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The Duke of Duty-Free

How to spend money without attracting attention.

Feb 11, 2008, Vol. 13, No. 21 • By MARTIN MORSE WOOSTER
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The Billionaire Who Wasn't

How Chuck Feeney Secretly Made and Gave Away a Fortune

by Conor O'Clery

PublicAffairs, 337 pp., $26.95

Anyone who works in the nonprofit world swiftly learns that there is a legion of development officers and fundraisers whose daily task is to persuade donors to give--or to increase their checks next time. If you're a donor who can give seven-figure grants, there's an army of mendicants and courtiers ready to caress you with plaques, trophies, lavish tribute dinners, 50-yard line seats, and meals at five-star restaurants.

But all these prizes and flattery miss the point of charity. We should give our time and labor to help the less fortunate not because of the adulation, but because helping others is the right thing to do and the best way to live. It is the gift that is important, not the praise we receive for our donations.

This is why the story of Chuck Feeney is an inspiring one. Feeney made over a billion dollars through duty-free stores. He created a foundation that would be one of America's 10 largest if it were headquartered in the United States. This foundation, the Atlantic Philanthropies, has given away over $4 billion since its creation. Yet Feeney managed to keep his wealth and his foundation secret for nearly 20 years, until forced to divulge the information in a 1997 court case. No one else in foundation history has managed to stay anonymous for as long as Feeney did.

Conor O'Clery was, for years, a reporter for the Irish Times. He's a good writer and storyteller, and anyone who likes reading business books where heroes engage in savage battles about whether they should receive figures of 10 for chasing out their companies will find The Billionaire Who Wasn't enjoyable. But Feeney's biography--and the reasons why he chose to be an anonymous funder--provides valuable lessons for every donor.

Charles Feeney was born in Bayonne, New Jersey, in 1931. Although he has always been an American, he has also become a dual citizen of Ireland. After serving as a radio operator in Japan during the Korean War, Feeney graduated from Cornell in 1956 with a degree in hotel management. He then went to Europe with not much money and a desire for adventure. He found that there was plenty of opportunity for people interested in the import-export business. When Feeney started his career, American law allowed any tourist to bring back five bottles (totalling one gallon) of liquor duty-free. Moreover, back then, tourists didn't actually have to lug the booze through customs; they could simply declare it and have a third party ship the spirits to a customer's home.

Feeney discovered a second loophole: American servicemen could bring back cars without paying any tariffs, giving GIs Renaults and BMWs at a substantial discount. For nearly a decade, Feeney and his partners vigorously used these loopholes to make money selling cars and liquor to thrifty Americans. But in the mid-1960s Lyndon Johnson cut the liquor exemption from five bottles to one, and the Navy decided to sell cars to sailors rather than passing the profits to outsiders. Feeney and his partners had to find another line of work.

They found it in the duty-free store business. In 1962 Feeney and his three partners spent $78,000 to acquire a five-year duty-free concession at the Honolulu airport. At the time, airlines were converting cramped DC-8s into roomier Boeing 707s, and the duty-free shop made money. But Feeney's wealth was made in Japan. For the 1964 Tokyo Olympics, the Japanese government eased draconian travel restrictions and allowed many Japanese to travel abroad for the first time. Japan has a long tradition of elaborate gift-giving, and that Honolulu duty-free shop had the luxury goods Japanese tourists wanted at low prices.

Feeney's partnership, at first called Duty Free Shoppers, and later DFS, thrived as Japanese travelers became wealthier. Because top-tier producers of luxury goods at first refused to deal with DFS, the company made lucrative distribution deals with Camus cognac and Nina Ricci perfume that provided DFS with a second income stream. As O'Clery shows, DFS became a multi-billion-dollar company not just through its own expertise, but also by ruthlessly crushing any and all rivals.

By the late 1980s, Feeney and his partners were ready to sell what was now a giant multinational. They began a seven-year dance with Louis Vuitton Moet Hennessey, or LVMH, the French luxury goods producer. After eight years of negotiations, in December 1996, LVMH bought out Feeney and one of his partners and assumed control of DFS. For his ownership of 38.7 percent of DFS, Feeney received a check for $1.67 billion--an amount so big that a New Jersey bank stayed open all night to clear it because tens of thousands of dollars would have been lost if clearing had been delayed.

Negotiations between DFS and LVMH took eight years, in part, because two of Feeney's partners didn't want to sell (one eventually did sell and the other became a minority investor in LVMH). The extensive court record showed that Feeney didn't actually own his share of DFS, but had transferred it to Atlantic Philanthropies, a mysterious Bermuda-based charity. Feeney was a very secretive entrepreneur: DFS, a privately owned partnership, was successful, in part, because its rivals had no idea how large the firm was and couldn't guess how much the company could spend on bids for airport concession contracts. So Feeney decided to apply the same privacy to his philanthropy.

His philanthropic adviser, New York University law professor Harvey Dale, gave his client a thick packet of materials about the importance of giving anonymously. He noted that the world's major religions all taught that the best way to give was privately. As St. Matthew tells us, in the Sermon on the Mount, Jesus taught, "When you give to the needy, do not let your left hand know what your right hand is doing, so that your giving may be in secret. Then your Father, who sees what may be in secret, may reward you." Maimonides, the great medieval rabbi, agreed with Jesus, believing that there were 12 levels of tzedakah (giving), and that while the highest level was teaching other Jews to become self-reliant, the second highest was anonymous charity.

Finally, Feeney was persuaded by the timeless advice of Andrew Carnegie. In his 1889 essay "The Gospel of Wealth," Carnegie wrote that donors ought to use their fortunes on universities, libraries, and other organizations that provided "the ladders upon which the aspiring can rise." Carnegie also believed that donors, after providing for themselves and their families, should strive for "modest, unostentatious living, shunning display or extravagance." This advice suited the thrifty Feeney, who delights in inexpensive clothes, cheap watches, and flying coach.

But as O'Clery shows, anonymous giving is hard work. Feeney decided to base his charity in Bermuda to avoid American disclosure laws. He lived in Bermuda for a year to establish residency prior to the creation of his charity in 1982, and his lawyers successfully lobbied the Bermuda legislature to pass a law allowing him to run his charity in secret. In addition, all of Atlantic Philanthropies' grant recipients had to sign nondisclosure agreements saying they couldn't reveal where their money came from. Finally, public relations consultants offered advice about what should happen if anyone found out about what Feeney was doing.

In hindsight, Feeney could have achieved many of his goals in the United States if he had created a donor-advised fund rather than a foundation. If he had decided to create a private operating foundation, which has a severely limited list of grantees, he could have avoided the truckload of grant requests every medium-sized or large foundation must plow through. And given how poorly the American press covers philanthropy, simply not publicizing his foundation's activities would have given him a substantial amount of anonymity.

But the structure and nature of Atlantic Philanthropies has allowed Feeney to be a very hands-on donor. In O'Clery's account, Feeney's giving has often been impulsively based on articles he happened to be reading. In 1997, he picked up a copy of the San Francisco Examiner in the airport and read about the East Meets West Foundation, which helps improve health care for the poor in Vietnam. That led Atlantic Philanthropies to spend a great deal of money on hospitals in Vietnam. Feeney has also been a generous supporter of research at universities in Ireland and Australia.

In 2001, Feeney declared that Atlantic Philanthropies would spend itself out of existence by 2016. By doing this, Feeney's charity can give far more than other organizations with very large endowments and relatively limited giving. "The dollar you give today can be doing good tomorrow," Feeney said in an interview. "Giving five percent of it doesn't do as much good."

It should be noted that Chuck Feeney is a leftist who vigorously opposes the Iraq war and has given small amounts to the Democratic party and larger ones to Amnesty International and Human Rights Watch. But Feeney should have the right to spend his wealth for causes he prefers. Conservative and libertarian donors, by contrast, often have their fortunes subverted by left-wing staff, particularly if they create foundations that aren't term limited.

Moreover, hands-on donors can--and do--make major mistakes. For three years in the mid-1990s, Feeney personally donated $20,000 a month to Sinn Fein, the Irish Republican Army's political arm, for what Feeney said was a way of advancing the peace process in Northern Ireland. Although the Atlantic Philanthropies was technically not involved, the foundation's reputation was sullied for years by its founder's gifts to Sinn Fein.

What can donors learn from Chuck Feeney's experience? First, give to causes you believe in: People who make fortunes are smart enough to know how they should be used. Second, the most effective donors are those who avoid the limelight. What matters, in the long run, is not how many prizes a donor wins, but whether or not he gives wisely.

Martin Morse Wooster, senior fellow at the Capital Research Center, is the author, most recently, of The Great Philanthropists and the Problem of Donor Intent.