Pandora's Box

Who Let the Dogs Out?

Last week was our Governor's Terrible, Horrible, No Good, Very Bad Week, as the following stories broke wide open:

(1) Governor Noem's daughter flunked her appraiser's test so our Governor met with her daughter and the supervisor of the state employee who oversaw her application in a closed meeting. The result was that the daughter got her license and the employee was "encouraged" to retire. Gov. Noem has been tapdancing as if she's in a house infested with cockroaches trying to explain that none of this had anything to do with political pressure, just an attempt to "streamline" the process of becoming an appraiser, and "eliminate barriers to licensure". At least for her daughter. (AP News) (Meanwhile, someone on the appraisal board has since leaked that the daughter flunked her test 4 times, not once.)

(2) Corey Lewandowski. Read it all here: (The Bulwark; The Daily Beast) BTW, Ian Fury, Noem's official spokesperson, said “Corey was always a volunteer, never paid a dime (campaign or official)." To which I instantly responded, "So, you are saying that he did it for love."

(3) AG Ravnsborg (the one who hit a deer with glasses, remember?) has referred Noem’s use of the state plane for various things (private trips, campaigning for Trump, fundraising, etc.) over to Government Accountability Board for review. (Dakota News) Considering that Noem's been calling for Ravnsborg's impeachment / resignation (to be fair, so have we all), this may end up being filed under Revenge Is A Dish Best Served Cold.

And

(4) The Pandora Papers:

By now, you'd have to be under a rock not to have heard about the Pandora Papers, leaked documents from a coordinated, global investigation of how the wealthy and powerful store millions of dollars in secretive trust funds, leaked to the International Consortium of Investigative Journalists and reported on by the Washington Post and other partners. Naturally, the state which leads the list in housing these very dicey funds is South Dakota.

"South Dakota now rivals notoriously opaque jurisdictions in Europe and the Caribbean in financial secrecy. Tens of billions of dollars from outside the United States are now sheltered by trust companies in Sioux Falls, some of it tied to people and companies accused of human rights abuses and other wrongdoing." (Washington Post)

Now I am proud to say that in one way, I actually broke this story, on SleuthSayers, back on June 20, 2012. It's just that no one listened. As the once and [probably] future AG Marty Jackley once told me, "Call me when there's a crime." To quote myself:

And the latest hot businesses are shelf corporations. These are entities that are created by lawyers incorporating a bunch of corporations that exist in name only—no assets, no employees, and no board members except the agent filling out the paperwork. (It’s sort of like the residency corporations, who have an owner and a person doing the mailings, and that’s it.) Anyway, if you want to start a business, you pay a fee to the incorporator, and you’ve got a corporation. And you the purchaser get complete anonymity. And no taxes. And no accountability. The following is a pitch from Corp95.com: https://corp95.com/

“South Dakota is one of the best kept secrets in the corporate formation world. The state has NO corporate income or franchise taxes. Their annual fees are minimal ($50 per year) and they allow for the most privacy of ownership than in any other state. South Dakota is a low key environment and does not require that its businesses maintain any physical presence in the State. Formation is fast and requires a minimum of personal information. You will pay no more and sometimes less than some of those states that claim to offer privacy but do not actually do so. Why form your company in a state that claims to have no taxes, but then charges high fees to compensate for this. South Dakota truly does offer the most privacy at a very reasonable ongoing fee. Call us at 800-859-6696 and let us provide you with the details for formation of your business entity in this friendly state.” The Wild West Continues (my emphasis)

Corp95 is still making the same pitch, and has been joined by a host of other sharks looking for chum.

But the whole thing started with the late, great[ly interesting] multi-elected Governor "Wild Bill" Janklow, who changed South Dakota law to allow all kinds of things that just weren't allowed in other states. For example, in the 1970s Citibank, which had invested heavily in credit cards, was going bankrupt what with high national interest rates. South Dakota was in a major recession. Citibank promised 400 jobs RIGHT NOW if Janklow abolished the "anti-usury" laws that South Dakota (and all other states) had, so he did - in a single day.*

Seeing the success of that repeal, Janklow went on to deregulate trusts. Back in the 17th century, 'judges fought back against a permanent aristocracy by creating the “rule against perpetuities”, which limited the duration of trusts to around a century, and prevented aristocratic families turning their local areas into mini-kingdoms. In 1983, Janklow abolished the rule against perpetuities and, from that moment on, property placed in trust in South Dakota would stay there for ever.'

“It’s a clean industry, there are no smokestacks, we don’t have to mine anything out of the earth or anything, and they’re generally good paying jobs,” said Tom Simmons, an expert on trust law at the University of South Dakota, when we chatted over coffee in central Sioux Falls. Alongside his academic work, Simmons is a member of South Dakota’s trust taskforce, which exists to maintain the competitiveness of the state’s trust industry. “Janklow was truly a genius in seeing this would be economic development with a very low cost to the government,” he said. (By “the government”, he of course means that of South Dakota, not that of the nation, other states or indeed other countries, which all lose out on the taxes that South Dakota helps people avoid.) The Guardian

Anyway, the ICIJ's and Washington Post's reporting focuses on two Sioux-Falls based trusts: Trident Trust, an international company that opened its Sioux Falls office in 2014, and the South Dakota Trust Co., created by a founding member of Janklow's task force in 2002.

Details from the Washington Post and ICIJ investigations include:

• The family of Ecuadorian brothers William and Roberto Isaias created trusts with South Dakota Trust Co. in 2012, soon after the brothers were convicted of embezzling government bailout money for their failed bank. Their conviction was later overturned.
• Family members of Carlos Morales Troncoso, the former vice president of the Dominican Republican, opened several trusts with Trident in 2019 that contain $14 million in personal wealth and shares of a sugar company. The company is "accused of human rights and labor abuses, including illegally bulldozing houses of impoverished families to expand plantations."
• Federico Kong Vielman, a powerful businessman from Guatemala, moved $13.5 million to Trident 2016. His family is linked to a former dictator and gifted free hotel stays to a former Guatemalan president, likely in exchange for "political favors." U.S. labor officials have accused his family's palm oil company of underpaying workers and exposing them to toxic chemicals. U.S. environmental authorities later found the company released pollutants into a river and the issue was resolved in an arbitration panel.
• Guillermo Lasso, president of Ecuador, opened two new trusts with Trident in 2017 after his country made it illegal for public officials to store assets in tax havens and as media reports questioned his interests in a bank in Panama.
• José “Pepe” Douer Ambar, a businessman from Colombia, had a trust with Trident. He settled a case with the U.S. government after an investigation found he was involved with "a vast enterprise to sell drugs in the United States and launder the proceeds."
• Horst Happel, a business leader from Brazil, created a trust with Trident in 2018. Happel settled a case with the Brazilian government after allegedly colluding to underpay local farmers. He also settled a case with the U.S. government after he allegedly violated limits on futures trading.
• Christopher Pallanck was formerly married to Cleopatra Cameron, an oil heiress from California who put millions in a Trident trust. Pallanck was granted full custody of their children and Cameron was ordered to pay child support. Trident successfully argued to the South Dakota Supreme Court in a 2017 case that it didn't need to pay out the child support, SDPB previously reported.

"Trident told the Post it complies with all regulations and cooperates with authorities. South Dakota Trust Co. declined to comment on its individual clients but told the Post it exceeds review standards by screening clients for criminal activity and legal or regulatory concerns. Bret Afdahl, director of the South Dakota Division of Banking, told the Post that the state audits trust companies and can penalize firms that do not meet standards, such as confirming the identities of all customers. He said foreign clients and assets receive extra scrutiny." (NPR) (my emphasis)

HA HA HA HA!!! Remember Paul Erickson (former Vermillion, SD Republican operative) and Maria Butina (the Russian spy who loved him and the NRA)? They founded two LLCs which were obviously shelf corporations. Bridges LLC was set up in 2016, and Medora Consulting LLC in 2018 - both "located" in an apartment complex in Sioux Falls, both without any stated purpose or partners. But may well have been laundering money from Aleksandr Torshin and an as-yet unidentified Russian oligarch with a net worth Forbes estimated to be about $1.2 billion. (Vox) Nobody, as far as I know, ever checked into them.

Still it's all harmless, right? Just a place to park money, and it's their money, and someday I might win the lottery, so we need this, right?

"Well, here is an example from one academic paper on South Dakotan trusts: after 200 years, $1m placed in trust and growing tax-free at an annual rate of 6% will have become $136bn. After 300 years, it will have grown to $50.4tn. That is more than twice the current size of the US economy, and this trust will last for ever, assuming that society doesn’t collapse altogether under the weight of this ever-swelling leech.

"If the richest members of society are able to pass on their wealth tax-free to their heirs, in perpetuity, then they will keep getting richer than those of us who can’t. In fact, the tax rate for everyone else will probably have to rise, to make up for the shortfall caused by the wealthiest members of societies opting out, which will just make the problem worse. Eric Kades, the law professor at William & Mary Law School, thinks that South Dakota’s decision to abolish the rule against perpetuities for the short term benefit of its economy will prove to have been a long-term catastrophe. “In 50 or 100 years, it will turn out to have been an absolute disaster,” said Kades. “Now we’re going to have a bunch of wealthy families, and no one will be able to piss away that wealth, it will stay in the family for ever. This just locks in advantage.” (The Guardian)

And every year "the legislature passes an annual bill supporting the industry, following updates by a task force that holds unadvertised meetings to discuss trust laws around the world." Nice. (Dakota News Now)

And, of course, some South Dakotans are making money off of it. USD Law Professor Tom Simmons says “A lot of my students are working in the trust industry, they’re great jobs, they enjoy them and they are raising families in South Dakota, where otherwise they may have left." (Kelo-TV) Really? according to Republican State Sen. Lee Schoenbeck, 500 people are employed in South Dakota's mysterious trust industry, which is 0.1% of total SD employment. (And I'll bet most of them are administrative assistants making $25-40K.) There are also "Help Wanted" signs everywhere you turn in Sioux Falls, so I think 500 people could find other work in South Dakota as we get going with "BUST THE TRUST" slogans, signs, legislation…

But, but, but…

1. This is a nice state, full of nice people, who would never do anything wrong;
2. This is a nice state, full of nice people, who would never be so impolite as to raise a ruckus no matter what. (Most South Dakotans avoid conflict as if it were an unsedated colonscopy)
3. This is a nice state, full of nice people, which is why we can have basically a one-party government with no accountability, no transparency, and no public access, because what could possibly go wrong?
4. This is a nice state, full of nice people, but we're freaking broke (again), because we don't have a big labor force, we don't have any taxes (other than sales and property tax), and all the big money we get seems to go in other people's pockets or just freaking vanishes (EB-5, Gear Up, and probably a few of these secret trusts), so we have to get money from somewhere, and we just won't look into it too deeply BECAUSE

1. This is a nice state, full of nice people, who would never do anything wrong. (Repeat on an endless loop.)

$50.00 a year, folks, and this too can be your dream LLC in South Dakota, where we talk like Mayberry, but act like Goodfellas.

*The elimination of usury laws led to the meteoric rise of T. Denny Sanford, who founded First Premier Bank, which made its name and its money on being one of the major subprime credit card providers (high interest - try 79.9% on a $300 credit limit in some cases - to those with low credit ratings ). Mr. Sanford, currently [semi-]retired, is the patron of Sanford Health (formerly Sioux Valley Hospitals & Health Systems), and much, much, much more.