The Minster for Justice, Alan Shatter, is moving swiftly to appoint a charity regulator in the wake of the Central Remedial Clinic scandal and the growing pressure on Rehab to reveal details of its chief executive's
remuneration.
The new regulator will be busy, not least because of public concern about how these two high-profile charities carry out their business. He or she will also have to get their head around the hundreds of other charities in Ireland. You only have to look at the list of charities kept by the Revenue Commissioners to see it's a veritable Pandora's box. They range from well-know organisations such as Rehab to the intriguingly named A Pint a Month, of 57 Upper Grand Canal Street.
The modus operandi of the regulator is not yet known and it remains to be seen whether it will have to systematically work it ways through all the charities on the Revenue Commissioners’ list and beyond.
But there is one subset of charities that will give pause for thought and these are what might best be called captive charities that are used by lawyers, accountants and others to structure financial transactions tax efficiently.
'Off balance sheet'
These entities are very useful when a company wants to hold an investment or other assets “off balance sheet”. They do this when they want the financial benefits of the transaction but don’t want to have to reflect the associated borrowings and other risks involved in their accounts. One of the ways you can do this is to have the vehicle owned by a shelf company, or better still a charity controlled by people you trust, such as your lawyers.
Matheson, arguably Ireland's top tax lawyers, have been offering just such a service for decades via three charities called MEDB charitable trust, Eurydice charitable trust and Badb Charitable Trust. It is perhaps unfair to single out Matheson in this regard as it would be prudent to assume their competitors offer the same or similar services. If anything, they are probably being penalised for being relatively open and filing accounts for the three trusts.
Not that the accounts tell us too much. The most recent set of accounts for MEDB tells us its principal activity is to raise funds for the company to be used for charitable purposes and that it “continued to make substantial donations to Irish charitable organisations”.
They show fees and donations received of €276,317 in 2012 and donations paid of €84,272. There was no tax paid because it's a charity. The accounts also give some insight into MEDB's relationship with Matheson. A company called Matheson Services provides services to MEDB while Matheson solicitors holds funds on its behalf. The directors of MEDB are also directors of Matheson.
Not your average charity
What is not clear from the accounts is that MEDB, along with Eurydice and BADB, was once the trustee shareholder of a company called Burlington Loan Management which had total assets of $1.8 billion that were managed by US hedge fund Davidson Kempner. Burlington had an income of almost $600,000 before unspecified expenses of $599,500 in 2010.
In 2011, the ownership of this company transferred to Deutsche International Finance (Ireland) Ltd. Burlington is an investor in the debt of collapsed Icelandic banks amongst other things. We don’t know what, if any, assets are owned by MEDB, Eurydice and BADB.
Its pretty clear MEDB and its two peers are not your average charity. But is that necessarily a bad thing? The argument can be made that if they did not do what they do various Irish charities would be €84,272 the poorer. One suspects Matheson is optimistic its charities will hold up under scrutiny from the new regulator.
But, as the events of the last few weeks have shown, the public has pretty simple view of what a charity is and how it should be run. They want them to be run unambiguously for the benefit of the less fortunate and not for the benefit of their promoters. Passing the test of public opinion might prove more difficult for Matheson.
