Eighteen months before guiding Donald Trump to election victory, Steve Bannon delivered the opening shot in the ruthless Republican campaign to paint their Democratic opponent as corrupt.

The future White House chief strategist produced a book in May 2015 accusing Hillary Clinton of trading favours for donations to her charitable foundation. Its questionable central charge, on the sale of a uranium company to Russia, recently became the subject of a House inquiry and feverish talk on conservative media.

But the financial arrangements of another foundation, which bankrolled Bannon’s creation of the book, Clinton Cash, have received less scrutiny.

Leaked documents and newly obtained public filings show how the billionaire Mercer family built a $60-million (U.S.) war chest for conservative causes inside their family foundation by using an offshore investment vehicle to avoid U.S. tax.

The offshore vehicle was part of a network of companies in the Atlantic tax haven of Bermuda led by Robert Mercer, the wealthy hedge-fund executive and Bannon patron whose spending helped put Trump in the White House and aided a resurgence of the Republican right.

Mercer, 71, appears as a director of eight Bermuda companies in the Paradise Papers, a trove of millions of leaked documents on offshore finance reviewed by the Guardian, the Toronto Star, the International Consortium of Investigative Journalists and other partners. The files include a copy of Mercer’s U.S. passport and other private data.

Some of the Bermuda companies appear to have been used to legally avoid a little-known U.S. tax of up to 39 per cent on tens of millions of dollars in investment profits amassed by the Mercer family’s foundation, which funded Bannon’s book and a who’s who of conservative groups, along with a $475-million retirement fund for the staff of Mercer’s hedge fund, Renaissance Technologies.

Bill Parish, an Oregon-based investment adviser who has been consulted on the tax by U.S. government investigators, said: “This is simple but ingenious. You take retirement plans or foundations, you invest them in a hedge fund, and even if the value rises 100 per cent, you can sell off the investments with no tax consequences.”

Mercer, who declined to comment for this article, has risen from relative obscurity to become one of the most influential figures in U.S. conservatism. He financed ventures including the presidential campaigns of Trump and Sen. Ted Cruz, the website Breitbart News and the online agitator Milo Yiannopoulos, whom he recently publicly disowned.

A PhD computer scientist who rarely speaks publicly, Mercer is president and co-chief executive of Renaissance, a New York-based company that manages more than $50 billion in assets. He recently announced that he would step down from his leadership roles at the end of the year. Renaissance frequently makes extraordinary returns, which it chalks up to closely guarded trading formulas created at its Long Island offices by mathematicians and scientists.

The company has also faced sharp criticism for trying to sidestep obligations to the public purse. The Internal Revenue Service has been pursuing Renaissance for $6.8 billion in federal taxes that it was accused of improperly avoiding through practices described as “abuses” in a 2014 investigation by a Senate committee.

Mercer also helps fund the Mercer Family Foundation, a non profit led by his daughter and political guru, Rebekah. It has no website, staff or offices and is registered to a mailbox at a UPS store on Manhattan’s Upper West Side. It was previously listed at Rebekah’s $28-million home in a Trump building nearby. The foundation’s accountant is treasurer of Make America Number 1, a Super PAC partly funded by Mercer, which supported the 2016 campaign against Clinton.

Mercer’s foundation is barred from intervening in election campaigns. But over the past decade, it has given out $62 million to conservative research groups and think tanks whose work generally bolsters Republicans. Among them are prominent names including the Heritage Foundation, the Federalist Society, and the Media Research Center.

From 2013 to 2015, the Mercer foundation gave $4.7 million to Bannon’s Government Accountability Institute — more than half its total funding in that time. Mercer’s foundation has not yet filed paperwork disclosing its 2016 spending. An IRS official said the filing was more than five months overdue.

Bannon founded GAI in Florida in 2012 with Peter Schweizer, the conservative author of Clinton Cash. Since then, the GAI has paid Bannon $379,000 and Schweizer $781,000. Rebekah Mercer was a director of the group until 2014. It has continued assailing liberals since Trump’s victory and says exposing the “misuse of taxpayer monies” is central to its mission.

Mercer’s foundation also gave millions more to other groups that funded Bannon. It paid $3.8 million to the non-profit arm of Citizens United, best known for the deregulation of political spending it won in a 2010 Supreme Court ruling. Bannon has made films for Citizens United and between 2012 and 2013 was paid $450,000 in consulting fees by its non-profit arm.

The Mercer foundation gave $1.2 million to the Young America’s Foundation, another conservative non-profit, which paid Bannon more than $577,000 between 2010 and 2012 for filmmaking services, according to filings.

Mercer was also a major investor in Breitbart News, the influential right wing website that Bannon led before joining Trump’s campaign. Bannon returned to the site after being fired from the White House in August. In an extraordinary email to Renaissance staff recently, Mercer moved to distance himself from Bannon and announced he was selling his stake in Breitbart to his daughters.

Clinton Cash dissected donations to the foundation Clinton led with her husband Bill. Disputed allegations in the book — that mining executives contributed to the Clinton Foundation to assist their lucrative sale of a uranium company to a Russian state energy agency — attracted prominent coverage in the mainstream media, delivering a blow to Clinton after she announced her candidacy.

FBI officials who looked into the foundation’s activities were later reported to have based their suspicions on details from Clinton Cash. By then, the book’s publisher had corrected more than half-a-dozen errors in the text relating to the Clintons’ finances, including one based on a bogus press release. The book continues to resonate today, leading to a joint inquiry on the Canadian uranium issue by two House committees announced last month.

The Mercer foundation is largely funded by money it makes through investments in Renaissance’s hedge funds. Since 2004, according to annual filings, the foundation has sold more than $68.5 million of holdings in these investments and used the money to fund its operations.

While Renaissance’s main hedge fund is based in the U.S., the company also has “feeder funds” incorporated in Bermuda, which imposes no income or corporation taxes.

Renaissance does not have staff or offices in Bermuda. Instead, the feeder funds are registered to the offices of Appleby, a legal and financial services firm that Renaissance pays to manage its offshore affairs. The Paradise Papers contain a cache of millions of Appleby’s internal files, including dozens on Renaissance.

Loading... Loading... Loading... Loading... Loading... Loading...

Documents indicate that the Mercer foundation has avoided liability for millions of dollars in U.S. tax by routing its investments through one of these Bermuda vehicles.

Non profits in the U.S. such as the Mercer foundation do not pay tax on ordinary donations from the public. But they face unrelated business income tax (UBIT) on money obtained through investments financed by debt, such as many of those by Renaissance and other hedge funds. UBIT is intended to prevent non profits from being used to compete unfairly with regular businesses.

But non profits can avoid the tax by routing their investments through an offshore company known as a “blocker.” The Mercer foundation’s public filings to the IRS confirm it has never paid UBIT. Since 2004, the foundation has paid $74,017 in federal excise taxes, less than 0.2 per cent of its investment gains.

In Bermuda, Medallion Capital Investments was set up to take investments from American charities or foundations “closely affiliated with an owner or employee” of Renaissance, according to a regulatory filing obtained from the Bermuda government, which did not mention Mercer’s foundation by name.

The Mercer foundation confirmed that Medallion Capital Investments was the destination for its money in 2004 and 2005, according to previously unreported filings to the IRS. More recently, it has not named the fund it uses. Renaissance told U.S. authorities this year that Medallion Capital Investments held $1.3 billion of funds owned by the company or people related to it.

Tax attorneys and accountants said the Bermuda feeder fund appeared to be operating as a blocker between the Mercer foundation and the hedge fund investments.

Samuel Brunson, a professor in tax law at Loyola University in Chicago, said such arrangements were typically aimed at legally avoiding the tax. “If firms were willing to pay the tax, there would be no reason to go offshore,” he said Brunson. “They could stay onshore in a simpler arrangement.”

The Owl’s Nest

Since joining Renaissance from IBM almost 25 years ago, Mercer has accumulated extraordinary wealth that paid for luxurious homes in three states. His main estate, known as Owl’s Nest, is based around an $18-million mansion close to Renaissance’s Long Island campus.

The Mercers also own a $75-million yacht, the Sea Owl, a $13.6-million ranch estate in Florida — Owl’s Nest South — and a $3.2-million retreat on 92 acres in North Carolina. This year, they sold a Manhattan apartment for $3.3 million.

At the same time, the Mercers have continued to signal that they take care over every penny.

In 2009, Mercer sued a Michigan-based miniature railroad company that installed a scale-model track at his home. He alleged, six years after the installation, that he had been overcharged. The case was settled.

In 2011, Diana Mercer successfully sued a golf cart dealer in Florida for $15,000 over “mechanical problems and the poor condition” of two carts she had bought, and returned to court when the dealer failed to pay as ordered.

In July 2013, some domestic staff who worked at the Owl’s Nest estate sued Mercer, alleging he docked $10 to $20 from their pay for errors such as “failing to replace shampoos and other toiletries if there was an amount of less than one-third of a bottle remaining.” The lawsuit was later withdrawn. An attorney for the staff did not respond when asked if they were paid a settlement.

Renaissance Technologies has striven to avoid paying where possible. The sharply critical 2014 report by the Senate permanent subcommittee on investigations said Renaissance improperly made profits from rapid trading appear to be long-term capital gains, which are taxed at a much lower rate.

The system involved Renaissance buying complex instruments known as “basket options” from banks. The bipartisan Senate investigation described the system as an “abusive tax structure” and said the IRS should collect taxes avoided with it. A spokesman for the IRS declined to comment on the status of the dispute.

Read more about: