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Illustration: Sarah Grillo/Axios

South Dakota has become the world's foremost tax haven — right up there with the Cayman Islands, and ahead of old-fashioned locations like Switzerland. That's one of the clear messages from the Pandora Papers leak of confidential financial information about the world's richest individuals.

Why it matters: The hundreds of billions of dollars sequestered in South Dakota trusts generate no taxes and are effectively off limits to anybody who might have a legitimate claim on them.

How it works: A South Dakota trust is "the most potent force-field money can buy," in the words of the Guardian's Oliver Bullough.

  • Like most tax havens, South Dakota has no income tax, no inheritance tax and no capital gains tax. But the state has gone even further than that. South Dakota allows for extreme secrecy when law enforcement comes knocking, and protects assets from being claimed by creditors, ex-spouses, or pretty much anybody else.
  • By setting up a trust, the "settlor" — think some billionaire wanting to keep his assets secure — gives those assets to a trustee in South Dakota to look after. The trustee then invests the assets for a "beneficiary" who is often a direct relative of the settlor. Neither the settlor nor the beneficiary ever needs to set foot in South Dakota, or even be able to find it on a map.
  • All three parties — the settlor, the trustee, and the beneficiary — can legally claim that the money isn't theirs. The settlor and the beneficiary can say they don't have the money, it's all in a trust run by someone else. The trustee can say that she is just looking after the money and doesn't own it.

How it happened: South Dakota started carving out its position as the most laissez-faire state for financial services in 1981, when it abolished upper limits for credit-card interest rates. (That's why the credit card in your wallet was almost certainly issued in South Dakota.)

  • In 1983, South Dakota became the first state to allow perpetual trusts — money that can remain untouchable for centuries, with no one ever paying inheritance tax on it.
  • Since then, South Dakota has continued to pass laws making its trusts more attractive to the world's ultra-wealthy. It allowed trusts where the settlor and beneficiary can be the same person. It has also sealed all court documents setting up trusts, making it impossible to know — in the absence of Pandora Papers style leaks — who might have one.
  • The Republican-controlled South Dakota legislature regularly rubber-stamps whatever bills are placed in front of it by the financial services industry. “Nobody understands any of them,” said Gene Abdallah, Republican chair of South Dakota’s Senate Judiciary Committee in 2007 — although it's broadly understood that the laws help to support hundreds of financial-services jobs in Sioux Falls, as well as the lawmakers' free-market bona fides.

Context: Since 2010, almost every country in the world has signed onto the Common Reporting Standard (CRS), whereby governments inform each other about assets held by foreigners. The United States is the only major country not to sign on to the CRS, making it much more attractive as a tax haven than places like the Bahamas or Panama.

  • Who's in: Ecuadoran President Guillermo Lasso, Chinese real-estate billionaire billionaire Sun Hongbin, and dozens of other high-profile tax optimizers — both foreigners and Americans —are sheltering their assets in South Dakota.

By the numbers: A decade ago, South Dakotan trust companies held $57 billion in assets. The current figure is about $360 billion — with similar trusts in other states bringing the total for the U.S. close to $1 trillion.

  • The United States — not only South Dakota but also rival tax-haven states like Nevada and Delaware — now ranks second only to the Cayman Islands for financial secrecy.

The bottom line: “South Dakota offers the best privacy and asset protection laws in the country, and possibly in the world," tax expert Harvey Bezozi told the Guardian.

Go deeper

Kendall Baker, author of Sports
Updated Aug 7, 2020 - Sports

The states that have legalized sports betting

Reproduced from American Gaming Association; Cartogram: Axios Visuals

2020 was poised to be a big year for sports betting. Some of that momentum was lost due to the shutdown, but the industry is still surging ahead — and holding out hope for a massive fall.

The state of play: Sports betting is now legal and fully operational in 18 states, plus Washington, D.C.

Federal court blocks Biden's vaccine mandate for health workers in 10 states

President Biden delivers remarks on the Omicron COVID-19 variant following a meeting with his COVID-19 response team. Photo: Anna Moneymaker via Getty Images

A federal court in Missouri has blocked the Biden administration from enforcing a coronavirus vaccine mandate for health care workers at federally funded facilities in 10 states.

Why it matters: Monday's decision is the first victory for opponents of the rule, which requires health care workers to get vaccinated by Jan. 4, 2022. The case is one of four lawsuits challenging the Centers for Medicare & Medicaid Services' (CMS) rule and argues that the mandate will exacerbate staffing shortages.

Twitter's next act

Illustration: Annelise Capossela/Axios

Twitter co-founder and CEO Jack Dorsey is exiting the company he helped build at a time when its future has never been so uncertain.

Why it matters: The person who controls Twitter controls the de facto public square — with implications for politics, media and free speech.