ABOVE: The Cayman Islands sometimes serve as a tax haven.

Many big-name research funders place millions of dollars in offshore investments, which in turn may drive activities that run contrary to the causes the charities promote, according to an investigative report published today (December 6) in Science.

The investigation covered the investments of seven of the world’s largest science funders. Of those, six charities—the Wellcome Trust, the Howard Hughes Medical Institute, the Robert Wood Johnson Foundation, the David and Lucile Packard Foundation, the Gordon and Betty Moore Foundation, and the William and Flora Hewlett Foundation—were found to have offshore investments that, combined, totaled at least $5 billion in recent years. The one charity that was not found to invest offshore is the Bill & Melinda Gates Foundation.

For his investigation, Charles Piller, a contributing correspondent for Science’s news department, relied on publicly available tax...

“Foundations that invest in tax havens need to know that . . . they are alongside criminals, tax evaders, and kleptocrats,” Gabriel Zucman, a University of California, Berkeley, economist who has studied offshore investing, tells Science

Although it is possible to invest money overseas and to use such investments to reduce one’s taxes within the law, offshore investments are sometimes used for shady purposes, such storing illicitly acquired funds, laundering money, and illegally evading taxes. These investments, legal or not, are highly secretive, which is why it takes leaked documents and investigations like this one to bring them to light.

The investigation revealed that often, the investments charities make to raise money for research contribute to the problems the research ultimately aims to solve. For example, the Wellcome Trust funds projects on the health effects of air pollution, such as smog and soot, and claims on its website to be exploring ways to make “cities healthy and environmentally sustainable.” Yet by putting its money in an investment fund in the Cayman Islands (a popular tax haven), it indirectly supports a company that makes fuel for ships, which pollutes the air and contributes to the premature deaths of 250,000 people annually, Science reports. 

To take another example, Science notes that the Robert Wood Johnson Foundation has funded research into the health effects of income inequality, yet it has invested in an overseas fund that has profited from credit default swaps. Through credit default swaps, which are known for having contributed to the Great Recession of the 2000s, investors profit when people or companies default on their loans.

To prevent situations like this, policymakers should change the rules for charities, Columbia University economist and Nobel laureate Joseph Stiglitz tells Science. Another idea is to reduce the benefits that fund managers receive from the success of their portfolios so that they have less incentive to make ethically dubious but financially rewarding investments, Dana Bezerra, who advocates for ethical investing by charities and is head of the Heron Foundation in New York City, suggests to Science. But doing that would probably require the support of charities’ boards, Science notes. 

Peter Smith, a former Wellcome Trust board member and an epidemiologist at the London School of Hygiene & Tropical Medicine, tells Science that in 2013, when media reports revealed the charity’s money was being invested in a pay-day lender accused of taking advantage of people with low incomes, the board intervened. Yet Smith didn’t comment on the situation of Wellcome’s investments in the ship fuel business. 

“There is a tension,” Smith tells Science, “between the philanthropic mission that the trust has as a charity and the way in which it invests to maximize the income.” 

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