J.B. Pritzker has offered a simple response when Democratic and Republican rivals attack his family's use of offshore banking to avoid taxes on its immense fortune: The trusts were set up in the 1960s by his grandfather, and the money goes to his charitable foundation.
"Any trusts for my benefit that are offshore, I have received no distributions from, and those trusts are only providing charitable contributions," the billionaire Hyatt Hotels heir told reporters in December. "That's all that they do."
Those family trusts don't tell the full story of Pritzker's interests in the shadowy world of offshore finance, however.
A Chicago Tribune investigation found several offshore shell companies created between 2008 and 2011 — long after Abram "A. N." Pritzker's 1986 death — that are either wholly owned by J.B. Pritzker, his brother and business partner Anthony Pritzker, or list other close associates as controlling executives.
Many of the records about the governor candidate's offshore interests were obtained by the Tribune through a reporting partnership with the International Consortium of Investigative Journalists, which maintains a database of millions of leaked offshore financial records collectively known as the Paradise Papers.
In the offshore world, wealthy people and corporations use the banking systems of low-tax countries, often island nations in the Caribbean, to shield their assets from taxing authorities in their home countries. Taxpayers in the U.S. are still responsible for paying taxes on any income they bring into the country from offshore assets. The secrecy of the offshore financial system, however, can make it difficult for the Internal Revenue Service to track what wealth U.S. taxpayers may hold outside the country, experts say.
The combination of Pritzker's sprawling wealth, his decision not to release anything but the first two pages of his personal income tax returns, and the veiled existence of offshore companies tied to his businesses makes it difficult to determine the full scope of his assets or whether the Democratic governor candidate's own financial interests may intersect — or conflict — with the business of the state of Illinois.
One of Pritzker's offshore companies, Moreau Capital Holdings Ltd., is part of a venture that plans to buy city-owned land along the Chicago River to launch duck boat tours downtown. Pritzker is the sole owner of Moreau Capital Holdings, which was created in Nassau, Bahamas, in January 2011, according to records.
In recent weeks, the Tribune repeatedly asked the Pritzker campaign to make the candidate available to answer questions about his finances. After his staff did not respond to those requests, the Tribune last week sought out Pritzker at a campaign event at the University of Illinois at Urbana-Champaign. He quickly summoned a campaign press aide to run interference and declined to discuss his offshore dealings.
"You're going to have to talk to my campaign about it," said Pritzker, who started to walk away. "I know you guys are writing something and you've been talking to the campaign, and I really don't have the details with me."
The Tribune then submitted a list of questions about Pritzker's financial ties to a series of offshore companies. His campaign declined to answer nearly all of those questions, except for one. Asked about M Cay Bahamas Ltd., Pritzker campaign spokeswoman Galia Slayen said it was created to hold the family's real estate in the Bahamas in compliance with that country's law.
Jack Blum, a Washington, D.C., lawyer who is an expert in money laundering and offshore tax issues, said it's impossible to paint a complete picture of the tax structures and investment strategies Pritzker may enjoy while he campaigns in support of a graduated income tax increase to help fix Illinois' finances. In general though, wealthy people use complicated offshore financial structures to avoid paying taxes on assets, he said.
"Illinois is bankrupt-plus. You have a hell of a problem. And the question you have to put is: You may want to come in with a platform of raising taxes, but why don't you begin with telling us how you've escaped taxation by being offshore?" Blum said. "How are you separating yourself from the common man here?"
Pritzker a 'PEP'
The bulk of the leaked Paradise Papers, which were obtained by the German newspaper Suddeutsche Zeitung, come from Appleby, a century-old offshore law firm that provides legal services to large corporations and wealthy individuals.
The New York Times reported that Appleby helps its clients reduce their taxes, set up offshore trusts that in some cases hold billions of dollars, and obscure their ownership of assets, such as companies.
The Times said Appleby designates some of its clients as "PEPs" — politically exposed persons — for whom "avoiding unwanted attention is a crucial goal."
In Paradise Papers records reviewed by the Tribune, the Appleby firm labeled J.B. Pritzker as "PEP N-R," a designation meaning he's directly related to someone in a national government. The law firm declined to discuss its relationship with Pritzker or explain why it had applied the label to him. At the time, Pritzker's sister, Penny Pritzker, served as commerce secretary for President Barack Obama. She has had her own offshore dealings revealed by the Paradise Papers.
J.B. Pritzker's campaign confirmed the accuracy of reports in Forbes and Bloomberg News setting the candidate's personal wealth at $3.5 billion. So far, he has pumped more than $63 million of his own money into his campaign in hopes of winning Tuesday's Democratic governor primary against five others.
Andrew Stoltmann, a Chicago securities lawyer, said the sparse financial information that wealthy candidates like Pritzker release and the use of offshore trusts and holding companies allows them to keep their wealth from scrutiny.
"It's byzantine. It's complicated. And that's just the way they like it," Stoltmann said. "That's why Pritzker running for governor is so fascinating. We should know more about his finances. But my guess is that (Republican Bruce) Rauner's probably not any more forthcoming."
Rauner is a wealthy businessman and was chairman of the private equity firm GTCR before becoming governor in 2014. Economic disclosure forms when he first ran for governor showed Rauner was an investor in several of GTCR's offshore investment pools registered in the Cayman Islands. The records did not reveal the value of his stake.
The path to exploring Pritzker's offshore activities begins at the edge of Chinatown.
In late 2016, Seadog Ventures Inc. entered into an agreement with the city of Chicago to buy a vacant lot along the Chicago River near the Cermak Road bridge. Seadog, a tour boat company, is a subsidiary of Entertainment Cruises Holdings LLC, which is owned by J.B. and Anthony Pritzker.
The Pritzkers intended to use the water access afforded by the land to operate a duck boat tour business on the river, according to city records. To complete the $191,000 land purchase, Seadog and Entertainment Cruises filed required paperwork with the city disclosing economic interests behind the deal for public land.
The filing shows that the Pritzker brothers hold nearly 19 percent of the company in two corporations with addresses in the Bahamas — Moreau Capital Holdings Ltd. and Aman 2 Capital Holdings Ltd.
J.B. Pritzker owns all of the stock in Moreau Capital Holdings, according to the city filing. His brother owns all of the stock of Aman 2 Capital Holdings. Anthony Pritzker could not be reached for comment.
The sale of the land to the Pritzkers has not yet closed.
Dan Russell, regional vice president of Entertainment Cruises, said plans for duck boat tours are still alive, but the venture has been delayed because the company has not found new amphibious vehicles that meet its needs.
A Tribune search of "Moreau Capital Holdings" in the Paradise Papers database turned up a February 2012 letter from a banker in a Nassau branch of the Canadian Imperial Bank of Commerce, to the Bahamian registrar general, paying the annual government license fees for 18 companies. Pritzker's campaign declined to answer questions about the candidate's relationship to those companies.
Moreau is on the list, as is Aman 2. So is another Bahamian company, Herodotus Capital Holdings Ltd. Separate filings revealed in the Paradise Papers show that Pritzker's brother-in-law Thomas J. Muenster was an executive of Herodotus.
Scant information is available on Herodotus Capital Holdings, but a Google search shows a listing on www.chamberofcommerce.com tying the firm to an office address in Evanston that has been home to numerous J.B. Pritzker endeavors. The listing also names Eric A. Schreiner as a contact for the company. He is CFO of the Pritzker Group, the investment firm Pritzker owns with his brother.
Muenster, who has played a role as trustee of domestic trusts that Pritzker uses to hold assets, also is listed as president of M Cay Bahamas, the offshore holding company the Pritzker campaign has said was set up to hold the family's island vacation home. Muenster declined to speak to the Tribune when reached by phone.
Schreiner, who is listed as treasurer of M Cay Bahamas, could not be reached for comment.
The Cheyenne Trust
In all, 11 of the 18 companies on the list sent to the Bahamian registrar — including Moreau, Aman 1 and Aman 2 — share names similar to Pritzker family trusts that hold Hyatt Hotels Corp. stock, according to filings with the U.S. Securities and Exchange Commission.
Take Cheyenne Capital Holdings Ltd., one of the offshore companies on the list. SEC records show that in December 2015, the similarly named Cheyenne Trust diverted nearly 1.4 million shares of Hyatt Hotels Corp. stock into the Pritzker Family Foundation, the charitable organization Pritzker formed.
In similar fashion, Moreau Trust diverted 445,000 shares of Hyatt stock to the Pritzker Family Foundation on the same day. Aman 1 Trust and Aman 2 Trust donated an equal number of shares to the Anthony Pritzker Family Foundation.
It is unclear why shell companies were created with similar names to the offshore Pritzker trusts that held Hyatt stock.
Experts in offshore finance and taxation say there is a limit to what can be learned from documents because the purpose of offshore banking is secrecy and shielding assets from the reach of the IRS.
Foreign companies of the sort tied to Pritzker are an even more secretive option than the trusts his family has used for decades, said Reuven Avi-Yonah, director of the International Tax LLM program at the University of Michigan Law School.
"The big difference between a trust and foreign company is, with a trust you're supposed to be able to trace who the beneficiaries of the trust are in a way that in a company you can't do," Avi-Yonah said. "A trust generally does not give you liability or tax protection in the U.S. Once you have a separate foreign company, it's more difficult to know what you've done."
In some cases, investment firms set up offshore subsidiary companies in order to attract investors from other countries who want to put money in a U.S. business venture without being subject to the IRS, said David Herzig, an offshore expert who teaches tax and trust law at Valparaiso University Law School.
U.S. citizens are subject to U.S. taxes on any income they claim, regardless of where they make the money, Herzig said. He added that it would be difficult to assess the purpose of Pritzker's — as well as the Pritzker Group's — offshore activity without seeing his complete tax returns.
Seven other shell companies on the list filed with the Bahamian government have similar names to offshore trusts holding Hyatt stock. The companies — Nikopol, Alushta, Izyum, Sangdu, Evpatoria, Francis and Locust — were all incorporated in the Bahamas in August 2011. Trusts bearing those names sold millions of dollars in Hyatt stock earlier in 2011.
Nikopol, Alushta, Izyum and Evpatoria are all cities in Ukraine. Pritzker's great-grandfather emigrated to Chicago from Ukraine in the late 19th century.
In addition to the offshore holding companies, Pritzker has invested $30 million in an offshore fund run by a New York hedge fund, according to an email in the Paradise Papers. It's also found in Pritzker's economic interest statement, which does not require that the dollar value of the asset be disclosed.
In 2013, using a Delaware-registered company, Stockbridge 1 LLC, Pritzker invested in a venture called Anchorage Illiquid Opportunities Offshore Master IV L.P., a Cayman Islands-registered company formed by Anchorage Capital Group LLC.
Chris Kennedy, one of Pritzker's Democratic opponents in the race, and himself an heir to a family fortune, also listed an Anchorage offshore fund in his economic interest statement.
The offshore wealth issue has come up in the governor's race. In late November, Pritzker released the first two pages of his tax returns, but not the detailed schedules. Nor did he release the tax returns of the trusts from which he benefits. On their 2016 personal tax return, Pritzker and wife Mary Kathryn reported $14.95 million in federal adjusted gross income. The couple reported paying $4.1 million in federal taxes and $456,000 in state taxes.
The following week, Rauner accused Pritzker of parking money offshore to avoid paying taxes.
"The candidate Pritzker inherited over $3 billion and he and his family has chosen, chosen on a massive scale, to hide hundreds and hundreds of millions of dollars of their money offshore in accounts outside the United States," Rauner said.
Rauner has acknowledged his own investment in offshore funds and has not released details of those holdings, nor has the governor provided complete tax returns.
Asked in December about his current holdings in offshore investments, Rauner dismissed the question as "spin."
"I have investments that I do not control, for example investments in banks and insurance companies, et cetera. They manage some money," Rauner said. "And what's got reported, which is true, some of them, for their accounts, where I'm a tiny piece, I have no voice, I have no control of the decision-making, they have an investment in some operation in the Bahamas or somewhere. Tiny for me, tiny for them."
Democratic governor candidate Daniel Biss' campaign labeled Rauner and Pritzker "two sides of the same shiny gold coin."
The byzantine, heavily lawyered corporate structures that rich people set up offshore can be very difficult to penetrate, even for the IRS, said Blum, the Washington lawyer who served more than 14 years in government as a staff attorney for the U.S. Senate antitrust subcommittee and the Senate Foreign Relations Committee.
"In this kind of stuff, you wander into some of the most complicated parts of U.S. tax law," Blum said. "There is a probability that there is a legal structure — that a lawyer has blessed — that gives them a tax advantage."