Here’s why billionaires are hiding money in South Dakota
SIOUX FALLS, SD (KELO) – New report sheds light on offshore accounts used to protect assets collectively worth trillions of dollars over the past quarter-century and includes links to South Dakota.
The report is nicknamed the “Pandora Papers” because the findings shed light on previously hidden transactions of some of the richest and most powerful people in the world. Many accounts were designed to evade taxes and conceal assets for other shady reasons, according to the report.
Among the more than 330 current and former politicians identified as beneficiaries of the secret accounts in the Pandora Papers are Jordan’s King Abdullah II, former British Prime Minister Tony Blair, Czech Prime Minister Andrej Babis, Kenyan President Uhuru Kenyatta, Ecuadorian President Guillermo Lasso and former associates of Pakistani Prime Minister Imran Khan and Russian President Vladimir Putin.
The latest investigation explored accounts registered in familiar offshore havens, including the British Virgin Islands, Hong Kong and Belize. But some of the secret accounts were also scattered around trusts set up in the United States, including 81 in South Dakota, most of all states.
In fact, South Dakota has more than double the number of other states; Florida comes second with 37.
Why South Dakota?
The report says that over the years, state lawmakers have passed legislation that protects and ultimately benefits trusted customers who wish to hide or protect large sums of money.
Gary Kalman, executive director of Transparency International, says South Dakota’s secret trust laws only benefit a small part of the state’s economy, however.
“I imagine the majority of South Dakotas do not see any significant advantage in this strategy,” Kalman said.
Are South Dakota Trust Companies Doing Something Wrong?
“They’re not doing anything illegal if that’s what you mean,” he said. “I think if you ask the average person who goes to work and earns a salary and pays taxes on that salary whether the privileged people should be able, by nature to be able to settle down through some legal arrangement with a lawyer hiding money that would otherwise be taxable, so that it is not taxed [they] would at least qualify it as unfair.
Kalman added that many might call it ethical bankruptcy.
Washington Post reporter Debbi Cenziper, who worked on the Pandora Papers, said the investigation is changing the way we previously thought about hiding money from authorities.
“So there’s really no offshore anymore, it’s really onshore,” Cenziper said of the growing number of millionaires giving up offshore bank accounts and hiding money in the United States.
“Places you would never expect like South Dakota or Alaska. They have truly become international leaders, they have been soliciting wealth offshore for years, thanks to very friendly liberal laws and they have provided their clients with near absolute secrecy, ”said Cenziper.
There are 106 licensed trust companies in South Dakota, and many of them have a useful function.
But Kalman says laws that allow secrecy around these trusts have very little benefit for the average hard-working South Dakota. He says he hopes South Dakota will rethink its trust laws.
How we got here
Supporters of the state’s growing industry say they believe the pros outweigh the cons when it comes to powerful outsiders hiding large sums of money in the state, often to avoid tax liability.
In 1980, under the leadership of Governor Bill Janklow, South Dakota changed its usury laws, attracting Citibank and 400 jobs to New York City. Other banks and thousands of jobs would follow. For a state that depended on agriculture and tourism, this was a monumental change. Now, decades later, the focus has shifted to creating friendly laws around trusts.
“There is some overlap, the methodical way the legislature went about creating fertile ground for the credit card industry, I think, was both and very intentional. The way the legislature created fertile ground for the trust industry has been much more gradual over time and I don’t think it was that intentional to begin with, ”said Tom Simmons.
Simmons is a professor at SHU Law School, he is also a member of the Governor’s Task Force on Review and Reform of Trust Administration. While money combined with secrecy can attract those involved in wrongdoing, Simmons says South Dakota is creating a clean industry that generates hundreds of high-paying jobs.
He says trust companies undergo the same regulatory inspections as banks. So in this regard, he says there is transparency. But when it comes to the general public, the archives are more opaque.
“So in the same way I can’t go to my local bank and say I would like to know how much money Tom Hanson has in his bank account right now and they won’t tell me, the same answer would be given if I went down and said I would really like to know if Arnold Schwarzenegger has any trust with you – it’s a private financial account, so privacy for the general public is a different thing than transparency for regulators, ”he said. Simmons said.
Simmons says it’s hard to say, however, he could see the trust industry in South Dakota continue to grow, especially with overseas customers.
“A lot of my students work in the trust industry, they’re great jobs, they enjoy them and they’re raising families in South Dakota where they might have gone otherwise,” Simmons said.
The South Dakota Division of Banking lists 106 trust companies in South Dakota, 94 of which are based in Sioux Falls.