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South Dakota – the New Switzerland for Bank Secrecy?

by | Oct 6, 2021 | International Tax Law, OVDP, Tax Crimes |

Switzerland, Singapore, and South Dakota all have something in common…these jurisdictions are favored by the extremely wealthy for bank secrecy, which often includes tax evasion, money laundering, and other crimes including worker exploitation.

In 2014, Trident Trust opened its doors in South Dakota, selling “The South Dakota Advantage” which purported to be a global provider of offshore services, claiming to do so lawfully. Since the late 1990s, dozens of laws have in fact been enacted that protect trusts from creditors, tax authorities, and foreign governments, which is quite appealing to many customers.  Numerous other South Dakota trust companies now exist, boasting similar benefits of protection and secrecy that are even greater than some of South Dakota’s foreign competitors.

Although South Dakota is the 5th least densely populated of the United States, thanks to the South Dakota Advantage, it now has $360 billion in trust assets, and one trust company, the South Dakota Trust Co., now has international clients from over 50 countries.

South Dakota has the lowest per capita total state tax rate in the U.S. with no personal or corporate income taxes, or inheritance taxes, and a sales tax rate of just 4.5%, making it a desirable state for tax purposes by any standard.  However, many Americans are surprised to learn that the Mount Rushmore State, known for its historical sites, and the annual motorcycle rally in Sturgis, is caught up in what has become known as the Pandora Papers, which expose how foreign political and corporate leaders and their families transmit money and other assets from tax haven countries to U.S. trust companies.

The Pandora Papers investigation reviewed 206 U.S.-based trusts tied to more than 40 counties.  Almost 15% of the trusts had assets owned by or connected to people or entities accused of fraud, bribery or human rights abuses.  Trident Trust provided the lion’s share of records.   Included in South Dakota’s client base, are: Guillermo Lasso, the president of Ecuador who transferred assets to new trusts at Trident in Sioux Falls, South Dakoda in 2017, at a time when international media reports questioned his interests in a Panamanian bank; a Columbian textile magnate who laundered money from an international drug ring; a Brazilian orange juice mogul accused of colluding to underpay local farmers; and family members of Carlos Morales Troncoso, former Dominic Republican vice president and leader of a massive sugar operation in the Dominican Republic, known for years of mistreatment of sugar workers.

Financial experts encourage the U.S. trust industry to investigate and deny clients whenever the client’s wealth was amassed through credible claims of crimes including human rights abuses, or through ties to corrupt regimes.

Former South Dakota state senator, Craig Kennedy (D), acknowledged the lack of information concerning the trust beneficiaries and source of assets.  He shared his concern that, “…we will become like Switzerland or Panama.”  I think that ship has sailed…

To read more about the Panama Papers, click here.


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