BUSINESS OPINION:Want to hear a seasonal parable about the business of a charitable trust?
IT’S CHRISTMAS, the season of goodwill and all that. It’s also the time of year when various charities hit us for a donation. One charity that will not be looking for any money off you this year – at least not directly – is the Medb Charitable Trust.
You may not have heard of it, but it’s a fine organisation, on paper at least. Its aims, according to its articles of association, are the relief of poverty, deprivation and distress; the advancement of education; the advancement of religion; the support of schools colleges and hospitals and other “other objects of charitable nature”.
And the Medb Charitable Trust is no nickel-and-dime outfit although it appears to have fallen on hard times recently. Its last set of accounts, for the year to the end of December 2008, show that it had accumulated losses of €543,820, as a result of some accounting adjustments and the payment of unspecified donations of €231,836. But rest assured, no carol singers will be calling to your door in the next few days holding out a bucket marked “Medb Charitable Trust” for you to throw a few coppers into.
No, the Medb Charitable Trust has much bigger ambitions. Along with two other low-profile Irish charitable trusts, it has decided to get into high finance. Through their wholly owned subsidiary Burlington Loan Management they have acquired the rights to some $1.2 billion (€0.84 billion) of debt owed by Iceland’s defunct Glitnir bank.
And who is helping the charities in this noble endeavour which puts traditional fundraising methods such as selling Christmas trees in the shade? Two kind-hearted souls by the names of Conor Bastable and Michael Herzog who work for a secretive New York-based hedge fund called Davidson Kempner.
Presumably sometime in the not-too-distant future. the Glitnir money will start to roll into the Medb Charitable Trust and its two sisters. It’s a heart-warming tale and the only unanswered question is when are we going to see the Medb wing of the National Children’s hospital because, given the sums involved and Mebd’s stated aims, that is the sort of giving we must be talking about.
Well, the people who can answer that are the directors of Medb: Anthony Walsh, Turlough Galvin, Chris Quinn, William Flynn, James Scanlon, Tara Doyle and William Prentice. If you have never heard of this noble band, here is clue: they all work for Dublin law firm Matheson Ormsby Prentice.
Starting to get the picture? Here is another tit-bit contained in the accounts of Medb Charitable Trust: Medb Charitable Trust Limited is exempt from corporation tax, as it is classified as a registered charity.
Yes dear readers, I am afraid its true. Medb is not some publicity-shy philanthropic organisation bent on good works. It is merely part of a complicated structure put in place by Matheson Ormsby Prentice on behalf of Davidson Kempner that takes advantage of Irish legislation to maximise profits and reduce risk in a very large international transaction.
Disappointing isn’t it? But before you get too angry, you have to bear in mind the other side of the argument. Kempner Davidson is going to do its Icelandic bank debt arbitrage deal anyway. And they have a choice of jurisdictions in which to do it. Matheson Ormsby Prentice, through ingenuity, came up with a way that makes Ireland the most attractive jurisdiction. In the process, it has earned some fees for itself and the bank that will provide administrative services to the structure.
These fees equate to jobs or parts of jobs. If you have ever wondered what Ministers and the like mean when they talk about the export of financial services being one of the few things we are still good at and likely to help the economy grow; then Medb is what we are talking about.
It is a powerful counter argument, particularly in the current climate. But it’s not that simple. Irish charity legislation and tax law is being used in a fashion for which it manifestly was not intended for. It may be legal in the strict sense, but what is being done is symptomatic of a wider ill which played its part in the catastrophe that is the collapse of the Irish banks and Anglo Irish Bank in particular.
One of the more alarming aspects of the events at Anglo was the extend to which individuals felt that a legal opinion to the effect that something was legal absolved them of all ethical obligations and moral responsibility for their actions. It also, in many cases, brought about the co-operation, or at least acquiescence, of others, such as the Financial Regulator, who should have shouted “stop”.
This is not to say the structure involving Medb is in the same sort of territory. But the basic point applies. The whole edifice rests on Matheson Ormsby Prentice’s view it is legal to avail of charitable status in this way and presumably the Revenue Commissioners have accepted this. One can presume the regulator, in so far as it has a role, is happy.
But something is fundamentally amiss here. If – as appears to be the case – we need a tax-free vehicle to underpin tax structures which make Ireland attractive for big international deals, then we should be upfront about it and legislate for one.
If we don’t, and instead continue to debase the notion of charity by using vehicles like Medb, we are perpetuating a business and ethical culture that has done us no favours, to put it mildly.
