WASHINGTON—A trove of almost 12 million internal documents, e-mails, and memos from tax havens where the rich set up secret trusts to hide from taxes—while using their corporate clout to stick tax tabs to the rest of us—highlight stateside tax havens, notably South Dakota, available to the wealthy and well-connected.
And the multipart “Pandora Papers” series by the International Consortium of Investigative Journalists (ICIJ) adds that the rich and well-connected include Middle Eastern rulers who align their nations with U.S. policy and interference in the Levant.
One is Jordan’s King Abdullah II, who despite his nation’s poverty, used $106 million in the last decade hidden in 36 trusts to buy 14 luxury homes, including a $33 million gated estate in Malibu, Calif.
Others include the emirs of Qatar and Dubai. Those Persian Gulf sultanates sit atop a trove of oil but are also now home base and R&R site for the U.S. Navy’s Fifth Fleet.
And the papers list several members of the Saudi royal family, though not, so far, the kingdom’s notorious U.S. ally and ruler, Crown Prince Mohammed bin Salman.
The hidden trusts aren’t the exclusive province of Middle Eastern potentates. They include the two rulers of Hong Kong, several close allies of Russian ruler Vladimir Putin, and a prominent Israeli right-wing politician.
Others include Kenyan President Uhuru Kenyatta (son of the nation’s liberator from the British), former British “New Labour” leader and Prime Minister Tony Blair, and Czech Premier and billionaire Andrej Babis, who’s seeking re-election this week.
One law for the rich, another for the rest of us
But the bad news in all of this is that in almost all cases, the secret, hidden trusts and troves of cash, and the manipulations the rich use to keep them that way—and evade taxes, too—are perfectly legal. They’re also evidence of how the rich and the corporate class have gamed the system to enrich themselves while impoverishing the rest of us.
“This is where our missing hospitals are,” Susana Ruiz, tax policy lead at Oxfam International, said in a statement. “This is where the pay-packets sit of all the extra teachers and firefighters and public servants we need. Whenever a politician or business leader claims there is ‘no money’ to pay for climate damage and innovation, for more and better jobs, for a fair post-Covid recovery, for more overseas aid, they know where to look.”
“The biggest blockers to transparency are the U.S. and the United Kingdom, the leader of the world’s biggest tax haven network,” blogged Alex Cobham, director of the Tax Justice Network. “We need full transparency so we can hold tax abusers accountable, especially when our politicians are among them. U.S. President (Joe) Biden must match his own rhetoric on shutting down global illicit finance, and start with the biggest offender—his own country.
“But it is important that we don’t lose sight of one crucial fact: Few of the individuals had any role in turning the global tax system into an ATM for the super-rich. That honor goes to the professional enablers—banks, law firms, and accountants—and countries that facilitate them.”
The ICIJ found a summary Pandora Papers document reporting banks worldwide—including Barclays, Deutsche Bank, and JPMorganStanley—helped customers set up at least 3,926 offshore companies. Morgan Stanley set up 312 accounts in the offshore tax haven British Virgin Islands alone.
ICIJ also reported the largest U.S. law firm, Baker McKenzie, helped create the modern offshore system, by lobbying governments here and abroad to shape weak financial regulations and laws. Some of its clients seeking to shelter income gained it from fraud and corruption, ICIJ reported. Morgan Stanley said it didn’t anything wrong, but admitted it didn’t ask its clients the source of their big money.
The individual offenders, so far, are mostly outside the U.S., even if some did shovel their money into trusts headquartered in Sioux Falls, S.D. It’s home to 23 trusts, out of 206 total such tax havens here.
Czech Premier Babis used trusts in offshore tax havens hiding his name to purchase a $22 million posh estate, complete with two swimming pools, in the seaside resort of Cannes, France. Babis rode to office on an anti-corruption platform. In his re-election campaign, Babis sports a Donald Trump-like red baseball camp and spouts the former GOP Oval Office occupant’s nationalist rhetoric, too.
Then there’s rich banker Guillermo Lasso, now Ecuador’s president. Four years ago, Ecuador’s Congress banned public officials from holding assets in tax havens. Three months later, ICIJ found, Lasso moved assets from two secret foundations in Panama to two trusts in South Dakota. Lasso told ICIJ his past use of tax havens was “legal and legitimate.”
Rich, Republican, right-wing
Which reinforces the fact that the U.S. lacks clean hands in chasing such tax-evading trusts. Behind South Dakota, with 81 such secret private trusts, sheltering $367 billion, are Florida (37 trusts), Delaware (35), Texas (24), and Nevada (14).
“My concern is that…we become like Switzerland or Panama,” former State Sen. Craig Kennedy, D-Huron, who questioned the growing industry, ICIJ reported. But as a member of the minority party from 2017-21 in the GOP-run legislature, he didn’t get far.
“I don’t know who the beneficiaries are, what kind of assets are being managed. People use banking and trust laws for inappropriate purposes. I can’t say that’s happening in South Dakota. But I don’t know.”
Even though Trump isn’t yet listed in the Pandora Papers, he doesn’t get away scot-free. That’s because ICIJ pointed out that it’s still combing through the papers and expects to identify other prominent users of tax avoidance schemes. Probing tax avoidance is the aim of New York Attorney General Letitia “Tish” James’s ongoing investigation of Trump’s finances.
ICIJ, however, has already identified one user of tax havens whom Trump tried to manipulate: Ukraine’s right-wing president, Volodymyr Zelensky. Trump tried to rope Zelensky into his scheme to rig the U.S. presidential election by digging up “dirt” on Biden. Trump aides fabricated the “dirt.”
Zelensky refused, Trump failed, but his smear scheme triggered Trump’s first House impeachment. He lost the 2020 election to Biden and lied by screaming about non-existent vote fraud, especially in Black communities. Then Trump marshaled and egged on his insurrectionists to try to overthrow the U.S. government in their Jan. 6 invasion of the U.S. Capitol.
All this came after ICIJ said Zelensky “owned a stake” in film production and distribution companies registered in the British Virgin Islands, another foreign offshore tax haven. A month before his 2019 election, Zelensky transferred his shares to his business partner.
Another connection to Trump is the main source of this latest ICIJ trove, the Panamanian law firm of Alemán, Cordero, Galindo, & Lee, or Alcogal. Its leaked files accounted for around half the documents ICIJ and its media partners, including the British Broadcasting Corporation, the U.K. newspaper The Guardian, the Washington Post, and the Organized Crime and Corruption Project, pored through.
ICIJ identified Alcogal as “a go-to offshore provider for top politicians and elites in Latin America and beyond.” It numbered both The Trump Organization—the former Oval Office occupant’s company—and the late Chilean dictator Augusto Pinochet as past clients.
That shows how long such overseas tax avoidance and wealth-hiding has been going on. Indeed, one trust listed among the clients of another conduit for the rich’s cash, Germany’s Deutsche Bank, dated back to 1949.
Other current right-wing leaders within democracies appear in ICIJ’s lists, too. Former “New Labour” leader and British Prime Minister Blair, known for neoliberal economic policies while giving the back of his hand to Labour’s trade union base, is one.
“In 2017, Blair and his wife, Cherie, became the owners of an $8.8 million Victorian building by acquiring the British Virgin Islands [BVI] company that held the property. The London building now hosts Cherie Blair’s law firm,” ICIJ reported. BVI is a longtime international tax haven.
Another implicated leader is Nir Barkat, a potential successor to former far-right Israeli Prime Minister Benyamin Netanyahu as Likud Party chief. Barkat’s already running for the job. A tech company owner worth $139 million and past Mayor of Jerusalem, Birkat is an ally of the settler movement that sponsors and pushes Israeli land confiscation and housing projects in Muslim East Jerusalem—projects illegal under international law.
“Through a set of three companies, Barkat held shares in a British Virgin Islands shell company that owns the Russian, British, and Israeli subsidiaries of the online trading platform eToro,” in a blind trust, ICIJ’s Israeli investigative media partner, Shomrim, reported. Barkat says eToro’s directors decided on the blind trust, and the location.
Back in the U.S., there’s a reason South Dakota is such a tax and trust haven. The state, now run by Trumpite GOP Gov. Kristi Noem and a GOP-heavy legislature, not only lets the rich hide their cash in secret trusts, but imposes no caps on interest rates banks and credit card firms may charge depositors—something anyone who’s gotten a dunning phone call from a big U.S. financial institution learns.
Payday lenders, the worst financial sector for consumers, face a South Dakotan 36% monthly interest rate cap, but a newspaper investigation last year showed firms were able to evade it, charging up to 160%.
“Trusts set up in South Dakota and many other U.S. states remain cloaked in secrecy, despite enactment this year of the federal Corporate Transparency Act, which makes it harder for owners of certain types of companies to hide their identities,” ICIJ said.
“The law is not expected to apply to trusts popular with non-U.S. citizens. Another glaring exemption, financial crime experts say, is that many lawyers who set up trusts and shell companies have no obligations to examine the sources of their client’s wealth.
“Clearly the U.S. is a big, big loophole in the world,” said Yehuda Shaffer, former head of the Israeli financial intelligence unit. “The U.S. is criticizing all the rest of the world, but in their own backyard, this is a very, very serious issue.”
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