As the controversy over financial industry transparency and beneficial ownership continues to rage globally, in the wake of last month’s ‘Panama Papers’ leak, the Financial Times today has become the latest media organisation to highlight America’s rise as a “tax haven”.
In a full-page article headlined “The new Switzerland?”, the publication calls attention to the fact that assets held in trusts registered in the remote, sparsely-populated state of South Dakota held some US$226bn in 2014, up from just US$32.8bn eight years earlier.
Echoing comments made in 2008 by then-presidential candidate Barack Obama – about a particular building in the Cayman Islands that he said was “either the biggest building in the world or the biggest tax scam in the world” for being the supposed home of some 12,000 US corporations – the article describes “an old discount store hugging a corner in downtown Sioux Falls, South Dakota” in which “US$80bn worth of trust assets are administered”.
“With no personal or corporate income tax, no limit on ‘dynasty trusts’ and strong asset protection laws – shielding assets from soon-to-be-ex-spouses – South Dakota has leapt to the top of annual rankings for the trust industry,” the FT article notes.
“Nevada, Delaware and Alaska also compete for accounts.”
Dynasty trusts are a type of trust that’s designed to avoid or minimise certain types of tax, such as inheritance and estate tax, and are typically used to pass money on to multiple generations of descendants while paying as little in taxes as possible.
Today’s FT article also quotes David Wilson, partner of Schellenberg Wittmer, a Swiss law firm, as saying that “America is the new Switzerland”, a fact that he says the wealth management industry has “known for several years”.
It notes that America’s role in attracting funds from undisclosed foreign sources, although appearing to be new, is in fact deep-rooted, pointing out that the Florida Bankers Association told Congress in 2011 that there were hundreds of billions of foreign deposits sitting in US banks because “for more than 90 years the US government has encouraged foreigners to put their money in US banks by exempting these deposits from taxes and reporting”.
To read the FT‘s report online, click here. (The FT has a paywall.)
The FT‘s story comes four days after the US Department of the Treasury announced plans to “strengthen financial transparency and combat the misuse of companies to engage in illicit activities”. In a statement, the Treasury said it was to introduce a new Customer Due Diligence (CDD) Final Rule, beneficial ownership legislation, and proposed regulations related to foreign-owned, single-member limited liability companies.
As reported, Bloomberg was among the first media organisations to call attention to America’s growing role as a tax-efficient and discreet place for stashing wealth, three months ago. It quoted Peter Cotorceanu, a lawyer at Zurich law firm Anaford AG, as writing in a recent report: “How ironic – no, how perverse – that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour…
“That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”
The Economist followed up with its own report on the subject, which was followed in April with the news of the unprecedented leak of more than 11 million documents from a Panamanian law firm, Mossack Fonseca.