The ultrarich are getting cozy in America’s tax havens at everyone else’s expense

“One of the revelations of the Pandora Papers leaked in 2021 was the proliferation of tax havens inside the US. They’re used not just by wealthy Americans but by foreign politicians, business leaders, and criminals as well. South Dakota in particular has become a destination for the wealthy to stash their riches, and it currently hosts more than $512 billion in trusts, according to the IPS report. The ultrarich have parked trillions of dollars in secretive trusts within US tax haven states.
“It’s not just South Dakota, it’s not just Delaware,” said Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies and one of the authors of the tax haven report. “A bunch of states are in the chase.”

The benefit for states is attracting businesses and jobs, but there’s little evidence that becoming a trust-friendly tax haven boosts job growth for states. Populous states like Texas and Florida are getting in on the game, too. It could accelerate what Collins calls a “race to the bottom,” in which more states change laws to attract the trust industry.

A trust is a contract that stipulates what assets one person wants to pass on to another. When assets are put into a trust, the original wealth-holder technically no longer owns them. A third-party entity, known as a trustee, manages the assets for a named beneficiary until the terms of the trust are fulfilled — for example, a parent establishes a trust for their child that will transfer assets to them when they turn 25 or upon the parent’s death. A trust is supposed to end at some point, and ownership of assets is supposed to pass to the beneficiary; it’s a way station for wealth, not the final destination.

Except that a growing number of trusts don’t end. None of the 13 tax haven states has a strict life span limit on trusts. Several states have abolished a rule limiting the life span of trusts altogether. Others set the limit somewhere between 300 and 1,000 years. By carefully setting up a dynasty trust that lasts generations, a wealthy family can avoid paying inheritance or estate taxes for millennia. These trusts often obfuscate who really owns the assets, so they can continue using them — assets like real estate or yachts — or take out “loans” from the trust without triggering gift taxes. The secrecy and confusing ownership structures of trusts are big problems. The government can’t tax something that legally doesn’t belong to a person anymore, and it certainly can’t tax assets that it doesn’t even know exist.”

How the US became the center of global kleptocracy

“The biggest single provider of anonymous shell corporations in the world isn’t Panama or the Cayman Islands. It’s not the financial secrecy stalwart Switzerland, or a traditional offshore haven like the Bahamas.

It’s Delaware. And the main reason is federalism.

Thanks to the US’s federal structure, company formation remains overseen at the state level, rather than in Washington.

So if you’re a budding autocrat interested in a bit of easy money laundering, you don’t turn to federal officials in Washington. Instead, you look to state officials in Dover, Cheyenne, or Reno to help construct anonymous shell companies to funnel and clean your illegitimate money.”

“Since there are no regulations in the US requiring that shell companies identify their true owners — known as “beneficial owners” – American states have been under no compunction to try to peel back who may be behind the anonymous shell companies mushrooming across the country.

These states and their constituents are raking in fees”

“Nevada, which actively marketed itself as the “Delaware of the West” in the early 1990s, directly linked company formation fees to funding teachers’ salaries. And Wyoming, which invented the limited liability company (LLC) in 1977, has been only too happy to capitalize on allowing shell companies to flourish in the state, generating millions of dollars for its general budget — yet another small state all too willing to participate in this “race to the bottom.””

“The criminal and corrupt of the world have taken notice. “Merchant of Death” Viktor Bout, the most prolific illicit arms dealer of the past few decades, used anonymous American shell companies to smuggle missiles and rocket launchers to rebels in Colombia.

Former Ukrainian Prime Minister Pavlo Lazarenko, who once joined Indonesian dictator Suharto and Serbian genocidaire Slobodan Milošević among the ranks of the world’s most corrupt leaders, relied on a network of anonymous shell companies in Wyoming to plunder Ukraine.

Even the ongoing impeachment saga in the US hinges in large part on anonymous Delaware shell companies, which Rudy Giuliani’s Ukrainian-born bag-men used to funnel foreign funds into American elections.

For the world’s warlords, criminals, and autocrats, there’s no gift finer than an anonymous American shell company.”