Guest Column – The Pandora Papers: Puff and Point

The Pandora Papers: Puff and Point
by Thomas E. Simmons

A tenured professor at the University of South Dakota School of Law, Thomas Simmons concentrates on trusts, estate administration, and the estate tax. Prior to joining the legal academy, he was a partner with the law firm of Gunderson, Palmer, Nelson & Ashmore, LLP

Since Monday, there has been a buzz – to put it mildly – relating to the trust administration industry in South Dakota. The leaking of 11.9 million private financial records was very big news and it’s reverberating around the globe.

Let me say that again: eleven-point-nine-million financial records. How much data is that?

Simmons is a professor at the University of South Dakota’s Knudson School of Law and concentrates on trusts, estate administration, and the estate tax. Prior to becoming an academic, he was a partner with the Rapid City law firm of Gunderson, Palmer, Nelson & Ashmore, LLP.
I think it’s fair to guess that some financial records are more than just one page long. Let’s say on average – conservatively – a financial record comprises three pages. (The records include a variety of documents; emails, spreadsheets, contracts, etc.) At three-pages each, that amounts to 35 million pages.

A full set of the Encyclopedia Britannica is about 32,000 pages. So, that’s 1,093 sets of encyclopedias worth of leaked documents.

I don’t know about you, but – despite my ambitions as a young person – I never finished reading our family’s encyclopedia set. (We had the World Books at our home, which are a slightly easier read than the Encyclopedia Britannica.)

I never completed even a single volume, although I made it partway through “L” if I recall correctly. If a person could finish reading a full set of the Encyclopedia Britannica at the near-maniac speed of six months, at that rate, it would still take over 500 years to sift through the entire Pandora Papers. Maybe you delegate the task to 100 persons; that way it would only take five years.

The project to bring the Pandora Papers to light reportedly engaged 150 news organizations, and you would need that kind of workforce to make even a small dent within a reasonable period of time – otherwise the information would be too stale to be newsworthy. And some of the information is too stale to be of much interest as it goes back to as early as the 1970s.

My point is this: It’s a lot of documents. An almost unmanageable volume of documents. The Washington Post refers to it as a “massive trove.” They’re not kidding.

Nevertheless, journalists have somehow managed to summarize them for the public. What do they show?

Thus far, the Pandora Papers journalism has identified several bad actors who have utilized trusts. There are, for example, indications that a Cambodian antiquities dealer named Douglas Latchford used trusts to traffic in looted cultural artifacts. The Department of Justice caught up to him and he hadn’t utilized a South Dakota trustee but rather a trust company in Jersey (one of the Channel Islands off the coast of France). Latchford died last August.

For trusts administered in South Dakota, there are accusations, too. The journalists list 30 South Dakota trusts holding shares in companies which have been accused of “corruption, human rights abuses or other wrongdoing.” That’s a concern, and one which should be taken seriously by professional trustees and government regulators of trust companies alike. But it’s also important to note what the allegation says – and what it doesn’t say.

The allegation is that some trusts administered in South Dakota hold shares in companies which have been accused of wrongdoing.

My friend owns shares in Volkswagen AG, a Germany company not just accused of wrongdoing, but guilty of violating the Clean Air Act by fraudulently manipulating emissions test results (the “diesel dupe”).

I personally used to hold some shares in Wells Fargo Bank, N.A., an American company not just accused of wrongdoing, but actually guilty of an account fraud scandal of such staggering proportions that it generated a $3 billion dollar fine. (That’s billion – with a “b.”)

Those are examples of some pretty serious corporate wrongdoing and not mere allegations. Now, I could just as well own some Wells Fargo shares in trust, let’s say a college-savings trust I’m managing for my children’s future college costs. I’m pretty sure that would not make the front-page news.

There are some points in the Pandora Papers journalism which are emerging as concerns that deserve attention and perhaps even regulatory reforms. But, at least so far, there’s also quite a bit of puff. With such an enormous stack of documents, perhaps there are more serious concerns to come.

Or perhaps not.

These are the views and opinions of the writer and not those of the University of South Dakota, its Knudson School of Law, or the South Dakota Board of Regents.

13 thoughts on “Guest Column – The Pandora Papers: Puff and Point”

  1. I found the article very informative. But I also believe that bad actors are frequently using these arrangements to protect their illegal or unethical gains. Isn’t that really their purpose?

    How many legitimate companies use a trust like this? How many use this level of secrecy? I would like more answers. I am confident that we are going to be learning a lot more about our South Dakota trusts in the near future.

  2. In 2019, The Guardian ran a story on the trust industry, the legislative basis for its existence in South Dakota and which contained rather unflattering accounts of our state legislators and their role in passing legislation which they had neither read completely, nor understood.
    A Republican state legislator (unnamed in this post), the proud product of the USD Law School, was noted as stating during a committee meeting at which there was to be review of a pending bill regarding the trust industry, “ ‘No more questions. I didn’t understand perpetuities in law school, and I don’t want to understand it now,’ he said, laughing.”

    Now, after reading this hollow dribble from the Professor at USD Law who specializes in trusts, I have greater understanding of the legislator’s circumstance.

    1. No no, this was all done on purpose and we should be *proud* of the secrecy and unethical practices. It’s what makes us so freeeeeee! /s

  3. Having read the Washington Post’s “puff and point” series on Pandora, the Prof couldn’t be more right predicting how the leftist press will harvest sensationalist trivia from this mountain of information. My favorite example was this tidbit about this Dominican sugar company magnate hated by (unamed) human rights advocates:

    “Carlos Morales Troncoso led the massive sugar operation for about eight years and remained one of the industry’s most vocal supporters after he became the Dominican Republic’s vice president and, later, ambassador to the United States and foreign minister.”

    So, WAPO wants a trust company in SD to police the financial dealings of an elected world leader who was credentialed by the US Dept of State?

    Yeah, let’s get right on that.

  4. What are the standards here? Will we let any dictator or child trafficking ring launder their money here? Are there federal regulations and what are the limits?

    1. 360 Billion Dollars… in South Dakota trusts according to that Washington Post article. Thats a “B”. Billion.

      And 99 percent of us know nothing about it. How much do our legislators know about this? Do they want to know?

  5. The money isn’t really “in” South Dakota in most cases. It is in bank accounts throughout the world and is simply administered by a South Dakota trust. And by “administered” that doesn’t mean the investments are even managed in South Dakota.

    The Trust industry is highly regulated and anyone who settles a trust or is a beneficiary of the trust is reviewed and vetted by the trust company and that process is also reviewed by regulators. There are good reasons for trusts to be private, just like your personal bank account isn’t publicly available information. Believe it or not, there is no right to know everything about what everyone else owns or how they manage their private affairs.

    Nothing in these papers that I’ve seen thus far show anything unethical done by a South Dakota trust company. Simply administering a trust where someone who may have been accused of something isn’t unethical. At the end of the day, it is the responsibility of the US Treasury Dept. to place bad actors on Sanction lists to ensure that none of the assets owned by a trust are used for an illegal purpose. It isn’t the job of the trust industry to ensure that everyone who has an interest in a trust is popular, perfect or well-liked. Trust company’s must only ensure that they are not administering trusts that further an illegal, immoral or unethical purpose. That already happens.

    It seems to me that the purpose of this article/leak is simply to attack wealthy people, regardless of the source of wealth and to try to push assets back into high tax jurisdictions. Tax evasion is illegal, tax avoidance is not…nobody pays more taxes than they need to and if someone chooses to move to South Dakota from Minnesota to avoid state income taxes, that is not illegal in any way. Similarly, if someone wants to transfer their California trust to South Dakota to avoid California income taxes on their trust assets, that is also perfectly legal. If California doesn’t like that, they are free to lower their taxes and be competitive.

    If someone has money in a checking or savings account, that is not publicly available information. If they transfer that money to a trust, it is still not publicly available information. If anyone is proposing that everyone’s private assets, whether they are wealthy or not should become searchable to the public at large, I cannot fathom the amount of chaos that would ensue. Keeping information private in no way means that anything illegal or unethical is taking place. Just like medical records, private individuals have a right to privacy. Banks and Trust companies do a good job now of vetting and reporting illegal and suspicious activity to prevent the parade of horribles that seem to be implied. This is well evidenced by the fact that nothing has been said thus far about any bank or trust company being complicit in anything illegal.

  6. “Keeping information private in no way means that anything illegal or unethical is taking place.”

    And it might mean exactly that.

  7. Anonymous writes: “…if someone wants to transfer their California trust to South Dakota to avoid California income taxes on their trust assets, that is also perfectly legal.”

    So… somebody makes billions using California workers as well as their roads and bridges etc. but doesn’t want to pay for those things… we’ll give them the opportunity to screw their own folks. Secretly. Shhh.

    It kind of reminds me of the internet vs. in-state sales tax issue. Hmm. I am going to have to think that over.

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