Who’s Using South Dakota as ‘A Worldwide Destination for Foreign Wealth’?

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November 9, 2021

When reporters Will Fitzgibbon and Debbie Cenziper began digging into the Pandora Papers — nearly 12 million confidential files leaked to the International Consortium of Investigative Journalists whose contents would go on to reverberate across the world — they noticed something curious.

In the trove of documents, which expose a secretive financial system that shields the deals and assets of some of the world’s richest and most powerful people, one U.S. state, South Dakota, stood out.

“We early on found a document in the leaked records that showed that there were a number of trusts established in South Dakota, and of course, our question was, who’s establishing trusts in South Dakota?” says Cenziper, a reporter at The Washington Post. “And we just really wanted to answer that question.”

Cenziper and Fitzgibbon talk about their quest to find out who had set up secret trusts in South Dakota in the above excerpt from Pandora Papers, a documentary from FRONTLINE and ICIJ that premiered Tuesday, Nov. 9, and that chronicles some of what journalists from 150 media organizations across the world found as they pursued stories linked to the most expansive leak of tax haven documents in history.

America has long condemned offshore financial havens, but the leaked documents show how people have been sheltering their money in U.S. states that promise protection and secrecy, rivaling traditional offshore locations.

“We realized that, over the years, a whole industry of banking and trust leaders had pushed legislation at the state level to make South Dakota into this worldwide destination for foreign wealth,” says Cenziper. “And they did this by passing a number of laws that really appeared incremental at the time, but they were huge in this industry.”

Over the past decade, the amount of money in trusts in South Dakota has more than quadrupled to $360 billion, fueled by dozens of laws that help protect trusts from creditors, taxing authorities and foreign governments.

“If you set up a trust in South Dakota, those records can be sealed by a court,” says Fitzgibbon, a reporter with the ICIJ. “So that’s an incredibly strong incentive for someone whose primary objective is to make sure that his or her assets are not discoverable by a reporter or the tax authority back home.”

Cenziper and Fitzgibbon found in the Pandora Papers that clients from 41 countries had set up more than 200 trusts in South Dakota and other states. There is no evidence in the leaked documents that the trusts held criminal proceeds, which U.S trust companies are barred from knowingly accepting. But nearly 30 of the trusts were connected to people or companies accused of fraud, bribery or human rights abuses.

“What we found so far is that roughly 20 high-profile politicians and industrialists from countries ranging from Ecuador to the Dominican Republic to India, who have been in trouble in their home countries for everything from human rights abuses to banking fraud, moved their assets and wealth into the United States under the noses of investigators,” Cenziper says.

“We’re talking about people who have been in all kinds of trouble, accused of some very bad things, who are using the system to hide their wealth, not only potentially from the governments and the taxing authorities in their home countries, but also from the victims in their home countries who might have a claim to some of that money,” she adds.

The above excerpt from the Pandora Papers documentary spotlights a South Dakota trust for Colombian textile magnate Jose Douer Ambar, who died in 2020. Before setting up the trust, he had forfeited $20 million to the U.S. government as part of a settlement of a drug money laundering case. The excerpt also spotlights three trusts in South Dakota created for Ecuadorian bankers William and Roberto Isaias, who had been convicted in absentia in their home country for embezzling government bailout money from their failed bank. Their conviction was later overturned amid controversy; neither brother responded to requests for comment about the trusts.

Cenziper and Fitzgibbon spoke with Craig Kennedy (D), a former South Dakota state senator who says he’s “troubled” by how the trust industry has “basically captured the state legislature and can essentially pass whatever they put together.”

“I think they are trying to design a system that works well and is safe,” Kennedy says. “However, I also know that there are people in the world who are just as smart and would take advantage if they thought they could. And that’s my concern, is that we get ourselves set up where all of a sudden we become like a Switzerland or like a Panama.”

“I would be concerned,” he adds, “about reputational damage to this state.”

The South Dakota Division of Banking said in a statement it routinely audits trust companies, and that the firms are required to do intensive vetting, with extra attention to foreign clients. But the Pandora Papers raise questions about the limitations of existing state and federal oversight and regulation.

“We already found evidence of people credibly accused of crimes and other wrongdoing breaching the U.S. financial system,” Cenziper says. “What about terrorists? What about drug traffickers? What about dictators or their associates? We just don’t know. Because though we had almost 12 million documents, that’s just this little, tiny glimpse into this thriving industry in the United States.”

For the full story, watch Pandora Papers:

In addition to streaming above, the documentary is now available in FRONTLINE’s online collection of films, on FRONTLINE’s YouTube channel and in the PBS Video App. Pandora Papers is a BBC Current Affairs production for GBH/FRONTLINE and BBC. The director is James Oliver. The producers are Evan Williams and James Oliver. The senior producer is Eamonn Matthews. The executive producer of FRONTLINE is Raney Aronson-Rath. FRONTLINE’s two-part Nov. 9 hour also included a second segment, Massacre in El Salvador, in collaboration with Retro Report and ProPublica.


Patrice Taddonio

Patrice Taddonio, Digital Writer & Audience Development Strategist, FRONTLINE

Twitter:

@ptaddonio

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