SIOUX FALLS, S.D. (KELO) – A new report sheds light on offshore accounts used to shield assets collectively worth trillions of dollars over the past quarter-century and it includes ties to South Dakota.
The report is being dubbed the “Pandora Papers” because the findings shed light on the previously hidden dealings of some of the world’s most rich and powerful people. Many of the accounts were designed to evade taxes and conceal assets for other shady reasons, according to the report.
The more than 330 current and former politicians identified as beneficiaries of the secret accounts in the Pandora Papers include Jordan’s King Abdullah II, former U.K. Prime Minister Tony Blair, Czech Republic Prime Minister Andrej Babis, Kenyan President Uhuru Kenyatta, Ecuador’s President Guillermo Lasso, and former associates of both Pakistani Prime Minister Imran Khan and Russian President Vladimir Putin.
The latest investigation dug into 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 in trusts set up in the U.S., including 81 in South Dakota, the most of any state.
In fact, South Dakota has more than double the number of other states; Florida comes in second with 37.
Why South Dakota?
The report says over the years state lawmakers have approved legislation that ultimately protects and benefits trust customers who want to hide or protect large sums of money.
Gary Kalman, the Executive Director of Transparency International says South Dakota’s secretive trust laws only benefit a small portion of the state’s economy, however.
“I would imagine that the majority of South Dakotans do not see any kind of significant benefit from this strategy,” said Kalman.
Are trust companies in South Dakota doing anything wrong?
“They are 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 privileged individuals should be able just, by the nature of being able to set up through certain legal arrangements with a lawyer hiding money that would otherwise be taxable, to have that not taxed [they] would at the least call that unfair.”
Kalman added that many might call it ethically bankrupt.
Washington Post reporter Debbi Cenziper, who worked on the Pandora Papers, says the investigation changes the way we’ve previously thought about hiding money from authorities.
“So there really is no more offshore, it really is onshore,” said Cenziper while speaking about the rising number of millionaires forgoing offshore bank accounts and hiding money in the U.S.
“Places that you would never expect like South Dakota or Alaska. They’ve really become international leaders, they’ve been soliciting offshore wealth for years, through very friendly liberal laws and they have provided near-absolute secrecy to their clients,” said Cenziper.
There are 106 licensed trust companies in South Dakota, and many serve a useful purpose.
But Kalman says laws that allow secrecy around those trusts, have very little benefit to the average hard-working South Dakotan. 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 positives outweigh the negatives when it comes to powerful foreigners stashing large sums of money in the state, often to avoid tax responsibilities.
In 1980, under Governor Bill Janklow’s watch, South Dakota changed its usury laws, attracting Citibank and 400 jobs from New York. Other banks and thousands of jobs would follow. For a state that relied 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 soil for the credit card industry I think was all at once and very intentional. The way that the legislature has created fertile soil for the trust industry has been much more gradual over time and I don’t think it was quite as intentional form the beginning,” said Tom Simmons.
Simmons is a professor at the USD school of law, he also serves on the Governor’s Task Force on Trust Administration Review and Reform. While money combined with secrecy can attract those who are involved in wrongdoing, Simmons says South Dakota is creating a clean industry that generates hundreds of high-paying jobs.
He says trust companies go through the same regulatory inspections banks go through. So in that aspect, he says there is transparency. But when it comes to the general public, records are more opaque.
“So, in the same way, I can’t go down 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 response would be given if I went down and said I would really like to know if Arnold Schwarzenegger has a trust with you folks – it’s a private financial account, so the confidentiality to the general public is a different thing than the transparency to the regulatory bodies,” said Simmons.
Simmons says it’s hard to tell, however, he could see the trust industry in South Dakota continue to expand, especially with overseas customers.
“A lot of my students are working in the trust industry, they’re great jobs, they enjoy them and they are raising families in South Dakota, where otherwise they may have left,” said Simmons.
South Dakota’s Division of Banking lists 106 trust companies in South Dakota, 94 of them are based in Sioux Falls.