Reports from a coordinated, global investigation of leaked documents are revealing South Dakota's role as a growing destination for wealthy and powerful people to store millions of dollars in secretive trust funds.
The reports reveal some of the names attached to the money, and they include government officials and business leaders from foreign countries linked to accusations of human rights, labor and environmental abuses.
The information is revealed in millions of documents — known as the Pandora Papers — leaked to the International Consortium of Investigative Journalists and reported on by the Washington Post and other partners.
"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," the Post wrote in the first article of its multi-part series.
South Dakota has a trust task force meant to maintain the state's “stature as the premier trust jurisdiction in the United States" that has been backed by governors and legislators since it was created by Gov. Bill Janklow in 1997, SDPB has reported.
"Year after year in South Dakota, state lawmakers have approved legislation drafted by trust industry insiders, providing more and more protections and other benefits for trust customers in the U.S. and abroad. Customer assets in South Dakota trusts have more than quadrupled over the past decade to $360 billion," the ICIJ reported.
The ICIJ says the U.S. gained more than 200 new trusts between 2000 and 2019 with 81 of them — or nearly 50% — being registered in South Dakota. Some of those trusts were opened in response to other countries improving financial transparency and regulating their trust industry.
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.
"The documents do not include details on what Trident might have known at the time about the clients or their sources of wealth, and Trident did not respond to inquiries about specific cases," the Post 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.
The trust industry has escaped federal legislative reform focused on banks and shell companies, the Post reported. Meanwhile, regulations that do exist are vague or have loopholes.
Financial experts told the Post that the industry needs much more oversight and should not only focus on clients convicted of crimes, but those connected to credible accusations of crime, corruption and human rights abuses.
