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Drug Dealers and Dictators Hide Dealings, Wealth Concentrates—Success! Cries SDGOP

The SDGOP spin machine had to say something in response to the Pandora Papers, the massive journalism project that points out South Dakota’s role in the destructive global financial schemes that help the rich, powerful, and corrupt hide their hoarded wealth from governments and creditors. They thus spin the support of high-rolling tax dodgers, drug dealers, and dictators as “success“:

There’s nothing that collects arrows like success. And South Dakota has recently drawn considerable fire in recent days for the amount of money being invested in the state through trusts.  A recent article in business insider magazine is pointing out that our small population state of South Dakota has managed to become one of the biggest destinations in the country for people’s money….

How has it been allowed to happen that people and industry poor South Dakota appeals to the super-rich to invest their money? Are you kidding? We’ve been working on building our attractiveness for investments for decades! And we’re not afraid to tell people about it… [Pat Powers, “With the Release of Pandora Papers, News Stories Focus on Success of South Dakota Becoming the National Leaders in Trust Investment,” South Dakota War College, 2021.10.05].

Our friend and Senate President Pro-Tem Lee Schoenbeck trots out the SDGOP hypocrisy about creating jobs that would just go elsewhere if we didn’t grab them:

The results are 105 independent trust companies in South Dakota, as well as state-chartered banks employing about 500 people.

Republican State Sen. Lee Schoenbeck said those jobs are important to South Dakota, and he wants to keep the trust industry here despite criticism generated by the Pandora Papers.

“Or, as opposed to hiding it in Granada or Cancun or somewhere?” Schoenbeck said. “Those people that are throwing those rocks all the time—half of them want the business moved to their states. The other half just like to throw rocks” [Lee Strubinger, “South Dakota Lawmakers Spent Decades Creating Trust Industry Exposed in Pandora Papers,” SDPB, 2021.10.05].

South Dakota could have a lot of “success” opening recreational marijuana shops. We could create a lot of jobs by establishing no-questions-asked abortion clinics for Texas refugees. We could reopen the Deadwood brothels, establish branches whorehouses in Sioux Falls and Aberdeen, and appeal to the super-rich and the working class to come invest their money in the most fun night out they’ll find anywhere in America.  Marijuana, abortions, and sex on demand—with all the high-paying jobs we could create for horticulturists, doctors, and madams, why would we ever be afraid to tell the world about all the high-class services South Dakota offers?

And why would any politician dare stand in the way of such economic opportunity? After all, if we only let five shops sell cannabis in Sioux Falls and limit their sales to medical prescriptions only, entrepreneurs will just move to Denver. If we continue to make restrict abortion, clinics will take their jobs out of Gilead to Minnesota. If we don’t sell sex, Nevada and the black market will.

The SDGOP’s appeal to business “success” is foolishly selective. And in this case, they are choosing an industry with minimal growth and dollar-turnover potential. The trust industry isn’t creating hundreds of jobs. All those trust companies are just shel-corporation side jobs for South Dakota’s good-old-boys-club lawyers, a handful of in-bred elites who are lining their pockets with cash from questionable sources that they spend on a few luxury items. Without trusts, those same South Dakota lawyers would still be lawyering on the street corner, writing wills, lobbying for the banks and Big Pharma, and keeping their political friends out of jail.

South Dakota’s trusts aren’t infusing our economy with new wealth or new residents. The billionaires aren’t coming to South Dakota to personally put sacks of cash in Mark Mickelson’s safe. They certainly aren’t moving to South Dakota to spend or invest their money in our local economy. Their big dollars never come out to play on Main Street. The trusts don’t generate construction or manufacturing or new retail or any other ancillary economic activity. I don’t even see the South Dakota trust industry recruiting lots of lawyers to move here from around the world to set up trust services… and do you think South Dakota’s good old boys club wants any such influx? Heck no! The last thing South Dakota’s elites want is for a bunch of fancy pants lawyers from California and New Jersey to flood into the state and take away their cottage industry.

Besides, expanding wealth in an open economy is the antithesis of the trust industry. The “success” of which the SDGOP brags accrues in this shady industry only in small, remote, insular places where a handful of players can easily capture the regulatory system (look who writes South Dakota’s trust laws) and close ranks to prevent anyone from upsetting the apple cart and spilling the beans to the press, the public, or the police.

South Dakota is the perfect place for the trust industry to hide drug dealers’ and dictators’ wealth… but only so long as the industry does not share its wealth and power outside a small group of insiders. That’s not the recipe for economic development; that’s the recipe for economic disparity and decline.

22 Comments

  1. larry kurtz 2021-10-06

    In South Dakota local control is Republican control.

    A poll conducted in May by South Dakota News Watch and the Chiesman Center for Democracy at the University of South Dakota has revealed that Republicans in my home state revel in authoritarianism when Republicans are in power and loathe democracy and progress when Democrats govern.

    The respondents were 45.3% Republicans, 21.3% were Democrats, 27.6% identified as “independent” and 5.8% were undeclared. 83% were white. Most believe democratic institutions and media are suspect but support police and military.

    The results are easily verified by simply perusing the Dakota War Toilet and the Faceberg accounts of all the South Dakota Republicans who post about politics.

    It’s obvious this phenomenon is no accident: it has been manufactured to make the state a corporatist tax haven for an exclusive set of Republicans while some $4 trillion languishes in South Dakota banks.

  2. Loren 2021-10-06

    Pretty much nailed it, Cory. The “…working on building our attractiveness for decades,” equates to a sex worker continually upgrading makeup and wardrobe to “build attractiveness.” In the end, both she and SD are still prostituting themselves.

  3. DaveFN 2021-10-06

    South Dakota, one of the greatest corruption services on the globe.

  4. Eve Fisher 2021-10-06

    Cory, my blog post tomorrow on SleuthSayers is all about this festering nest of snakes. Janklow abolished usury laws and deregulated trusts specifically to get South Dakota out of a recession – but we’re still broke, we’re still a mostly minimum wage economy, with almost no services for the poor. And the idea that these trusts are making money for South Dakota? No. A few, a very few – and we can guess who they are – are making some money, but not a drip of it ever trickles down to main street.

  5. O 2021-10-06

    I’m thankful to Schoenbeck for putting a number on the employment brought in by trusts (500). I still have not seen anyone put a number on revenue the state takes in from these trusts. I know I shouldn’t assume, but that nobody is flaunting the great big real-dollar boon to SD.

    I more see all this as not a real good for SD initiative, but more of a GOP/Conservative shining city program. In SD GOP Conservatives have created the ultimate deregulation — a money hoarder’s paradise. This thinking has accelerated the downfall of the US economy: moving from making things to an economy of finance is not healthy for a nation.

    Hard work should not be the thing we tax highest.

  6. Porter Lansing 2021-10-06

    Of course, this was all copied from the model, devised by the Roman Catholic Church and perpetuated by con artists like Lee Schoenbeck and Jeremiah Murphy.

  7. Mark Anderson 2021-10-06

    Hey, the mob always employs many people. It’s a good business model. Now looking to other endeavors, Pam Holliday comes to mind. Now that would be an honest business. Somebody’s got to do it right? Swearing wasn’t the only pastime in Deadwood.

  8. Cory Allen Heidelberger Post author | 2021-10-06

    O, I want evidence on the 500-job claim. I don’t see 500 new jobs here because of the trusts.

    And are the Republicans really worried about jobs? Molded Fiber Glass here in Aberdeen employed 300 people. When they announced their closure this spring, our Republican mayor shrugged, suggesting there were plenty of other jobs available. So heck, if we shut the trusts down to protect the world from corruption and wealth inequity, wouldn’t all of Schoenbeck’s trust-lawyer friends be able to find other jobs?

  9. bearcreekbat 2021-10-06

    The posts and stories I have seen about SD’s trust laws seem to be missing important details that are usually found in other DFP stories about problems with SD’s statutes or about particularly problematic and potentially harmful legislation being proposed or enacted. Those details normally would include simple citations or links to the actual language of the questionable statutes or proposals.

    As I indicated in comment to an earlier DFP story about these secret trusts,

    In a very cursory look at SD’s trust statutes (SDCL Title 55) I only noticed one section in SDCL ch 55-1 dealing with confidentiality (the other chapters in the title didn’t seem particularly unique, but I easily could be missing something).

    “[SDCL] 55-1-58. Confidentiality of registration.

    The registration shall be sealed and kept confidential except as provided below.

    The settlor, a trustee, trust advisor, or trust protector may obtain a certified copy of the registration but no other person or entity, absent a court order, may view or obtain a copy of the trust registration.

    The registration may be cancelled by the clerk of courts upon receipt of an instrument executed by the trustee and all current income and principal beneficiaries or upon receipt of a court order.”

    Three additional statutes cover registration contents of a registratiion statement, and a sample form, SDCL 55-1-56, 57 and 59. I didn’t see a statute setting out the benefits or protections for registration, nor a statute requiring registration. I wonder exactly which statutes these articles are referencing when describing what they see as some particularly unique secrecy of SD trusts?

    https://dakotafreepress.com/2021/10/04/bust-the-trusts-south-dakota-providing-financial-haven-to-destroyers-of-good-government/

    No one commented on my question nor identified any particular secrecy statutes other than the one I cited. No one addressed the question about the benefits of apparent voluntary registration. Does that mean SDCL 55-1-58 is the only statute that ought to be repealed or revised?

    Without some more factual references, these stories on DFP and elsewhere about the terrible SD law on trusts don’t really identify the actual statutes that justify a need for change. This problem could easily be corrected with citations and explanations where needed of specific unique SD statutes that:

    (1) enable inappropriate secrecy for trust settlors and/or beneficiaries of trust principal, income, payouts and distributions, and/or identity; and

    (2) are examples of unique SD statutes that lobbiests and trust lawyers have been able to convince hapless SD legislators to enact that encourage or favor criminals and miscreants to place their ill-gotten gains in SD trust companies.

    I am not denying that such pernicious statutes actually exist. Without actually being able to review the language in such statutes, however, it would seem hard to determine what corrective steps could be implemented in federal and state law. It would be extremely helpful if Cory or any commenter are willing and/or able to provide specific relevant citations with at least some cursory explanation or analysis. Otherwise, these trust complaints and stories are not particularly helpful in formulating public policies that might alleviate the potential misuse of trusts in SD.

  10. Eve Fisher 2021-10-06

    500 employees? That’s 0.1% of South Dakota’s current active workforce of 465,000 people. Considering all the “Help Wanted” signs all over Sioux Falls, I think they could find other jobs.

  11. buckobear 2021-10-06

    I still haven’t seen just what our state gets out of storing all this money here.
    How ’bout a one or two percent “storage fee?”

  12. Mark Anderson 2021-10-06

    Come on buckobear, sticking it to the feds is always enough for South Dakota. It beats let the working poor die argument that they make with medicaid.

  13. Ryan 2021-10-06

    buckobear – percentage fees for trust administration are universal, so “we” do get a cut of the underlying money. that is paid to the trust company. the trust company employs professionals such as accountants, attorneys, and other staff to do the work of managing the trusts. the trust companies also pay some taxes, although not enough, so “we” get a small cut of a small cut of a big pot.

    bcb – you are spot on, and I struggled with how to phrase my thoughts on this because I worked in this industry for years. Most trusts administered in south dakota are modest sized and were created by SD citizens to hold and pass SD property to SD beneficiaries. Just because some international criminals took advantage of our trust laws does not mean that SD is doing something wrong. it seems like most people who are upset about our trust laws are upset that criminals have money. those criminals should be stopped, and their ill-gotten gains seized, but as long as the assets in the SD trusts are not being seized by some rightful authority, who are any of these commenters on here to tell SD not to provide a safe place for folks to stash their cash? The problem is not the trust laws, the problem is the underlying inappropriate activity.

  14. Ryan 2021-10-06

    Helpful commentary, John. Any specific steps we can take to disappear more than 75k square miles of dirt and the 800,000+ human beans living here?

  15. John 2021-10-07

    Ryan: there never should have been two Dakota states. That err should be fixed.
    The trust law should allow, foster ferretting out the underlying inappropriate activity. There should be a background investigation, periodically updated, on each trust prior to its establishment. This “person” under went numerous background investigations and updates — the “person” of a trust should receive the same treatment. Those handling, administering trusts are under the somewhat supervision of the bar and bank commissions. The trust itself should not evade scrutiny and monitoring.

  16. Ryan 2021-10-07

    John, so when every single person dies we should definitely undertake a thorough examination and investigation of their entire lives for criminal activity prior to distributing their estates to their families, right? I wonder whose going to do all that work, and who is going to pay for it.

  17. Clyde 2021-10-07

    Ryan makes sense. Nothing wrong with the Trusts if they are correctly monitored. Not likely in this state that likes big criminals and dislikes adding anything to state coffers that might help its citizens.

  18. Kyle Krause 2021-10-07

    Looking at the advertising done by trust companies themselves allows some insight into how South Dakota has won the race to the bottom relative to other jurisdictions. For example:
    https://www.sdtrustco.com/why-south-dakota/asset-protection/

    I know the family law committee of the state bar had some issues with changes made several years ago that basically allowed the settlor of a trust to use it as a vehicle to avoid paying alimony or child support after a divorce. This aspect of our law is bad public policy, but my understanding is that it was necessary to get around some IRS regulation and make our trusts even more marketable. Money ultimately won the day.

  19. bearcreekbat 2021-10-07

    Kyle Krause’s link is interesting as the trust company placing that ad states:

    “Generally, the grantor/settlor places up to 10% to 40% of their financial assets, or possibly other assets, into a DAPT to protect those assets from a possible future lawsuit.”

    South Dakota law, however, prohibits transfers of property to avoid paying lawsuits and other debts under the Uniform Fraudulent Transfer Act, SDCL ch. 54-8A. For example, SDCL 54A-8-4 “Transfers fraudulent as to present and future creditors” provides:

    (a) Any transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

    (1) With actual intent to hinder, delay, or defraud any creditor of the debtor; or

    (2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

    (i) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

    (ii) Intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.

    (b) In determining actual intent under subsection (a)(1) of this section, consideration may be given, among other factors, to whether:

    (1) The transfer or obligation was to an insider;

    (2) The debtor retained possession or control of the property transferred after the transfer;

    (3) The transfer or obligation was disclosed or concealed;

    (4) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

    (5) The transfer was of substantially all the debtor’s assets;

    (6) The debtor absconded;

    (7) The debtor removed or concealed assets;

    (8) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

    (9) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

    (10) The transfer occurred shortly before or shortly after a substantial debt was incurred; and

    (11) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

    This chapter seems to negate effort to use a trust to try to avoid anticipated liabilities. I didn’t see any exception for assets placed in trust, although there certainly might be such an exception.

  20. John 2021-10-07

    Ryan doth protest too much. The vast majority of folks pass without many assets and fewer pass with a trust, or have a trust created with their passing. Many worth over a million do not need or use a trust. Many pass without a will, using beneficiaries and other documents to pass wealth to heirs without public probate and/or trust court filings. A before-hand background investigation of the trust is a deminimus affair.
    The more the investigators shift over the 11.9 million Pandora Paper documents, the more anti-trustworthy information we’ll learn.

    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” – Upton Sinclair

  21. Ryan 2021-10-08

    John,

    I left the estate planning industry not because of corruption or sneaky people hiding illegal money. I got bored with it. My salary doesn’t depend on anything to do with these trusts or trust companies. I have no financial or personal interest at stake. I just think you are sensationalizing something you clearly don’t understand because somebody on the internet told you something bad was happening. There are bad things happening all over the place, but SD having attractive trust laws for confidential asset protection is not the devil you believe it to be.

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