This article has been revised to reflect the following correction: There are 106 licensed trust companies in South Dakota. Trust companies handle hundreds or thousands of trusts.
SIOUX FALLS, S.D. (KELO) — A global journalism investigation is casting South Dakota’s growing trust industry as a new haven for hiding wealth.
The South Dakota Division of Banking, a branch of the South Dakota Department of Labor and Regulation, oversees South Dakota’s financial entities, including trust companies.
The Pandora Papers reports on 11.9 million leaked records (documents, images, emails, spreadsheets, presentations, videos and other files) from 14 offshore providers (three each located in the British Virgin Islands and Belize). Of 200 trusts created in the United States from 2000 to 2019, 81 trusts were registered in South Dakota.
South Dakota’s Division of Banking lists 106 trust companies, as of September 2021. There are 94 licensed trust companies listed with addresses in Sioux Falls, while Rapid City has five, Pierre has five, Mitchell has one and Dakota Dunes has one. You can view a full list of these trust companies in the document below.
There are two kinds of trust companies — public and private. South Dakota is home to 63 public trust companies and 43 private trust companies. A private trust company limits activities to management of private assets, typically for the benefit of a single-family lineage. Public trust companies resemble traditional bank trust departments, but according to South Dakota state law “three or more persons may organize a public trust company.”
Each trust company deals with hundreds or thousands of trusts as well as other services related to investment and asset management.
In a story published Monday, The Washington Post identifies Trident Trust, a licensed trust company with an office listed on Phillips Avenue in Sioux Falls, as allowing a financial shield to wealthy men and families located in Colombia, Brazil and the Dominican Republic.
The Washington Post reported Jose “Pepe” Douer Ambar, a clothing company in Colombia, established a trust in South Dakota. Douer forfeited $20 million to the United States in 2004 after an investigation uncovered an enterprise to sell drugs in the U.S. and launder proceeds. The Washington Post says Douer was a middleman broker who swapped money for pesos with other businessmen in Colombia.
“When the South Dakota trusts were established, a Google search for the words ‘Douer Ambar’ and ‘Colombia’ yielded a U.S. government summary of the case, as well as a story by the BBC with the headline ‘Colombian Drugs Cash Ring Broken,'” the Washington Post story states. Douer’s example is one of a handful of other examples of foreign wealth entering South Dakota through a trust company.
Gary Kalman, the Executive Director of Transparency International’s U.S. Office, said it should be important to see who is moving money into South Dakota-based trusts. He said the Pandora Papers shed a light on “the growth” of the trust industry.
“Is it the kind of money that South Dakota would be proud of and wants to have in its economy? … Or is this, sketchy money that is not really providing widespread benefit,” Kalman said. “People use the secrecy to avoid, at-best, embarrassment and, at-worst, to cloak illegal and illicit activity.”
South Dakota’s Banking Commission sets the rules the South Dakota Division of Banking makes. South Dakota’s Banking Commission has Governor-appointed five members. Current members of the state’s banking commission are Jeff Erickson (Sioux Falls), Doug Balvin (Huron), Stephen Hayes (Presho), John Johnson (Piedmont) and Richard Westra (Aberdeen).
An August 2020 banking commission report shows South Dakota’s growth in the trust industry. The number of trust assets and trust companies more than tripled from 2007 to 2017. In 2020, there were 390 employees tied to trusts in South Dakota and the number of “examiners” increased from four (two writers) in 2012 to 12 (nine writers) in 2019.
“How complicated are those trusts? If there’s one trust that’s $300 billion and you have 12 people looking at it, you could argue even that’s not even enough,” Kalman said.
KELOLAND News has reached out to South Dakota’s Division of Banking Director Bret Afdahl to discuss South Dakota’s growing trust industry. Afdahl told the Washington Post the state “seeks to audit trust companies at least once every two years and can penalize firms that do not meet standards.”
This is not the first time South Dakota’s trust industry has come under scrutiny. A 2019 story published by The Guardian and written by Oliver Bullough shed a light on why “super-rich” people love South Dakota. Bullough’s report said South Dakota trusts “protects assets from claims from ex-spouses, disgruntled business partners, creditors, litigious clients and pretty much anyone else. It won’t protect you from criminal prosecution, but it does prevent information on your assets from leaking out in a way that might spark interest from the police.”
KELOLAND’s Bob Mercer reported former state Senator Susan Wismer (D-Britton) put copies of Bullough’s story on other senators’ desks during a discussion of trust legislation in February 2020.
Sen. Lee Schoenback (R-Watertown), now serving as the Senate president pro tem, noted The Guardian is owned by a trust. He cited the Helmsley charitable trust based in South Dakota as an organization that donates to many organizations in South Dakota.
“It is a clean, good industry for our state,” Schoenbeck said in 2020.