This week, a consortium of internatinal journalists published the results of their investigation into the “Pandora Papers,” an enormous set of leaked documents that reveal the offshore-banking and tax-sheltering tactics of the very rich. There have been other sets of leaked documents, but this set, as outlined in Casey Michel’s excellent article in the Atlantic, “The United States of Dirty Money,” reveals that the United States has become one of the premier sites for financial secrecy.
I would have thought that, after the Trump era, nothing about large scale U.S. financial corruption would shock me anymore. But I was wrong. As a trust and estates attorney I attend annual conferences where well-respected experts discuss cutting-edge tax strategies. I’ve heard about states, like South Dakota, that have modified their trust and estates laws to offer anonymous trusts and trusts that can go on, theoretically, forever.
Such legal ‘innovations,’ are discussed at legal conferences in dry technical terms like “forum shopping,” (looking for state laws that can accomodate the desire of a person to avoid taxation and oversight) and “dynasty trusts,” (trusts that do not ever have to terminate) and “silent trusts” (rules that limit the ability of beneficiaries, law enforcement or anyone else to get information about a trust or the money inside of it).
But as the Pandora Papers reveal, such neutral sounding ‘legal reforms’ have enormous financial implications: South Dakota alone had the most such anonymous, perpetual trusts of any state in the union and experts estimate that South Dakota trusts alone are holding more than $360 billion in untraceable assets, including money from autocrats and shady politicians.
Trust me, I have never, once, heard any discussion at any legal conference that I have attended in the last 20 years about the ethical dimension of making tax avoidance a premier value of an entire profession, let alone the cost to our democracy and the common good by such tactics.
As a result of the Pandora Papers revelations, lawmakers introduced legislation this week that, as reported in the Washington Post would require trust companies, lawyers, art dealers and others to investigate foreign clients seeking to move money into the American financial system. The proposed law, known (and I just LOVE this) as the “Enablers Act,” would create basic due-diligence rules for American gatekeepers who facilitate the flow of foreign assets into the U.S. After 9/11, banks were required to report dirty money, but if “law, real estate and accounting firms look the other way, that creates a loophole that crooks and kleptocrats can sail a yacht through,” said Rep. Tom Malinowski, a co-sponsor the bill.
I find it unsurprising, but nonetheless disappointing, that it will take federal law to require estate planners and others to ask basic questions about the source of the money their clients are so keen to protect. I welcome these requirements and hope that such due diligence might just also spark conversations about what it means for a profession to value tax avoidance over such things as civic duty, inter-family communication, or the real meaning of legacy.