The philanthropy of Robert F. Smith — who in recent years has become one of the most prominent billionaire-philanthropists in the United States — and his complicity in what federal prosecutors allege is the biggest tax evasion scheme in U.S. history are inextricably linked, the Washington Post reports.
The wealthiest African American in the country and a 2017 signatory to the Giving Pledge, Smith admitted in October to hiding profits in offshore accounts and filing false tax returns for ten years as part of an effort by his longtime associate, Texas billionaire Robert Brockman, to hide $2 billion from tax authorities; Smith is cooperating with the investigation and faces no charges. According to documents reviewed by the Post, including charity filings with tax authorities and DoJ court filings, Smith's big-dollar philanthropy and his complicity in the offshore scheme both stem from a deal he made with Brockman twenty years ago when he as an up-and-coming investment banker at Goldman Sachs.
According to the Post, Brockman, who had already made a fortune with an automotive software company, offered to set up the Ivy League-educated son of schoolteachers with his own private equity firm, Vista Equity Partners, and more than $1 billion to manage. The arrangement included an offshore trust that was used to "willfully conceal" millions of Smith's earnings from tax authorities; while that account has become the source of much of Smith's philanthropy, court documents reveal it also ran afoul of rules requiring the disclosure of offshore accounts for tax purposes. In an October 18 letter to investors, Smith wrote that the "decision made twenty years ago has regrettably led to this turmoil....I should never have put myself in this situation."
"To get people to give you hundreds of millions of dollars in order to execute your strategy...it's hard for anyone, but particularly hard for a Black person," Charles Hudson, an African-American managing partner at Precursor Ventures, told the Post. "If someone offers you a big check, it's going to be attractive."
Vista Equity Partners flourished, buying and selling investments in software firms. Then, in late 2013, Smith learned that the Internal Revenue Service was scrutinizing his foreign accounts — and around the same time, according to the Post, he began his foray into big-dollar philanthropy. In 2014, Smith established the Fund II Foundation with more than $182 million in assets from the offshore accounts — a Belize-based trust that held shares in a second offshore entity, both created in his 2000 agreement with Brockman — in which, he has since admitted, he stashed $200 million of his own assets. While the foundation states it was established pursuant to an agreement that when the fund was wound down, any remaining assets would be dedicated to charity, Smith said in a signed statement to prosecutors that he "knowingly and intentionally falsely claimed that this charitable contribution was required as part of an agreement" with Brockman.
Smith's philanthropy may have been strategic, tax experts told the Post, in that if the money in the offshore entities were routed to good causes, the tax evasion might strike prosecutors and juries as more defensible. Under a deal with federal prosecutors, Smith abandoned claims for a $182 million tax refund that consisted partly of deductions he claimed for gifts made in 2018 and 2019. Philanthropic commitments from Smith and the Fund II Foundation since 2016 include $50 million to his alma mater, Cornell University; $48 million to UNCF, $27 million to Susan G. Komen; $20 million to the National Museum of African American History and Culture; $34 million to pay off the student debt of Morehouse College's Class of 2019; and a total of $100 million to fund a student loan initiative for historically black colleges and universities (HBCUs).
"It's certainly a very troubling case in terms of shining a light on the extent to which wealthy Americans are avoiding taxes through offshore vehicles," said Ray Madoff, a professor at Boston College and an expert on philanthropy and taxation. "On the charitable side, it raises questions about people's ability to offset significant taxable income with charitable donations."
While the news of Smith's involvement with Brockman has left many struggling to understand what happened, most of the beneficiaries of his philanthropy continue to praise him. Smith is "an African-American billionaire who up until this moment, for the most part, appeared to have basically fulfilled the American Dream," said Morehouse College president David A. Thomas. He came from "humble beginnings, education was his elevator up through Cornell University and Columbia, he played by the rules, became an innovator when he created Vista and focused on tech." Thomas said he believes Smith agreed to Brockman's offer because, while it gave Brockman more control over his offshore assets than Smith might have wanted, it made his financial dreams a reality.
"You can only judge people on how you know them. I trust his integrity," said Clive Gillinson, executive and artistic director of New York City's Carnegie Hall, to which Smith, its board chair, has contributed more than $30 million. "Everyone has absolute belief in Robert. He's somebody who has integrity and a real sense of commitment to the things that matter in the society we live in."
(Photo credit: Morehouse College)