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The release of the Paradise Papers in early November has raised many concerns about tax evasion. The findings, which The New York Times described as emerging from a “cache of secret corporate records” from multinational law firm Appleby, expose dozens of companies and wealthy elites that use tax havens. Apple Inc., according to the same article, “has accumulated more than $128 billion in profits offshore, and probably much more, that is untaxed by the United States and hardly touched by any other country.” Princeton is among the named entities that use tax havens.

According to The Guardian, The New York Times, and other media, the University is cheating the government by investing in offshore corporations that do not pay an income tax. In other words, Princeton hides where it places its money. While these critiques may be true, I find that this impassioned language mars the facts. Looking at the actions themselves, is it necessarily wrong that Princeton makes investments hidden from the IRS? Should the University be more transparent at the expense of prudent discretion?

Daily Princetonian columnist Hayley Siegel described the investments as ways to “hide” their “loot,” but to put aside that language, these investments revealed by the Paradise Papers do not break the law. Whenever a tax-exempt organization engages in for-profit enterprises — namely private equity and hedge funds — that are unrelated to its exempt core mission, its income from those enterprises is what the IRS calls unrelated business taxable income. Outside of the U.S. tax jurisdiction, this law, of course, no longer applies, and the investments the University and others have made in offshore tax havens stays within the bounds of the law. 

“They’re not cheating. They’re not hiding money or disguising money,” said Loyola University Chicago law professor Samuel Brunson in The New York Times. While critics like Siegel call the use of offshore accounts “morally dubious and objectively ‘wrong,’” they cannot correctly call it illicit. Clearly the first issue is not the legality, but the fact that money is masked from governmental scrutiny. That, as Brunson continues, “they’re adding money to a system that allows people, if they want to hide their money, to do it.”

Others critique the University’s perceived lack of transparency. As Siegel comments, “fact that the offshore accounts were kept hidden … suggests that there exists no adequate reason for its needing to increase its endowment specifically through the extra offshore income.” The idea of leaked data makes investments in blocker corporations — a pass-through layer that allows investors to receive UBTI from private funds without tax — seem especially suspicious and nearly immoral. But this is a rash conclusion. It does not necessarily follow that because something is hidden, it is wrong. 

For its part, Princeton University Investment Company, which manages endowment investments, demonstrates substantial transparency. It publishes a Report on Investments, provides an overview of investment strategy, and shows the general allocation of its assets. Of Princeton’s assets, 95 percent is in equities, of which most are private. Princo practices good business discretion by not providing the details of every investment it makes, onshore or off. Discretion is justified by prudence and the simple freedom to be discreet. 

Using the language of rights, there is no right to investment information; it is absent from Rights, Rules, Responsibilities, and there are no clear grounds for students as recipients of education to demand detailed knowledge of how the University raises funds. More substantively, however, is the consideration of what is best — that is, what action is a greater good, regardless of rights. Surely there will always be the mere possibility that investments are used for nefarious purposes. But students should consider first the implications of empowering the public with information on every investment venture.

As a private institution for higher education, the University is structured to operate without the crutch of regulation of its investments through public and government scrutiny. Making investment information fully transparent would endanger the effectiveness and competitiveness of Princeton’s investments. These restrictions would only limit the types of investments that are made, inhibiting economic activity. In this case, the ability to regulate lies with the Caribbean islands, whose governments can draw revenue from foreign companies by imposing a tax. These areas become tax havens — they choose to have little or no corporate tax — because they want to maintain economic independence. They benefit from having foreign corporations and investments. 

My final point pertains to tax avoidance. To examine this, we cannot conflate morality and legality, though they are closely related. One should follow the law in respect and deference to the authority. If a law can be circumvented, not broken, it is not always the case that an action is immoral. The purpose of tax avoidance is to turn a greater profit while remaining within the law. There is nothing strictly unethical here because consider this. Is it wrong that the government receives less money? Is it wrong for a corporation to want to keep all of its return on investment?

Using corporations located in tax havens as a loophole is not morally wrong because those corporations do nothing unethical. The source of the money is both clean and legal. On the other hand, money laundering, which also uses legal loopholes, can be called morally and legally wrong because money is drawn unethically, from drug trade, fraud, etc.  

The purpose of tax laws here is not to uphold some moral position – they can exist or not exist without changing ethics – therefore finding a legal loophole remains within the bounds of good action.  

Miguel Caranti is a first-year from Houston, Tex., and can be reached at mcaranti@princeton.edu.

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