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IRS Finding Russian, Chinese Assets Hidden in South Dakota Trusts

South Dakota’s lawmakers have insisted they don’t need to look into the state’s trust industry or enact new regulations to prevent the trusts from helping bad guys hide their money, because the trusts are all on the up and up. But we’ve already learned of one big trust helping launder drug money and not vetting its customers. Now dogged reporter Lee Strubinger gets an IRS agent on the record saying South Dakota trusts are holding assets for sanctioned Russian oligarchs:

Tom Larson, a supervisory special agent with the Internal Revenue Service, said the department has ten to 12 agents who are devoted to locating assets owned by Russian oligarchs who are subject to sanctions.

During an interview on SDPB’s In The Moment, Larson said some individuals are holding money outside of Russia right in South Dakota.

“We’ve found that some of that stuff is being held in trust in South Dakota,” Larson said. “We’ve had some of those agents who’ve worked with agents we have here to go and interview those people who run those trusts, and try to unravel where that money is coming from and who is the owner of it, the beneficial owner of it.”

…It’s unclear what South Dakota trust companies are holding these Russian assets, and at what level. Larson said the cases that have touched on South Dakota trusts are still under investigation [Lee Strubinger and Lori Walsh, “IRS Investigating Cases of Sanctioned Russian Assets in SD Trusts,” SDP Radio, 2023.09.08].

No wonder Governor Kristi Noem is pressuring other big South Dakota Republicans to back Donald Trump: she needs Trump back in office so he can pardon all the high-financiers on Phillips avenue for doing business with sanctioned Russians!

Noem may face a more complicated political question over the Chinese assets Agent Larson says the IRS is finding in South Dakota trusts:

“We also see a lot of Chinese individuals, business owners, and such, they want to keep their money out of the country—out of China, that is,” Larson said. “So they look at the US as a safe place to hold their money, but they also don’t want the Chinese government to know where the money is. So, they’re also doing it in trust in South Dakota because of the privacy laws that South Dakota has” [Strubinger and Walsh, 2023.09.08].

Noem has said she doesn’t want the state doing business with predatory Communist China. But the assets Larson is talking about here aren’t Chinese government assets; they are assets of individual Chinese investors using South Dakota’s trusts for what God and Republicans intended: hiding their money from their government so they can’t be taxed or regulated or otherwise bothered. Noem may thus want to spotlight those Chinese assets (well, not too brightly: Xi Jinping is watching) as evidence that even Chinese moneymakers recognize that South Dakota is a haven for freedom from socialism.

28 Comments

  1. P. Aitch 2023-09-11

    In Short: South Dakota is a cause of national inflation.

  2. jerry 2023-09-11

    NOem is a heap big lying liar. NOem claims to be anti Chinese (sadly, nothing about her Pootie Putin). Time to face it, we are a corrupted colony of the dictator class. I wouldn’t be at all surprised if the Wagner guy that Putin iced, hid some bucks here. The republican legislature is just as guilty as NOem in the cover up in this piggy bank trust (nod nod wink wink).

    So, as Yevgeny Prigozhin was blown up, who gets his money that was stashed here in the trust fund? Is NOem the beneficiary, or the SDGOP to help offset the dollars spent to have the lard ass come to lie to his rapid city crowd of cultists?

  3. grudznick 2023-09-11

    I bet President Mr. Uncle Joe Biden has a pretty penny in South Dakota trusts.

  4. John 2023-09-11

    Meanwhile, the hapless, feckless, toothless, SD legislature will do nothing, except maybe take campaign “donations” (aka, bribes), while the banksters and their lawyers go wilding.
    There never is a crime . . . if one doesn’t look. Oh were is that miserable raygun . . . that ‘Trust, but verify’ guy?

  5. bearcreekbat 2023-09-11

    Can anyone identify the specific SD trust statute or statutes that provide this exceptional secrecy to Russian and Chinese assets placed in a SD trust? How should these particular statutes be rewritten, or should they be repealed? What type of statutes do other, less secrective states have that discourage such secret trusts?

    I ask because I cannot recall references in DFP or elsewhere to any specific SD trust statutes that are the source of the problem. Rather, virtually everything I recall reading simply claims a huge generic problem without delving into specifics. Without specifics it is difficult to address the credibility of the these stories about SD trust law, and if credible what specific legislation is needed to correct the problem?

    And to clarify, I do not question the existence of foreign money and possibily illegal or laundered money being put into a SD trust. Rather I an just asking what existing SD statutes encourage the crooks to put that money into a SD trust, rather than a bank, annuity, stock account, or cardbox box buried somewhere in SD.

  6. O 2023-09-11

    My Dear Grudnick, we both also know that Trump WOULD have trusts here if he actually had any money. Fake billionaires don’t need trusts to hold money that exists only in fantasy land.

  7. bearcreekbat 2023-09-11

    Interesting article epo, thanks. I recall reading the Pandora papers too, but couldn’t find any reference to particular unusual SD trust statutes that were alleged to permit criminals and foreign investors to hide money in SD trusts.

    Your article points out, however, that SD statutes insulate certain funds held in trust from creditors claims, describing a child support case out of California. If I understand SD law correctly, however, in SD only legimately obtained funds are protected from creditors, similar to the SD protections in retirement investment accounts. Unless I am mistaken, SD trust statutes do not protect illegally obtained funds from government seizure, forfeiture, or from levy by creditors.

  8. CK 2023-09-11

    Bearcreek, one of the biggest issues with trusts held here in South Dakota, despite the current laws, is that the court seals the documents related to the formation of the trust. We don’t know if the money in those trusts is ill-begotten or not. We can’t trace anything with our laws.

    https://www.axios.com/2021/10/06/south-dakota-global-tax-haven

  9. P. Aitch 2023-09-11

    Almost daily Cory sheds light on why allowing states to each have their own statutes and standards on issues that face all Americans is detrimental, divisive, and often devastating. Issues such as women’s rights, educational standards, and trust laws need a strong national response to ensure fairness for us all.
    AI Generated content starting here:
    While state governments play a vital role in addressing legal issues, relying solely on ambiguous state statutes can have limitations. A strong centralized national government is needed to mitigate inconsistencies, address interstate crimes, provide necessary resources and expertise, and ensure equal protection for all Americans. By working in conjunction with state authorities, a centralized government can help to bridge gaps and create a more effective and harmonized legal system.

  10. All Mammal 2023-09-11

    P. Aitch- I verily agree with you on appreciating a strong federal government to unite our country and to protect its citizens from the ‘states’ rights’, aka the supremacy of monied influence over civil rights.

  11. O 2023-09-11

    Secrecy certainly hides potential wrongdoer’s and criminal’s identities, but it also prompts any taxation — now or future. My sealing these so tightly, SD has announced that NO taxman can EVER come for this money. That seems presumptive that our lawmakers have determined that they have the last say in this matter.

  12. O 2023-09-11

    sorry preempts — not prompts.

  13. P. Aitch 2023-09-11

    As CK and O note:
    Section 55-1-58 – Confidentiality of registration

    Current through the 2023 Legislative Session
    Section 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.

    SDCL 55-1-58

    SL 2017, ch 204, §10.
    Added by S.L. 2017, ch. 204,s. 10, eff. 7/1/2017.

    https://casetext.com/statute/south-dakota-codified-laws/title-55-fiduciaries-and-trusts/chapter-1-classification-and-creation-of-trusts/section-55-1-58-confidentiality-of-registration

  14. bearcreekbat 2023-09-11

    CK, thanks for that link. I only saw three specific statutory issues described in the article:

    (1) “In 1983, South Dakota became the first state to allow perpetual trusts — money that can remain untouchable for centuries, with no one ever paying inheritance tax on it.” This is an unusual and potentially attractive provision, but seems 100% unrelated to ill gotten funds and/or foreign funds placed in trusts in an effort to avoid detection.

    (2) “South Dakota allowed trusts where the settlor and beneficiary can be the same person.” As above I don’t see a relationship with placing ill gotten funds and/or foreign funds placed in trusts in an effort to avoid detection.

    (3) “[SD] has also sealed all court documents setting up trusts, making it impossible to know . . . who might have one.”

    SDCL 55-1-58, titled “Confidentiality of registration” may be the statute that is considered the culprit. It provides:

    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.

    The problem with this statute, however, is that another statute SDCL 55-1-21.9 seems to indicate there is no registration requirement at all for a trust, absent some sort of dispute:

    Filings, reports, accounting, separation of funds, appointment, and registration of purpose trust not required–Exceptions.

    Except as may be demanded by an enforcer under § 55-1-21.4, ordered by the court or required by the governing instrument, no filings, reports, periodic accounting, separate maintenance of funds, appointment, or registration of a purpose trust are required.

    And if I am not mistaken, the lack of any registration requirement is a common feature of all trusts, including those in most other states. Meanwhile, both the above statutes appear to authorize an court to order disclosure of trust information in some circumstances. Thus, I am not sure that the article is referring to this provision. I didn’t find another statute that seem relevant to the article’s assertion, despite P.Aitch’s kind assistance. I assume I have overlooked some obvious statute or set of statutes rubber stamped by the Republican legislature, but i sure haven’t been able to find it.

    Given my incompetence in researching this, I am lead to believe that the Pandora papers and articles similar to the article you linked that fail to cite a single troublesome statute haven’t been able to identify the culprit either, which seems odd given the resources available to the purveyors of these stories. And I am not saying the statutes don’t exist any more than I would catagorically argue God doesn’t exist, yet with no real evidence of either I remain an athiest until I see actual evidence to convince me otherwise, such as an identified statute that accomplishes what the articles and stories say SD does relating to secrecy of ill-gotten trust money or foreign trust money..

  15. Arlo Blundt 2023-09-11

    Of course, IRS agent Larson is correct. Do you suspect, with any liklihood, that Legislators like Al Novstrop and Julie Frye Mueller would write model Trust Regulation Laws??? Do you suspect that Senator the Senate Leader from Watertown defends the current regulation to the point that he threatens violence against any Legislator that opposes or proposes amendments to those existing laws may be hiding something. The Trust business depends on strict secrecy for its’ success. Which is why the roof needs to be ripped off and the sunshine of truth be allowed to disinfect this nest of vipers.

  16. Arlo Blundt 2023-09-11

    Of course, IRS agent Larson is correct. Do you suspect, with any liklelihood, that Legislators like Al Novstrop and Julie Frye Mueller would write model Trust Regulation Laws??? Do you suspect that the Senate Leader from Watertown who defends the current regulation to the point that he threatens violence against any Legislator that proposes amendments to those existing laws, may be hiding something. The Trust business depends on strict secrecy for its’ success. Which is why the roof needs to be ripped off and the sunshine of truth be allowed to disinfect this nest of vipers.

  17. Richard Schriever 2023-09-11

    bcb – the following segment of the last cite you made is the issue. “….. no filings, reports, periodic accounting, separate maintenance of funds, appointment, or registration of a purpose trust are required.” Think – there are NO recordkeeping or reporting requirements. NONE.

  18. bearcreekbat 2023-09-11

    Exactly Richard. Yet, I wonder if this makes SD unique since as far as I know that has pretty much been the same trust law throughout the country. Trusts have been an estate planning tool for decades precisely because they are private and need not be probated upon the death of a grantor nor otherwise presented to authorities. Estate planners frequently use trusts in place of wills or in addion to will precisely to avoid probate and certain estate taxes. Whether that is wise policy is certainly another question, yet I found nothing unusual about that in SD law or statutes that would somehow assist in laundering ill gotten gains or hiding money stolen from another country. The same result could be had by burying the ill gotten gains in a box in someone’s back yard.

    But if burying the money in the backyard seems like a bad idea because more money could be earned on the principal through investments of the ill gotten funds, then that investment income and capital gains open the shades and let in a bit of light on these funds, provided the investment company as the trust itself keep the required records and complies with tax reporting law. I don’t believe SDCL 55-1-21.9, nor any other state statute can exempt either trusts or investment companies from compliance with federal tax law and federal reporting requirements.

    In any event, is SDCL 55-1-21.9 unique, or simply similar to reporting exemptions for other states without state income tax? I assume states with income taxes require similar reports on trust income and trust investment as federal tax law requires. Maybe this issue of trust secrecy could be addressed by the adoption of a SD state income tax?

  19. leslie 2023-09-12

    Hi Bear:

    From the above cited ICIJ article—“The Morales family finalized the transfer of the trusts to South Dakota in 2019 shortly after the Bahamas, where the family previously held their trusts, passed sweeping legislation requiring companies and certain trusts to declare ownership to a centralized government register.”

    Yesterday i posted SDCL secrecy sections in “Trump Falsely Claims Biden Has Caused Economic Depression” thread here, as Kristi’s false claims about the secret trust industry protect the billionaires, quoting O (“the owner class is losing a bit of ground to the worker class, and that CANNOT be tolerated.”) It is awaiting moderation last time i checked. Cory was concerned w/ Kristi’s interest in Trump’s reelection to pardon Sx Falls trust officers for secret business evading Putin/Trump sanctions.

    See https://www.icij.org/investigations/pandora-papers/as-us-company-registry-stalls-new-york-forges-its-own-path-towards-transparency/

    See https://www.icij.org/investigations/fincen-files/new-fincen-head-appointed-as-concerns-grow-over-stalled-u-s-company-registry/

    Janet Yellen is watching. A company registry with the state would be a start. I suppose today’s DFP thread is in part a reaction to my (missing) post.

    Related jurisdiction approaches at anti-money laundering:

    https://www.scmp.com/news/asia/southeast-asia/article/3233816/singapore-us13-billion-money-laundering-probe-mas-says-banks-must-examine-any-links-10-suspects-24

    https://www.reuters.com/world/asia-pacific/singapore-seizes-money-launderers-assets-swiss-banks-s18-bln-case-2023-09-06/

    Your concern w/taxes: “[While a] key tool to combat inequalities, … a fundamental obstacle is the ease with which powerful elites step outside of their social obligations — outside of their responsibilities to the societies they are a part of, and from which they profit.” Mostly, the tax dodging “takes the form of separating taxable income from the underlying assets and activities….Profits made in one country are declared in another. Personal wealth is held through offshore entities, often secretly.” https://www.icij.org/investigations/paradise-papers/tax-havens-could-cost-countries-4-7-trillion-over-the-next-decade-advocacy-group-warns/ (Aug 2023)

    New York intends to sidestep some of those issues by offering a public, searchable database. Under the act, LLCs created or doing business in New York would be required to report the names of their beneficial owners and business addresses to the New York Department of State. The new legislation defines beneficial owners as those who substantially control a company or own at least a 25% stake in it….it is vital that there be better corporate transparency to deny fraudsters, oligarchs and terrorists access to our financial system to move dirty cash.”

    The “Panama Papers and Pandora Papers have revealed a parallel global economy that allows the rich and powerful to dodge taxes and hide their wealth in tax havens. In recent years, and in response to rolling exposés, corporate ownership registries have gained popularity worldwide as a key tool to ensure transparency and facilitate government oversight.”
    https://www.icij.org/investigations/pandora-papers/as-us-company-registry-stalls-new-york-forges-its-own-path-towards-transparency/ (Aug 2023)

    I was unable to relocate those statutes on a re-search. For another day!

  20. bearcreekbat 2023-09-12

    Thanks Leslie. I look forward to seeing your post in the “Trump Falsely Claims” DFP story once it gets through moderation.

  21. Mike Lee Zitterich 2023-09-12

    Our TRUST LAWS are just fine, they encourage private investment in South Dakota, which generates millions of dollars for the people. I would not encourage changes be made. I like the fact that South Dakota has become a huge TRUST state where “citizens” can establish their trusts – Commercial (DBA, LLC, C-CORP, etc),, Retirement Trusts, Healthcare Trusts, Land Trusts, Real Property Trusts, Education Trusts, etc More power to S.D and I love that sometimes Foreign Born Persons can also be encouraged to INVEST in South Dakota. And anything that tells the Federal Government to screw off, let alone the I.R.S to bug off, the better. WE locked those trusts to any outside source so they are to be self governed by the People of the South Dakota Republic, protected by the U.S Constitution aka – the FEDS have no authority to Tax my labor, which produces my GROSS INCOME, and that is backed by Article 1, Section 9, Clause 4.

    WIth so many women who cannot be content with one man, always wanting to cheat on them, let alone divorce them, the MAN should have the right to place all of his ASSETS in a TRUST FUND, governed by the administrator, only to allow the profits to be used by the MAN, Private Property Rights shall be protected always, and you Democrats better be thankful that S.D is one of the strongest supporters of your Inalienable Rights as protected by the U.S Constitution.

  22. larry kurtz 2023-09-12

    Zitterich, you’re sick. Get some help.

    Persecutory (paranoid) delusions are a frequently observed clinical phenomenon. In recent years, an increasing volume of research has attempted to explain these types of beliefs in terms of psychological mechanisms. Theories have emphasized early experience, perceptual abnormalities, motivational factors, and information-processing deficits. However, these findings do not necessarily suggest that paranoid delusions are entirely biological in origin, and there is evidence that adverse early experience may play a role in determining the development of a cognitive vulnerability to paranoid thinking.

    https://www.sciencedirect.com/science/article/abs/pii/S0272735801001064

  23. larry kurtz 2023-09-12

    Kristi Noem’s target is China even after her predecessors sold green cards to Chinese investors through the EB-5 program and the cash funneled into some 90 dairies, a cheese factory, a slaughterhouse and even into the Deadwood Mountain Grand resort. They’re all struggling to find help right now because of the crappy pay, the worse weather and the governor’s lackadaisical attitude about pandemic protocols threatening human life. Recall she called Georgia’s two Democratic US Senators, Communists from the state that controls much of the means of production.

    Probing the undercurrent that ties the unsolved death of South Dakota’s Richard Benda in 2013 with his EB-5 past remains a mystery for the political junkies who follow Joop Bollen’s role in the scandal. The late Republican former Governors Frank Farrar and Bill Janklow built the dynasty trust industry.

    China hates South Dakota because the state screwed Chinese job creators out of at least $100 million. Republican former Governor now US Senator Mike Rounds began courting Chinese money in 2004 but escaped a thorough probe of his part in the racket or in Rich Benda’s death.

  24. larry kurtz 2023-09-12

    Hey, I know—let’s give Alaska back to Russia, right Mr. Z?

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