SIOUX FALLS, S.D. (KELO) — The release of the Pandora Papers that gave the public a glimpse into the confidential world of financial trusts in South Dakota and other states last year was “a major crime,” an attorney who advises national and international clients told the audience Thursday at a conference of the South Dakota Trust Association.
“It was stolen documents,” said Elizabeth McMorrow, who runs a specialty law firm in Boston, Massachusetts. Using the word “leaked” to describe how the 11.9 million Pandora documents came to light was “very offensive,” she said, suggesting the situation was akin to a person whose Social Security number has been stolen.
“I just want to put a little bit of this into context,” McMorrow said.
Trusts let people shield much of their wealth from taxes. A South Dakota law specifically says nearly all information reported to state government about financial trusts isn’t public information.
The South Dakota Division of Banking oversees trusts licensed in the state. Division director Bret Afdahl said Wednesday that trust assets in South Dakota grew about 20% in 2021, from approximately $500 billion to $607 billion.
News reports based on the Pandora Papers, such as this one from The Washington Post, made “unfair accusations” about South Dakota, according to Afdahl, who said he had never before received so many requests from news reporters.
“It was every day for months,” Afdahl said.
South Dakota is the only state in the nation with a governor-appointed trust task force. That was established in 1997 by an executive order from then-Governor Bill Janklow. The Legislature at Janklow’s suggestion declared in 1983 that the rule against perpetuities is not in force in South Dakota, opening the way for the state to treat trusts more favorably.
Those actions and the nearly-annual legislation from the trust task force have gradually given rise to South Dakota declaring itself the No. 1 state in the nation for a trust to be headquartered.
One of the task force members is Tom Simmons, a professor at the University of South Dakota school of law. He said Wednesday there aren’t good ways to compare the top states. “I did have difficulty reaching any conclusions,” he said.
Another task force member, attorney Pat Goetzinger of Rapid City, suggested Simmons might want to compare the South Dakota Division of Banking website to those of other states. “They don’t hide the ball on anything,” Goetzinger said about the South Dakota division.
McMorrow said the U.S. government requires that trusts file many reports that are confidential from the public. “We’re having to share a heckuva lot about our clients and business operations,” she said.
The annual South Dakota conference has been a regular stop on McMorrow’s schedule since 2017. She hasn’t seen loopholes in South Dakota’s trust laws and regulations. She said the focus instead should be on the federal government.
She gave examples, such as the U.S. not participating with other nations on common reporting standards and not sharing Foreign Account Tax Compliance Act information with them. She also said the federal Internal Revenue Service hasn’t reviewed or acted on the “huge amount” of data provided by the global financial industry through FACTA.
“So that to me is the story,” McMorrow said.