A newly published collection of secret legal documents and banking records known as the Pandora Papers reveal that South Dakota has become a favorite place for the world’s ultra-rich to hide their money, a practice which not only shields the wealth from taxation and public scrutiny in their home countries, but provides no benefit for South Dakotans.
Of particular note for this paper, the Pandora Papers reveal that South Dakota has recently become a preferred jurisdiction for establishing secret trust funds.
Last week the International Consortium of Investigative Journalists (ICIJ), a non-profit group of 280 reporters from 100 countries, released the latest in a years-long series on the ways the rich and powerful from the across the globe hide their wealth.
Dubbed the Pandora Papers, this exposé uses millions of leaked documents to uncover an exclusive private financial system of law firms, banks, and trusts dedicated to keeping the “financial secrets of 35 current and former world leaders, more than 330 politicians and public officials in 91 countries and territories, and a global lineup of fugitives, con artists and murderers.”
According to the report, “The secret documents expose offshore dealings of the King of Jordan, the presidents of Ukraine, Kenya and Ecuador, the prime minister of the Czech Republic and former British Prime Minister Tony Blair. The files also detail financial activities of Russian President Vladimir Putin’s “unofficial minister of propaganda” and more than 130 billionaires from Russia, the United States, Turkey and other nations.”
South Dakota is attractive to the ultra-rich for several reasons. First, because this state has no tax on income (including from investments), capital gains (the amount of money you make from selling stocks or bonds based on how much the price has gone up since you bought it), or estates (i.e., whatever you own when you die).
Second, it allows so-called “dynasty trusts” which, according to CBS News, set up “complex legal relationship between three parties: the grantor, who contributes assets to the trust; the trustee, who manages and directs the trust; and the beneficiary, who receives income from it,” which makes it much harder for authorities to monitor.
According to the non-profit Tax Foundation, the state of South Dakota collects almost three quarters of its revenue from sales taxes and property taxes, and the rest from excise taxes, licenses, and other fees.
Since none of these will have any effect on a non-resident who simply parks their money here, places like South Dakota (whether independent nations, semi-independent states or districts within a country, or special enclaves like Hong Kong or Macao) are indispensable for ultra-rich families to hide, preserve, and grow their wealth.
Moreover, the state does not set a time limit on a trust, which means that the money can accumulate so long as the state of South Dakota itself continues to exist.
The Pandora Papers follows the ICIJ’s 2016 release of the “Panama Papers”, 11.5 million documents from the now-defunct Panamanian law firm Mossack Fonseca (dramatized in the 2019 film The Laundromat, starring Meryl Streep, Gary Oldman, and Antonio Banderas), and the 2017 publication of the so-called Paradise Papers, which published details of secret accounts belonging to the Queen of England and Donald Trump’s Commerce Secretary, Wilbur Ross.