Loeffler, the wealthiest member of Congress, at the time served as the top communications and marketing officer for Intercontinental Exchange (ICE), where she helped market a new program called ICE Clear Credit. That was a credit default swap (CDS) clearinghouse that included a Cayman Islands corporation that would allow its clients, including some of the biggest banks in the world, to dodge U.S. taxes.
That CDS clearinghouse, by far the most dominant in the world, is still in action. Loeffler stepped away from the company last year after being appointed to a vacant U.S. Senate seat by Georgia Gov. Brian Kemp, but still holds millions of dollars in the company, according to financial disclosures.
Loeffler drew scrutiny this spring for controversial stock trades she made after a private Senate briefing on the new coronavirus. Shortly after that news broke, her husband Jeffrey Sprecher, who is chairman of the New York Stock Exchange, made a $1 million donation to the pro-Trump America First Action PAC, according to a Federal Election Commission filing. The Justice Department opened an investigation into the trades but dropped it shortly thereafter, finding no wrongdoing on Loeffler's part.
According to the New York Times, upon accepting her Senate appointment in January, Loeffler appears to have received stock and other contributions from ICE worth more than $9 million, on top of her 2019 salary and bonus of about $3.5 million. The company told the paper that it did not want to "discourage" her from serving in the Senate.
In 2008, high-risk derivatives trading brought down the global financial system. The complex and multilayered financial instruments included credit default swaps — in which lenders essentially sell someone else the risk that a borrower will default on their loan. When financial institutions began to collapse, CDS trades had become so popular and spread out so far that they set off a brutal chain reaction around the world.
Following the Great Recession, ICE created an offshore CDS clearinghouse for what was essentially a coalition of all the largest banks in the U.S., as well as foreign banks Deutsche Bank, UBS and Credit Suisse.
A clearinghouse adds stability and an extra layer of protection to CDS trades: If one major buyer or seller in the coalition fails, the clearinghouse theoretically shields the rest. Clearinghouses make money mainly by selling and leasing memberships and charging transaction fees.
U.S. companies want to access profits that their foreign subsidiaries make overseas, but may be eager to avoid paying the 35% tax when they bring those profits back home. To get around this, they put the money in offshore holding companies.
ICE Clear Credit holds money that banks put up as collateral for CDS trades. But because that money is taxable under U.S. law, American banks with foreign subsidiaries worried that they would be taxed when they returned their profits to U.S. markets.
To get around the tax law, ICE added a Cayman Islands offshore account, called ICE US Holding Company LP, to the structure. Now banks trading foreign earnings can still use the clearinghouse, and execute CDS trades, without having to pay U.S. taxes.
The Cayman-based ICE company merged with a group called the Clearing Corporation, registered in Delaware, whose members are some of the biggest banks in the world: Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley and Bank of America (which owns Merrill Lynch), as well as Deutsche Bank, UBS and Credit Suisse.
With that setup, ICE helped these banks make risky Wall Street bets while dodging U.S. taxes.
This all happened in 2009, mere months after credit default swaps predicated on subprime mortgages knocked the legs out from under the global financial system, setting the U.S. on a deeply painful course that would take years to fully reverse.
But while the new system was structured to address the massive problems that CDS trades created in 2008, critics have argued that such clearinghouses are too opaque and give big banks too much influence.
That marketplace "adds up to higher costs to all Americans," Gary Gensler, former chair of the Commodity Futures Trading Commission, which regulates most derivatives, told the New York Times. The banks need more oversight, he said.
Loeffler played no small role. While the system was being constructed — amid the wreckage of a global collapse — she served as vice president of investor relations at ICE. Transcripts obtained by Salon show her participating in several company calls during which the new clearinghouse (which contained the offshore tax dodge) was discussed.
As stated above, Loeffler is by far the wealthiest member of Congress. She holds up to $25 million in ICE stock, according to federal financial disclosures, and Loeffler herself once circulated an article claiming that she and Sprecher have a combined net worth of $800 million.
In a December 2019 radio interview, a few weeks after Kemp appointed her to fill the Senate seat left vacant by the retirement of Sen. Johnny Isakson, Loeffler nodded to her company's offshore system while praising President Donald Trump's 2017 tax bill.
"I think President Trump's tax cuts were incredibly helpful in making America more competitive from a business perspective," she said. "When you look at the ability of companies to repatriate money into the United States that they were having to keep offshore for unreasonable tax implications, all of these things add up and have created more jobs."
In fact, the year after the tax bill passed, U.S. corporations brought only $665 billion of their offshore profits back to the U.S. — not even one-quarter of the $4 trillion that Trump had predicted.
That might have worked in Clear Credit's favor. The company dominates its market precisely because it found a way to profit from offshore holdings: If those banks could return foreign funds to the U.S. without fear of high taxes, Clear Credit's offshore Cayman Islands structure would no longer be useful.
In fact, critics of the tax bill have argued that it created a permanent incentive for multinationals to move not just profits overseas, but also investments, which could impact U.S. workers' wages.
"The law has several provisions to try to limit the damage this basic incentive could cause, but still leaves in place a large incentive to shift profits offshore," Chye-Ching Huang, senior director of economic policy at the Center on Budget and Policy Priorities, told Congress in 2019.
ICE Clear Credit is the largest CDS clearinghouse in the world, in 2016 clearing up to 98% of all CDS transactions.
Loeffler faces a strange special election this November, in what's known as a "jungle primary," where a large group of candidates run against each other regardless of party. Loeffler has been forced to tap her personal funds to supplement her anemic fundraising, and her chief challenger, Rep. Doug Collins, a Republican closely allied with President Trump, has seized on her wealth to paint her as out of touch.
"Raising money — especially from small donors — is a great barometer of support and it is clear that Doug has a dedicated grassroots army marching with him," Collins' campaign spokesperson Dan McLagan told ABC News in July. "Kelly Loeffler is mainly supported by Kelly Loeffler, her super wealthy stock-exchange-owning husband and a bunch of lobbyists. She leads a very small and lonely parade."
Collins had also argued for the 2017 tax breaks that would benefit multinationals, however, suggesting that the "international side" of the tax bill could be expanded. Between 2014 and 2016, Collins voted against multiple efforts to close offshore tax loopholes, including an amendment that would make it harder for companies to invert their residence to a low-tax country.
The Loeffler campaign did not respond to Salon's request for comment.