Paradise Papers -
The Shadowy World of Big Money

Oxford and the Oil Wells

Elite universities in Britain and the U.S. have invested secretly in iron ore mines and oil wells, using shell companies to avoid paying taxes on the dividends.

By Martin Pfaffenzeller - 19. November 2017

If you want to study business administration at Oxford in the United Kingdom, one year can set you back more than 10,000 euros. Annual tuition at elite universities in the United States is often twice or three times that amount. With student bodies numbering in the tens of thousands, it doesn’t take long for larger institutions to amass sums in the hundreds of millions.

Tuition, though, makes up only a small part of Anglo-American universities’ budgets, with which they pay the best professors and fund the best laboratories in the world. The rest comes from state support, donations and an income source that doesn’t exist in Germany. Anglo-American universities possess vast endowments that are managed by financial experts and may hold billions of dollars, with yields from these investments flowing into the schools’ coffers. Top institutions in Britain and the U.S. have long since become commercial enterprises. And they act like it.

The Paradise Papers reveal the contradictions inherent in this state of affairs. They provide a look at connections between the ostensibly environmentally concerned universities and fossil fuel companies. And they show how the institutions avoid paying taxes with the help of shell firms.

Since 1829, the famous Boat Race has been taking place almost every year on the Thames River, with open weight eights from Oxford and Cambridge going head-to-head. But the academic traditions of the two universities go back much further: Founded in the Late Middle Ages, they are the oldest institutions of higher education in the English-speaking world. Today, they are regularly ranked as the best universities in the world outside the U.S.

Both present themselves as being environmentally friendly. Oxford has installed solar panels on its roof, while Cambridge even relies on biomass and geothermal energy. Both universities, though, have also invested millions in fossil fuels, as documents in the Paradise Papers show. Cambridge and Oxford invested in a fund that owned shares in the British-Dutch petroleum company Royal Dutch Shell. Together with that fund, Shell invested in the company Xtreme Coil, which specializes in drilling equipment for exploiting oil and natural gas reserves under the most extreme of conditions. They are, for example, able to pump fuel to the surface from a depth of 7,000 meters (23,000 feet).

How can such investments be consistent with the universities’ environmental awareness? In response to a query from the Guardian, which participated in the Paradise Papers project alongside the Süddeutsche Zeitung, Oxford said that a “broad consultation” in 2014 revealed that the university had only “very low exposure to the broader energy sector.” Cambridge said its investments in fossil fuels were “negligible” and that it had set up a council to explore the issue.

The fund via which the university foundations invested in Shell and Xtreme Coil is located in the Cayman Islands. There is a simple explanation for the location: Dividends aren’t taxed there – and the existence of such a shell company in a tax haven could be part of a larger tax avoidance strategy.

In response to the Guardian, Cambridge noted the university and its colleges were charities: “This means there is normally no tax to pay.” Furthermore, the investments were made by a “highly reputable adviser” who made his investment decisions independently.

A spokesperson for Oxford University argued that it is not uncommon in the financial industry to make offshore investments, adding that the same holds true for university endowments around the world.

Universities in the U.S. are even wealthier than their British counterparts. According to the U.S. Congress, all American college and university endowments put together possess the equivalent of 425 billion euros – or almost 100 billion more than Germany’s entire annual budget in 2017.

The endowments enjoy numerous tax benefits in the U.S. Charlie Eaton, a professor at the University of California, Merced, concluded in his study “The Ivory Tower Tax Haven” that the U.S. government loses out on potential tax revenues of $20 billion (17 billion euros) per year as a result. And his estimate doesn’t even include taxes avoided with the help of offshore shell companies. As soon as charitable institutions invest in hedge funds, they are required to pay taxes on their dividends.

If, however, a shell company is in place between the fund and the endowment, this tax can be avoided. Such a thing is known as a “blocker corporation,” because they effectively keep the U.S. Internal Revenue Service at arm’s length.

Blocker corporations are not unusual in the world of U.S. higher education. In 2003, the endowments of Columbia University in New York, Dartmouth College in New Hampshire, the University of Southern California in Los Angeles, Stanford University in Stanford, California and Johns Hopkins University in Baltimore were all shareholders in a shell company in Bermuda. According to documents that are part of the Paradise Papers trove, that company paid no federal income tax. The company’s name made its purpose rather transparent: H&F Investors Blockers. In total, 104 U.S. institutions of higher education make an appearance in the Paradise Papers, including Princeton and the University of Pennsylvania.

Some of the endowments invested in commodities companies that are well-known for their less than stellar environmental records. One of those was the endowment belonging to Columbia University, which proudly reports on its website of long-term projects aimed at lowering its CO2 emissions. Recently, it set out 20 bicycles for its students to use. Together with Duke University in North Carolina, Columbia held shares in the mining company Ferrous Resources until at least 2015. The company is based in the Isle of Man and mines iron ore in the Brazilian state of Minas Gerais. In 2008, the company initiated plans for the construction of a 480 kilometer slurry pipeline to connect its mines with the port.

According to a study, this project could have resulted in the pollution of drinking water and farmland relied on by more than 100,000 people. Ferrous Resources suspended the project in 2012 due to the falling price of iron. The company, shares of which were also purchased by the controversial mining giant Glencore in 2013, declined comment when contacted by the New York Times, another of the Süddeutsche Zeitung’s partners on the Paradise Papers project. It did, however, make it clear that its pipeline project was on ice. Neither Duke University nor Columbia University wanted to comment on their investments in Ferrous Resources when contacted by the New York Times.

In Germany, universities are largely financed by public money, with states providing the lion’s share. Munich’s Ludwig Maximilian University, for example, has an annual budget of around 650 million euros (not including the university hospital) with around two-thirds of it coming from the state of Bavaria. That places Munich’s university among the best financed institutions in the country. Money from its endowment makes up less than 0.5 percent of its budget.

The endowments of other universities in Germany are similarly diminutive – making them likely too small to benefit from a shell company. As such, no German universities make an appearance in the Paradise Papers.

Share this story: