According to a 2020 state report, South Dakota’s burgeoning trust industry holds an estimated $367bn (£273bn) in assets, a sum approaching the annual economic output of the Republic of Ireland – up from $75.5bn in 2011. The phenomenal growth has been supercharged by the state’s aggressive drive to attract money by shielding trust owners’ assets from foreign governments, taxes and even former spouses. The Pandora papers are the largest trove of leaked data exposing tax haven secrecy in history. They provide a rare window into the hidden world of offshore finance, casting light on the financial secrets of some of the world’s richest people.

Not only can those establishing trusts list themselves as beneficiaries—contradicting the original purpose of a trust, which is to shield assets for others—but they don’t even need to visit the state to set one up. The state prohibits sharing information about these trusts with other governments, and any court documents pertaining to South Dakota trusts are kept private in perpetuity. More important, South Dakota pioneered regulations that allow its trusts (which typically expire after a century or so) to remain in place forever, forming the bedrock for dynastic wealth. After a U.S. crackdown on traditional tax havens like Switzerland and the worldwide financial crisis of 2008, a number of countries, including some celebrated tax shelters, decided to adopt a shared reporting system. Now the participating countries are required to report to one another all the assets they hold for the benefit of one another’s people. For one thing, it has strong secrecy protections thanks to its trust laws, which makes it easy to hide the true ownership of property.

• The trusts held personal wealth and shares of the company, which has stood accused of human rights and labor abuses, including illegally bulldozing houses of impoverished families to expand plantations.
• The collapse wiped out the savings of ten of thousands of its customers and the brothers fled to Miami in 1999.
• Trusts are common tools of wealth management, but they can be abused to generate massive dynastic wealth.
• Delaware, Florida and Texas all host several dozen trusts, according to the Pandora Papers investigation — Delaware has 14, for instance.

U.S. tax havens

South Dakota has a temperate continental climate, with four distinct seasons and precipitation levels ranging from moderate in the east to semiarid in the west. The state’s ecology features species typical of a North American grassland biome. Offshore tax havens have long been a refuge for wealthy individuals trying to hide assets. President Joe Biden has pledged to bring more transparency to the the US and global financial systems, though it’s unclear if he’s specifically criticized South Dakota’s financial secrecy laws. Roughly $360 billion in customer assets are currently held in South Dakota-based trusts, with that figure having more than quadrupled over the past decade, the ICIJ reported.

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Historically dominated by an agricultural economy and a rural lifestyle, South Dakota has recently sought to diversify its economy to attract and retain residents. “Trusts set up in South Dakota and many other U.S. states remain cloaked in secrecy, despite enactment this year of the federal Corporate Transparency Act, which makes it harder for owners of certain types of companies to hide their identities,” the ICIJ said. These trusts can make it easier for someone to shield money from ex-spouses, estranged business partners and other judgments, Pierre said. Another perk in South Dakota is access to so-called domestic asset protection trusts, which may guard investments against creditors while still offering some control over the property. The state’s trust assets have more than quadrupled to $360 billion biggest tax haven in u s south dakota says pandora papers investigation over the past decade, the report finds. A few years later, other countries agreed to disclose foreign-held assets to each other, known as the Common Reporting Standard.

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In 2012, he criticized a well-known Roman Catholic priest who had reported to the U.S. that the country’s sugar cane workers were subjected to harsh and inhumane treatment. The company said its review process for clients is “thorough, comprehensive, continuous and exceeds minimum requirements,” with clients screened for legal or regulatory concerns, as well as criminal activities. Trident and a New Mexico firm acting as trust protector opted to end child support payments. In sealed court documents, obtained by The Post and ICIJ, Trident argued that South Dakota law prevented the payments and that Pallanck was “not a good steward of his children’s finances.” The trust provides $1,500 a month for general expenses, Pallanck said. The groundbreaking law spurred other states – locked in competition to grow the industry – to advance trust legislation that would draw customers from around the world. Democrats in Congress have floated the idea of scaling back trusts and other tax-avoidance measures as part of an expansion of the federal social safety net.

South Dakota now rivals offshore tax havens for financial secrecy, Pandora Papers say

• Trident,  whose owners have not been publicly disclosed, not only drew business from Americans like Cameron but also from customers around the world.
• Census Bureau found 58% of homes on the Pine Ridge Indian Reservation did not have a telephone.117 The reservations’ isolation also inhibits their ability to generate revenue from gaming casinos, an avenue that has proved profitable for many tribes closer to urban centers.
• American Indians have been becoming more active in state and county electoral politics.
• There were seven cities with a streetcar system in the nineteenth and twentieth centuries, however, all of these were discontinued over time.
• “What it does is enable you to chop up interest in a way that avoids taxation and creditors, but still allow you to live off the money.”

But the reasons this state is now alleged to be a haven for (sometimes) nefarious global cash are fairly straightforward. South Dakota’s moves have inspired other states to “liberalise” their trust regulations, a phenomenon that helped the US overtake Switzerland in the Tax Justice Network’s 2020 global ranking of countries most complicit in helping individuals hide their finances from the rule of law. The International Consortium of Investigative Journalists (ICIJ) and the Washington Post said their analysis of the data had identified 28 trusts in the US tied to individuals or companies previously accused of misconduct overseas. A bombshell report from the International Consortium of Investigative Journalists found that some of the world’s wealthiest and most powerful people are socking away billions in offshore accounts — in addition to the onshore, continental state of South Dakota. The above excerpt from the Pandora Papers documentary spotlights a South Dakota trust for Colombian textile magnate Jose Douer Ambar, who died in 2020.

Trusts are said to offer some of the most powerful legal protections in the world. South Dakota is mentioned throughout the Pandora Papers because many wealthy people use the state as a tax haven. Indeed, of the 206 U.S.-based trusts identified in the Pandora Papers – which combined hold assets worth more than US$1 billion – 81 are based on South Dakota. In response to the Panama Papers, many countries took measures that made some of the techniques exposed in the Panama Papers obsolete. For example, after decades of offering rich people the greatest bank secrecy in the Western world, the Swiss forced their banks to open their books.

Months earlier, the brothers had been convicted in absentia in Ecuador of embezzling government bailout money from their failed bank. For nearly three decades, the leaked records show, Happel maintained a trust in Jersey, a well-known tax haven in the English Channel that in recent years has faced international pressure to require trust providers to collect and share more information about their customers. In an interview, Cameron said she always intended to provide for her children, but that she and Trident Trust did not believe Pallanck could manage the money. She said she opted to move the trust to South Dakota because of “all the privacy laws” and to avoid paying taxes in California.

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The oil heiress struggled for years with addiction, and a California court in 2010 had awarded Pallanck full custody of their young children and later ordered Cameron to pay $8,500 a month in support, according to court records and interviews. McDowell was a founding member of a working group known as the Governor’s Task Force on Trust Administration Review and Reform, which routinely proposed laws to advance the state’s industry. Blattmachr said he gave his shares of the company to his brother and sister-in-law early on and no longer has an ownership stake in the firm. Tony Knowles (D) agreed, saying parts of the legislation were more liberal than laws in Bermuda and the Cayman Islands. The bill, the governor noted, would potentially harm spouses and children by blocking support payments.

Learn about the Pandora Papers investigation data, major findings and more.

The collapse wiped out the savings of ten of thousands of its customers and the brothers fled to Miami in 1999. A lawyer for the Morales family told the ICIJ and the Washington Post they had never been involved in the operations of Central Romana. They did not respond to questions about why the family’s assets had been shifted from the Bahamas. However, less than a decade earlier in 2004, US, UK and Canadian authorities had announced the dismantling of a massive Colombian money-laundering ring in which Douer had been partly implicated.

The Pandora Papers reveal the tactics wealthy people developed to replace the no longer secret means they used in the past. In particular, the Pandora Papers shine a light on the role of shell companies in making it harder to tax high-net-worth individuals. Included in the leak are documents revealing aspects of the finances of hundreds of politicians from 90 countries. The Pandora Papers come five years after a similar leak of documents called the “Panama Papers.” Those documents showed how many of the world’s wealthiest people routinely avoided any type of tax by placing their assets in tax havens – nations or jurisdictions with low tax rates.