Tom Simmons, a trust and estate attorney who teaches at the University of South Dakota about an hour away, says he’s not surprised. According to his estimate, only a few hundred people here – lawyers, trust company executives, bank employees – work directly in the trust industry. They know. Most of the others don’t.
Simmons is among the first. He is part of a task force of industry expert governors formed to make South Dakota the first trusted jurisdiction in the United States. In short: the group recommends which laws should be enacted, and the legislator then decides.
About four decades ago, the state passed a few key laws that caught the attention of the financial sector. One removed the interest rate cap on loans. Another allowed trusts to last forever – the so-called dynasty trusts. The latter, coupled with the state’s zero income tax, has made South Dakota an attractive place for anyone who wants to pass assets on to future generations without triggering estate taxes. Since then, the legal latitude of trusts has gradually expanded, attracting clients from near and far.
It’s not the South Dakota most people know: Homesteader State with its vast farmlands, the Badlands, and Mount Rushmore. Cattle and pigs are six times more numerous here than citizens. It has no membership in the Bloomberg Billionaires Index of the World’s 500 Richest People.
But it elicits periodic – and fleeting – bursts of attention from news outlets around the world.
The Pandora Papers have revealed how foreign politicians and business leaders moved money and other assets into U.S. trusts, sometimes shielding them from taxes or obscuring their ownership or involvement in transactions. The revelations gave a boost to critics who for years warned of the consequences of giving the wealthy a way to legally circumvent both taxes and controls.
At Josiah’s, an airy cafe in a downtown apartment building where Auburn and Nash cars were once sold, Simmons says the reality is different: Trusts aren’t necessarily more secret than normal bank accounts. Simple accusations of wrongdoing shouldn’t stop people from opening accounts here. Perhaps the Internal Revenue Service could share more of its data with foreign jurisdictions, but that depends on the federal government, not South Dakota.
âIf you’re in the service industry, there are bad people out there who slip through the cracks sometimes,â he says as chatter and Beatles tunes fill the room. âIf you look at 12 million documents,â – the size of the Pandora Papers leak – âand find half a dozen people who have done so, that’s not a bad error rate. But we want zero, of course.
The Washington Post, which took part in the Pandora Papers investigation, identified nearly 30 US-based trusts with assets linked to people or companies that have been accused of fraud, corruption or human rights violations.
While the trust business is strong here, that hardly makes Sioux Falls a corporate town. In part, that’s because it’s split between dozens of trust firms, backed by an array of law firms spread across this city of about 180,000 people. And in part because discretion is at the heart of its model. Only the names that adorn the crests of buildings dominating the city center give clues: American Bank & Trust; First bank and trust; CorTrust Bank; Dacotah Bank.
And there, in an old five-and-dime Kresge on the corner of Phillips Avenue and 10th Street, sits the South Dakota Trust Co. Gray curtains cover the windows on the first floor, revealing nothing about the client list of the company which spans more than 50 nationalities and 100 billionaires.
Why do industry executives here generally refuse interviews? Years ago, company co-founder Pierce McDowell – known by some as “P3” and considered one of the founders of the state trust company – went to dinner with a reporter. from Bloomberg News. The story that followed showed McDowell likening a dynasty trust to a wine glass that generations could sip on, and included a photo of him next to a family heirloom, howling with laughter. The portrait, some in town whispered, was not flattering.
A handful of industry experts and lawmakers did not respond to requests for interviews. But the South Dakota Trust Association, a trading group, said in an emailed statement that it was proud of the state’s financial sector and the benefits it has brought. âBanks and trust companies in our state are held to extremely high standards with strict state and federal requirements to guard against any potential misuse of otherwise lawful activities,â he said.
Jayna Voss and Bobbi Thury say there’s an obvious downside to this reluctance to speak up: the stories end up focusing on so-called shenanigans, missing that many of the people who seek South Dakota for its trusts aren’t super rich. , nor have dark intentions.
At the office of law firm Legacy, which the two co-founded about five years ago to focus on estate planning, they explain how trusts can be used by farmers and small business owners, or help families. to avoid personal ruin due to the spiral of health care. costs. Working within the law to minimize taxes, they say, is not the same as tax evasion.
âYou are going here to do something – legally – to help achieve the goals that you have,â says Voss.
âHelp your family,â Thury adds.
And of course, some are saying: South Dakota might tighten its trust laws, but that would only push clients elsewhere and cost the state hundreds of well-paying jobs. Isn’t the federal government better equipped to decide where the line should be drawn?
Reynold Nesiba, 55, a rare Democratic state senator in South Dakota’s deeply red legislature, is torn apart. âI don’t want us to help anyone engage in criminal behavior,â he says, sipping a Blue Moon one Tuesday afternoon near Augustana College where he teaches. On the other hand, “it’s a complicated thing for South Dakota to be responsible.”
In the legislature, there are about twice as many farmers and ranchers as there are avocados. A state official locks up horses and bulls in rodeos for a living. They meet about 40 days a year and each earn about US $ 12,000 and 42 cents per mile for gasoline. It’s a citizens’ legislature, says Nesiba, and for the most part it works very well.
“Should the South Dakotas know what the King of Jordan has done?” ” he says. “Should we decide this? It really has to be federal legislation that prevents states from competing for the lowest taxes and the most secure privacy laws across the country. “
The Business Briefing newsletter features important articles, exclusive coverage and expert opinions. Sign up to get it every morning on weekdays.