The South Dakota Department of Labor is denying requests to know when the Banking Division last examined a trust company accused of money laundering.
Earlier this year, The Kingdom Trust was fined $1.5 million for failing to report suspicious transactions.
The state cites five separate laws that allow it to withhold when it last examined the Kentucky-based, South Dakota-chartered trust company.
Those laws include confidentiality of information generated by examination and a provision that allows the director of the Division of Banking to withhold records.
According to the federal agency that fined The Kingdom Trust company, from early 2015 to 2021, the company had a single employee monitoring thousands of transactions. Part of that employee’s job was looking for elevated risks of suspicious activity.
During that six-year period, The Kingdom Trust proceeded with a new line of risky clients and allowed the transmission of at least $4 billion in payments with minimal oversight, according to FinCEN.
The Department of Labor declined to comment on the story, instead pointing to the ruling by the Office of Hearing Examiners.
“The Division’s denial of records was pursuant to state statute as the records or information are not public records and are not subject to disclosure,” the panel said in their ruling.
The state is required to examine a trust company once every three years. The Division of Banking says it tries to examine public trust companies at least once every two years. That means the state likely examined the company three times during that time period.
The Division of Banking has 16 examiners, overseeing 115 trust companies that report registering nearly $600 billion in assets in the state.
The Banking Division issues a trust company a rank of one through five, based on a company’s risk management practices and fiduciary activities. If a company receives a poor score, the state can propose a formal enforcement action or termination of the institution’s fiduciary activities.
In addition to not knowing when the company was last examined, it’s also unclear what rating the state gave The Kingdom Trust.
“They’re doing a sampling," said Tom Simmons, a trust law professor at USD. “To the extent that there’s a problem with one account that’s not replicated in other accounts. It's actually, I suppose, more likely that they would miss it than not.”
Simmons is also a member of the Governor’s Trust Task Force. That group is comprised of trust industry officials and lawyers, which meets annually since the late 90’s to update the state’s trust law. That group does not publish when they meet, but have already met this year.
Those updates have helped make South Dakota one of the top trust jurisdictions in the world. Because the state does not have an income tax, nor rule against perpetuities, the assets remain untaxed forever.
“The money is always going to move to weakest link—to the shadows—the least rigorous oversite zone,” said Chuck Collins, the Director of the Program on Inequality and the Common Good at the Institute for Policy Studies.
He said the state should understand it has a national and global responsibility to examine the financial dealings of trust companies to ensure laws are not being broken and taxes are not being dodged.
“The hidden wealth of nations is moving to South Dakota. The world is standing by hoping there will be some oversite and accountability.”
Earlier this month, a special agent with the IRS said the agency is investigating cases of sanctioned Russian oligarchs utilizing South Dakota trusts to offshore their assets.
Here are links to the five laws cited by the state to deny the request for when the Banking Division last examined The Kingdom Trust.
- SDCL 1-27-1.5 (5) & (12)
- SDCL 51A-2-35
- SDCL 51A-6A-2
- SDCL 51A-6A-39
