Pearl River I’ve spent a fair amount of time over the years in South Dakota. I know how to pronounce the name of the state capital as Pierre not Pierre. I’ve been to the Wall Drugstore, while driving the state from east to west and west to east. I think the Black Hills are beautiful and have seen where Wild Bill Hitchcock was shot in Deadwood. Sioux Falls was the first place ACORN found itself as it began its expansion in the mid-1970’s, thanks to an invitation from then South Dakota’s US Senator Jim Abourezk. We once had an Organizers’ Forum session in Rapid City. My Rathke forebearers ended up in California after they went bankrupt as farmers in South Dakota in the early years of the 20th century during the Nonpartisan League’s time after lighting down in Minnesota after immigrating as Germans who had been farming in eastern Russia when the Kaiser initiated universal conscription for the army. All of which means that the first thing that comes to my mind when I think about South Dakota is not money laundering, which according to a recent article that caught my eye in Mother Jones may just prove how old school and out of date I am.
Not surprisingly, in talking to Casey Michel on Wade’s World, the ball got rolling under controversial Governor William Janklow during our time in the 1980s. He had been attorney general and was infamous for a hit-and-run accident on the state’s highways. Desperate for state revenue, he pushed the state in the wake of a Supreme Court decision to take the cap off of interest rates. Many of you might have noticed that when you were sending so many of your credit card payments to South Dakota. Drive near the outskirts of Sioux Falls now, and you can see giant sprawling complexes of credit card processing companies, one after the other. Janklow wasn’t through, though. Maybe he could exploit trusts.
Michel tells the tale well, saying…
This gave Janklow an idea: What if South Dakota could use trusts to attract capital? Trusts historically had expired within about a century, or a few decades after the death of the settlor, forcing the distribution of any remaining assets. But there was no reason, as Janklow saw it, that trusts ever had to end. In 1983, South Dakota repealed the regulation that limited the duration of these secretive trusts. In doing so, the state introduced a new tool to the world: “perpetual trusts,” sometimes called “dynasty trusts.”
Nor did Janklow stop there. In 1997, having seen big money flowing into his state to take advantage of its perpetual trusts, he formed a “Trust Task Force” that proposed regulatory changes favorable to the industry and its clients…. As was true in Delaware, there appeared to be no end to how far South Dakota lawmakers would go to accommodate trust companies and their clients, no matter the source of their wealth. In South Dakota, which has no income or estate tax, trusts are kept entirely secret from the public—including journalists, tax authorities, and human rights activists trying to track down looted assets—and even court documents pertaining to them are kept private in perpetuity. Under current law, no information on South Dakota trusts will ever be shared with other governments.
You get it, right? Why go to the Bahamas, if you can get it done over the phone and internet with your lawyers and hide your money in South Dakota? Certainly, that’s not the only place, and Michel notes how Delaware is a corporate playground and our real estate laws allowed shell companies to hide money in New York and other cities, just as South Dakota serves kleptocrats and Wyoming, Nevada, and other states want to get in on the action. Kingdom Trust, based in South Dakota, became the first company the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN— in its 30-year history—had ever busted for violating money-laundering prevention laws.
I’m not shocked that this is part of Janklow’s legacy given his lack of any moral compass, and it’s a shame that South Dakota carries that weight, even if it’s all the way to the bank, but do any of us really want the United States to operate as the money laundering capital of the world for the rich? Not me!