While South Dakota has generated headlines over the past year due to its relaxed COVID-19 safety measures under Governor Kristi Noem, the state is now facing renewed controversy for its laissez-faire financial secrecy laws that have turned it into a tax haven for the ultrarich and powerful. On Sunday, the International Consortium of Investigative Journalists (ICIJ) released a cache of leaked financial records tied to some of the world’s wealthiest figures that exposed South Dakota as a top jurisdiction for millionaires and billionaires trying to safeguard their riches by hiding them from public view. The ICIJ’s document dump—dubbed the Pandora Papers—revealed that the state is harboring some assets tied to wealthy elites who stand accused of human rights abuses.
“These are secretive, confidential documents from offshore tax havens and offshore specialists who work to help rich, powerful and sometimes criminal individuals create shell companies or trusts in a way that often helps either obscure assets or in some cases even help avoid paying taxes,” explained ICIJ reporter Will Fitzgibbon in an interview with NPR. “One of the jaw-dropping revelations of the Pandora Papers investigations was really that, for the first time, we have documents from inside the United States, in particular from the state of South Dakota, believe it or not.”
Fitzgibbon went on to describe South Dakota as “one of the world’s leading secrecy jurisdictions…where the rich and powerful from around the world set up confidential or shady trusts,” adding that they often do so “without ever stepping foot in Sioux Falls.” These unsavory elites who have hidden their funds in South Dakota include billionaires and millionaires from Brazil, Guatemala, Colombia, and the Dominican Republic, of whom Fitzgibbon said are attracted to South Dakota advertising itself “as a secretive tax haven” within U.S. borders.
In the ICIJ’s report, the group listed South Dakota alongside the world’s most infamous offshore tax havens, noting that the state has “adopted financial secrecy laws that rival” the Seychelles, Belize, and the British Virgin Islands, which makes it a prime location for those guilty of money laundering and other crimes. “Year after year in South Dakota, state lawmakers have approved legislation drafted by trust industry insiders, providing more and more protections and other benefits for trust customers in the U.S. and abroad,” the ICIJ reported. “Customer assets in South Dakota trusts have more than quadrupled over the past decade to $360 billion.” The documents also showed that, rather than turning to countries traditionally known for their robust offshore banking systems, foreign leaders and their family members are depositing their fortunes in U.S. states.
According to The Washington Post, family members of former Dominican Republic vice president Carlos Morales Troncoso, who ran a sugar company that had been accused of being disreputable by human rights workers, transferred a number of trusts from the Bahamas to South Dakota in 2019. “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 Post reported. Morales died in 2014. His four daughters, who are trust beneficiaries, did not respond to the Post’s questions regarding the fund transfers. Through their attorney, they said they have never been involved in the sugar company’s operations.
“My concern is that…we become like Switzerland or Panama,” Craig Kennedy, former South Dakota state senator, told the paper. “I don’t know who the beneficiaries are, what kind of assets are being managed. People use banking and trust laws for inappropriate purposes. I can’t say that’s happening in South Dakota. But I don’t know.”
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