Shadowy conglomerate behind $18B donation

shareholder, Bharat Bhise, who had transferred much of his stake to Guan last year, had never actually owned the shares at all, “but had just held the stake for us,” Tan told the newspaper.

That has never been disclosed in regulatory filings, which had listed the two as the owners of the shares. Tan himself, along with Chen Guoqing, the brother of Chen Feng, HNA’s chairman, were the original owners of Tang Dynasty, a Hong Kong holding company that is a large shareholder in HNA’s complex web of ownership.

Understanding HNA’s ownership structure is important because the company last year was the biggest Chinese investor in the United States.

Many companies, including banks, are bound by know-your-customer rules and need clarity on who owns their clients’ business. Bank of America recently decided not to engage in any transactions with the Chinese conglomerate, cit- ing concerns over its murky shareholder structure and allegations of political connections.

The decision to transfer Guan’s stake to the foundation, HNA said, was to allay concerns over its shareholding. Scrutiny of its ownership had escalated after Anthony Scaramucci, the new White House communications director, announced in January that he was selling his hedge fund to an HNA subsidiary.

Instead, HNA, in making the unusual decision to transfer such a large portion of its ownership to an American foundation, raises questions about how it will comply with U.S. tax law.

Federal laws in place for almost half a century, meant to keep the wealthy from using foundations as a tax shelter, generally restrict foundations from owning more than 20 percent of a company, though there are exceptions that may apply to HNA.

Under the law, that percentage can be reduced much further, to as low as 2 percent, if major sharehold- ers have a hand in running the foundation, tax lawyers say

The Chinese branch of Hainan Cihang owns an additional 22.8 percent, bringing the total owned by the foundations to about 52 percent.

Foundations have five years to comply, and are often given five years on top of that, which gives them time to dispose of their excess holdings, tax experts say. But after that, penalties are severe — a 10 percent tax on the excess holdings followed by a 200 percent follow-on tax on the excess amount if the holdings remain out of compliance.

“Sooner or later you’re going to have to get rid of your excess business holdings or your foundation is going to be handed over to the IRS,” said Richard Schmalbeck, a law professor at Duke University who focuses on nonprofit organizations.

Hainan Cihang also must begin distributing 5 percent of its assets every year.

According to figures derived from the privately held company’s 2016 annual report, HNA’s book value is $61 billion, making Hainan. Cihang’s share worth $18 billion. That translates into $900 million in donations a year, which may necessitate assets sales to raise that money, Schmalbeck said.

“This could be a real painful box for them to be in,” he said.

Allen Wu, a lawyer in New York representing Hainan Cihang, did not return two phone calls seeking comment.

One person briefed on the matter said that the asset value transferred from HNA to the charity was still not settled and would likely be considerably smaller than $18 billion.

Hainan Cihang is likely to support causes such as refugee aid, food aid, free cataract surgery and women’s issues, said the person, who requested anonymity because the foundation’s plans have not been finalized.

The person briefed on the matter added that the foundation was applying for taxexempt status with the IRS and that it would be disclos- ing more information in the future. For now, a 2016 tax year filing to the IRS shows it has no assets. The foundation has registered with the New York state Department of State.

HNA, which has been a dealmaking juggernaut in recent years, has lately run into roadblocks both in China, where officials are trying to slow the outflow of foreign currency reserves, and in Washington.

Earlier this year, at a hedge fund conference where he once played host, Scaramucci called HNA “one of the more magnificent conglomerates coming out of China.”

He also encouraged the audience, gathered at the Bellagio Hotel in Las Vegas, to get to know Guang Yang, the chief executive of HNA Capital, who was also in attendance.

Scaramucci did not respond to an email requesting comment Wednesday.

Regulators may also want to get to know Yang. He is the person who signed Hainan Cihang’s annual return filed to the IRS.