tax avoidance – they are trying to diversify their assets and take advantage of leading investment gurus who operate within the offshore system. It sometimes offers financial returns that are superior. But not always. I found that the Heron Foundation, which screens its investments to ensure they are consistent with the foundation’s charitable goals, actually got better overall returns than Robert Wood Johnson – which has a huge proportion of its funds invested offshore.

Foundations that invest offshore don’t see themselves as ethically comprised, because they see their highest ethical and fiduciary responsibility as building and growing their endowments. They sometimes defend their investment advisors as people of integrity exercising good judgment, but it can be easy to find flaws in the defense of their practices.

Q. A few board members from the funding organizations you investigated seemed unaware of the questionable investments. How do you think organizations that often support very good work end up working at cross purposes, as it were, with such investments?

A. Many, perhaps most, board members and even executives at these groups pay little attention to the potentially negative impact their investments can have on the world. It’s not malice – although some would say this inattention is not appropriate for those entrusted with such powerful responsibilities.

Q. Do you have any indication at this point that your reporting will provoke changes in how these funding agencies invest?

A. It’s too soon to tell, but philanthropic activists and experts who counsel foundations on investment practices have said they will use the article to focus attention on the offshore issue as part of their larger goal of encouraging these institutions to align their investments and philanthropic goals for greater overall social benefit.

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