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  • Writer's pictureEdward Lehman

Pandora Papers Expose U.S. State-Level Financial Secrecy Laws

In December 2018, the Bahamas enacted legislation requiring companies and certain trusts to declare their real owners to a government registry. The island nation was under pressure from larger countries, including the United States, to do more to block tax dodgers and criminals from the financial system.

Months later, a confidential document from the recently released Pandora Papers — a review of nearly 12 million files obtained from 14 firms that dug into accounts of the world's wealthiest and most famed individuals— indicated that the family of the Dominican Republic’s former Vice President Carlos Morales Troncoso had abandoned the Bahamas as a go-to sanctuary for their wealth.

For their new refuge, they chose a place 1,600 miles away: Sioux Falls, South Dakota.

The family set up South Dakota trusts to lay away various assets, including shares they’d held in a Dominican sugar company.

The Pandora Papers indicate tens of millions of dollars moved from traditional offshore havens in the Caribbean and Europe into South Dakota, a sparsely populated American state that has become a major destination for foreign assets.

Over the past decade, South Dakota, Nevada and more than a dozen other U.S. states have transformed themselves into leaders in the business of financial secrecy.

The U.S. is one of the biggest players in the offshore world. It is the country best situated to bring an end to offshore financial abuses, thanks to the outsize role it plays in the international banking system.

Because of the U.S. dollar’s status as the de facto global currency, most international transactions flow in and out of New York-based banking operations.

U.S. authorities have acted over the past two decades to force banks in Switzerland and other countries to turn over information about Americans with overseas accounts.

But the U.S. is more interested in forcing other countries to share information about Americans banking offshore than in sharing information about money moving through U.S. bank accounts, companies and trusts.

The Pandora Papers show dozens of trusts set up in the U.S., including 81 in South Dakota, 37 in Florida, 35 in Delaware, 24 in Texas, and 14 in Nevada.

The Pandora Papers show how foreign political and corporate leaders moved their money from international tax havens to American trust companies, many based in the American heartland lured by laws that permit financial secrecy.

The Papers reveal how one of the largest trust companies in South Dakota has clients spread across 54 countries and 47 states that include more than 100 billionaires.

State politicians in South Dakota have continued to approve legislation that allow for even more protections and benefits for the customers of such trusts.

Normally, the government would tax any interest earned by an account, but in South Dakota, assets are protected from any civil claims such as a divorce or legal proceedings. They are not protected from criminal investigations. And because South Dakota has no income tax, inheritance tax or capital gains tax, the finances held there are effectively kept out of the reaches of the U.S. government.

AmChamUSA advocates for continued pro-growth tax policies in relevant tax legislation, and continues to work with the federal government on regulations and other guidance to shore up much needed tax revenue.

There is nothing inherently illegal about banks luring foreigners to put money in the U.S. with promises of confidentiality if they are not intentionally helping to evade taxes abroad. The Pandora Papers and subsequent articles published related to their release appear to indicate no company or individual has broken any laws, and especially in establishing a trust in the U.S.

AmChamUSA supports and encourages foreign businesspeople and companies setting up financial accounts in the U.S., and contributing to both the tax system and job creation mechanisms of the U.S.

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