Alessandro Chesser is a 40-year-old Silicon Valley entrepreneur. He’s married with two kids and was the first in his family to attend college. His grandfather immigrated from Sicily and worked as a school janitor so his family could have a better life.
Skip forward a few generations, and Chesser is noticing the way wealthy investors hide their money to avoid paying taxes. He’s outraged and wants to upend the tax system, which he thinks is unfair to the everyday American worker. In Chesser’s mind, the realistic solution isn’t to reform the tax code, but to make it easier for average Americans to access one of the best-kept secrets of the superrich: trusts.
Trusts have become big business in the US. They are now an industry worth trillions of dollars. But no one knows the exact number, because the trust industry is extraordinarily private. Trusts can last forever (literally), but there is no public registry for them. In fact, they are one of the main reasons why watchdog groups consider America to be the most secretive financial jurisdiction in the world.
This week on Reveal, journalists Sally Herships and Leah McGrath Goodman investigate America’s shadowland of trusts. As the nation’s wealth gap keeps growing—and Americans brace for Tax Day—we uncover what’s at stake as US states race to become the most trust-friendly jurisdictions in the world.
Dig Deeper
Read: How the US Became the World’s Refuge for Dirty Money (Mother Jones)
Read: These Billionaires Want to Disrupt Death—and Keep Their Fortunes Forever (Mother Jones)
Credits
Reporters: Leah McGrath Goodman and Sally Herships | Producer: Claire Davenport | Lead producer: Sally Herships | Editor: Cynthia Rodriguez | Fact checkers: Artis Curiskis and Melvis Acosta | Legal review: Victoria Baranetsky and James Chadwick | Production manager: Zulema Cobb | Digital producer: Nikki Frick | Score and sound design: Jim Briggs and Fernando Arruda | Additional sound engineering: Nolan Edgar at BCTV Studio | Deputy executive producer: Taki Telonidis | Executive producer: Brett Myers | Host: Al Letson
Support for Reveal is provided by Reveal listeners, and the Reva and David Logan Foundation, the John D. and Catherine T. MacArthur Foundation, the Jonathan Logan Family Foundation, the Robert Wood Johnson Foundation, the Park Foundation, The Schmidt Family Foundation, and the Hellman Foundation.
Transcript
Reveal transcripts are produced by a third-party transcription service and may contain errors. Please be aware that the official record for Reveal’s radio stories is the audio.
| Al Letson: | From the Center for Investigative Reporting and PRX, this is Reveal. I’m Al Letson. In a lot of ways, Alessandro Chesser is your typical entrepreneur. And even though he grew up in Silicon Valley, he did not grow up privileged. | |
| Alessandro Ches…: | Not at all. Not even close. | |
| Al Letson: | Alessandro is 40, he’s married, has two kids, lives just outside of San Francisco and was the first one in his family to go to college. | |
| Alessandro Ches…: | My grandfather came to this country with not a dollar to his name, and I mean, he worked as a janitor for elementary schools and movie… He worked all around the clock. | |
| Al Letson: | But fast-forward a couple generations and Alessandro is trying to make it big. He gets a job in Silicon Valley at a company called Carta. It helps startups keep track of who owns stock in their companies, from employees to founders, to investors. As vice president of sales, Alessandro is spending a lot of time with clients and he starts to notice a pattern in the way wealthy investors are handling their shares. | |
| Alessandro Ches…: | Which was the most successful startup founders and investors didn’t just hold their shares in their name personally. They would move their shares into trust. | |
| Al Letson: | Trusts are a way to hold on to money and assets. Almost anything from a vacation house to a racehorse to shares of stock. | |
| Alessandro Ches…: | Sometimes, a founder would have 10 or 12 trusts for different family members that they would put their shares into. I thought they were just being generous. | |
| Al Letson: | But that wasn’t it. | |
| Alessandro Ches…: | We did some research and we learned that they did it because they were getting tax benefits. | |
| Al Letson: | Which means… | |
| Alessandro Ches…: | That each trust can sell up to $10 million and pay zero taxes. | |
| Al Letson: | That limit has gone up to 15 million. And all of it leaves Alessandro wondering, why doesn’t everybody do this? | |
| Alessandro Ches…: | We looked into it and we saw that it costs on average over $100,000 just to set it up. And so, the fees are enormous and it really results in only the most successful and richest founders and investors are doing it and everybody else is not doing it. | |
| Al Letson: | Including Alessandro, who feels outraged when he sells his own shares in Carta. | |
| Alessandro Ches…: | My jaw dropped and I’m like, “Wait a second. You just paid zero taxes and I just paid maximum tax. You’re an investor. You have way more money than I do.” | |
| Al Letson: | So, Alessandro decides he’s going to shake things up, found his own trust company called Get Dynasty, with the idea of making trusts affordable and available for everyone. | |
| Alessandro Ches…: | We should be giving regular Americans access to the same tools that the richest people are using. Everybody should have access. Everyone should have access. | |
| Al Letson: | What Alessandro was noticing was just one small part of the booming trust industry. Today on the show, onshore is the new offshore. Americans no longer need to go overseas to Switzerland or the Cayman Islands to hide assets from the IRS because the US is now the number one spot in the world to stash your money. Global watchdog groups say when it comes to helping individuals conceal their quote finances from the rule of law, the US is the most complicit country. With the big April 15th tax deadline upon us, we’re dedicating the whole show today to trusts. Trusts offer completely legal loopholes that the wealthy have long taken advantage of to not pay their fair share in taxes. | |
| And while it may be legal to hide your money, we want to know what are the impacts. For the past few months, reporters, Sally Herships and Leah McGrath Goodman have been digging into the growing domestic trust industry worth trillions of dollars. You’re about to hear from them both. Sally starts us off. | ||
| Sally Herships: | There are a lot of Finance Bro podcasts out there, and lately, Leah and I have been listening to a lot of them because Alessandro has been making the rounds. | |
| Speaker 1: | Meet Alessandro Chesser, a FinTech trailblazer on a mission to democratize estate fund. | |
| Bob Lord: | Today on the show, my guest is Alessandro Chesser from… | |
| Speaker 2: | Our guest today actually does thousands of trusts a month… | |
| Leah McGrath Go…: | Alessandro wants everyday Americans, regular people, to be able to use the same tools that are normally only available to the super rich. | |
| Alessandro Ches…: | The richest Americans, they don’t worry about getting sued or going bankrupt or getting divorced because all their assets are in asset protection trust. | |
| Leah McGrath Go…: | When you put your assets in this kind of trust, they’re no longer in your name, so you’re protected from creditors like in a bankruptcy. | |
| Alessandro Ches…: | The most common cause of bankruptcy in America is medical emergencies. So, if you have a medical emergency and you can’t afford to pay the bills, you have to file a bankruptcy and you could lose all of your assets. | |
| Sally Herships: | But not if they’re in a trust. To be clear, Alessandro isn’t trying to be Bergdorf’s or Saks Fifth Avenue. He wants to become more like the Target or Macy’s of the trust world. | |
| Leah McGrath Go…: | Because he thinks it’s time the rest of us get in on the secret the wealthy have been keeping. Well, for centuries. To Alessandro trust, protect hard-earned assets. The groups that monitor corruption see them more as tools that can be easily abused. | |
| Alessandro Ches…: | I think the trust industry is definitely in a negative light because the richest people use trust to protect assets and reduce taxes, right? But the core problem here is not that they’re using it because it’s perfectly legal. The issue here is that the average American can’t afford to use it. Doesn’t have access, has to deal with maximum taxes, has to deal with zero asset protection. | |
| Leah McGrath Go…: | And because of that, Alessandro says they’re rich just keep getting richer while everyone else stays behind. The wealth gap is real and it’s at its highest level since data was first collected over 30 years ago. And when you account for hidden wealth and secret trusts, it becomes even more extreme. Many states have laws that keep trust private, and that makes it extra difficult to know the true extent of people’s wealth. But one place where it can all come out is in the courtroom, especially big stakes divorce battles. | |
| Sally Herships: | The details of messy divorces pop up everywhere. Take the case of the Paulsons, Jenny and John, one of the most famous hedge fund billionaires on Wall Street. The Balsams had an apartment on Fifth Avenue, a ranch in Aspen that John bought from a Saudi prince, but John left Jenny for a registered dietician and fitness influencer. Classic story. | |
| Leah McGrath Go…: | Our not so classic story, because Jenny alleged that John had put both properties and trusts along with billions in cash. Not only that, she said John kept the trust secret. He said the trusts were for their two kids, but there’s no way to know the truth because the trusts are totally private. | |
| Sally Herships: | Lanny Davis is one of the lawyers advising Jenny Paulson. He can be hard to get ahold of. | |
| Lanny Davis: | Apologies for my rush. I’ve got a judge on the other line. Sorry. | |
| Sally Herships: | I’m just going to come right out and say it. In the world of law or politics, Lanny is a big deal. He’s worked with everyone from Martha Stewart to Michael Cohen, President Trump’s lawyer during another case of financial secrecy, the hush money sent to Stormy Daniels. | |
| Leah McGrath Go…: | The way Lanny describes it, trust can be like Russian nesting dolls. | |
| Lanny Davis: | The use of trust has developed over decades as trusts become more and more sophisticated and more and more difficult to figure out because one trust owns another trust owns another trust and each one is incorporated in a different country. | |
| Sally Herships: | Lanny says sometimes people only find out about them by accident. In cases like this, a soon-to-be ex-wife might open the mail and find a financial statement for their spouse’s secret trust. | |
| Leah McGrath Go…: | Or they could find out in court when both parties are required to disclose if they have trusts. But even if you can afford a fancy lawyer like Lanny and subpoena for documents, it can still be nearly impossible to pierce a trust or know what’s inside. | |
| Lanny Davis: | And most people who try to hide their assets try to make it as difficult as possible to trace where the assets are really sitting, what bank account, what country, so it can be complicated. | |
| Sally Herships: | So, Lanny says the only hope in some of these cases is that public pressure forces the person with the money to consider settling. That’s what happened in the Paulson case. | |
| Lanny Davis: | This matter became very controversial, not from me, not from anything that I did, but a big Page six article in the New York Post Pay Six, meaning a tabloid or story about him taking up with a nutritionist who he met on Instagram and that publicity and media, plus the idea of transferring money from the marital estate into a secret trust, and this is just my opinion, is one reason why he’s not the secretary of the treasury. | |
| Leah McGrath Go…: | Paulson actually took himself out of the running, citing “complex financial obligations.” Meanwhile, the divorce has been dragging on for years. | |
| Sally Herships: | Divorce disputes aren’t the only place that trusts get revealed. They come up in other kinds of big lawsuits too, like when the Sackler family, the one behind the Purdue Pharma Empire, used offshore trusts to try to hide billions from victims of the opioid crisis. | |
| Leah McGrath Go…: | And they also pop up in big document leaks. Like back in 2021, when the Pandora Papers revealed that several people being investigated for dealing drugs, money laundering, and exposing workers to toxic chemicals had their assets and trusts. Trusts are secretive and private. So, we asked Alessandro, how do trust companies even know who they’re dealing with? | |
| Alessandro Ches…: | Regulations that we have to go through as a licensed trust company, we can’t just take anybody’s money. We have to do background checks. We have to see if there’s any negative press on them in their country. | |
| Sally Herships: | In other words, KYC, or know your customer. For example, American trust companies are not allowed to do business with customers living in Russia, especially oligarchs. But these are federal rules. To complicate things, states have rules of their own. It’s really hard to know who’s enforcing what. | |
| Alessandro Ches…: | There’s always two different sides of the story, right? And so, from a national side, it’s great. We want America to be number one for money. We want all the money flowing here, of course. Does it open up the opportunity for bad actors? Of course. But there’s both. There’s both sides, right? And you have good money and you have bad money flowing in. | |
| Leah McGrath Go…: | But there are a lot of disagreements about what bad money is. Yes, there are criminals, but what about extreme wealth? For more than a century, there have been laws on the books trying to prevent an American aristocracy. There’s even a group of millionaires who want to prevent it too. They’re called the patriotic millionaires. Bob Lord works with them. Bob, I think the first question is is, how do you become a member of the patriotic millionaires? Do you have to be a millionaire? | |
| Bob Lord: | You have to be a little more than a millionaire, actually. You have to have wealth of a good bit more than a million dollars. So, that’s the wealth requirement. And then you have to have a conscience. | |
| Sally Herships: | Bob says there are about 200 members and their mission is pretty simple. It’s tax the rich, pay the people, spread the power. Think Robin Hood, but wealthy. And instead of arrows, progressive tax policy. | |
| Leah McGrath Go…: | Bob isn’t super wealthy himself. By the way, we did ask him. Are you a millionaire? | |
| Bob Lord: | I am not a patriotic millionaire. I’m the senior vice president for tax policy for the organization, but I’m not myself a member. | |
| Sally Herships: | For a minute, I thought you were going to say you were an unpatriotic millionaire, but you’re… Okay. | |
| Leah McGrath Go…: | Bob is actually a tax lawyer and he’s worked with really wealthy clients, so he knows a thing or two about estate planning. | |
| Sally Herships: | Bob, do we have a sense… How much in taxes is lost to our government each year? | |
| Bob Lord: | Through tax avoidance through tax evasion? | |
| Sally Herships: | Let’s do both. | |
| Bob Lord: | Okay. | |
| Sally Herships: | Let’s start with avoidance. | |
| Bob Lord: | If you look at one area, estate taxation, it’s absolutely huge. If you look at the amount of wealth that is passing from households in this high echelon, this top 0.1%, households with over $50 million of wealth, and you try to estimate if their wealth was all subject to estate and gift tax, how much revenue there would be versus how much revenue actually is collected, I’d say we lose more than 80% of the potential revenue. | |
| Sally Herships: | The estate tax was passed over 100 years ago. It was the end of the Gilded Age. The country had just seen this tiny handful of families think Carnegies, Astors, Morgans like JP amassed this unprecedented amount of wealth. And Teddy Roosevelt with his round glasses and bristly mustache wanted to prevent these family dynasties. So, he pushed and the estate tax was passed in 1916. | |
| Leah McGrath Go…: | But over the years, it’s been made way weaker by trusts. Today, your heirs are supposed to pay tax on estate’s worth more than $15 million. | |
| Sally Herships: | But not really because before you die, you can just stick what you own in some trusts. It’s become the norm for wealthy families to avoid the tax. During the first Trump administration, White House economic advisor, Gary Cohen said, “Only morons pay the estate tax.” | |
| Leah McGrath Go…: | So, when an ordinary American says, “Why should I care? If somebody makes a lot of money, why shouldn’t they do it their way?” | |
| Bob Lord: | I think what you say is, “Do you want to live in a democracy?” Because if you concentrate that much wealth in a relative handful of families, you’re concentrating that much power. Elon Musk put $270 million into Trump’s campaign, bought himself a position early on in Trump’s administration, and the $270 million that Musk invested really in that campaign was 0.1% of his wealth. Yeah, his wealth grows that much in a matter of days. So, it was a really, really modest expenditure for him, and yet he could really overwhelm the campaign finance system that way. | |
| And it becomes this vicious cycle where, I mean, once they have the ability to buy political power, they can create more wealth and they can use that additional wealth to get more political power. | ||
| Sally Herships: | Bob and Alessandro both see the tax system as broken. They both want large scale systemic change. For Bob, that means reform. For Alessandro, it means blowing up the system. | |
| Alessandro Ches…: | You’re not going to fix that problem by complaining about it and saying, “Oh, pay your fair share. It’s just not going to fix anything.” The way you fix the problem is by giving everybody access to the same tools. And then if nobody’s paying capital gains taxes on startup and nobody’s paying any other potential tax, if the IRS is going bankrupt now, then maybe the system will get fixed. | |
| Sally Herships: | Reality check. It is really hard to do this, and Alessandro has a long way to go. | |
| Leah McGrath Go…: | In the meantime, we’re at the beginning of the largest wealth transfer in the history of the United States, mainly from baby boomers. As they die, they’re going to pass on an amount of wealth so large, it almost feels like an abstraction, $124 trillion. And the trust industry is gearing up for the boom. | |
| Al Letson: | Coming up, Sally and Leah traveled to the epicenter of this boom, and it’s not exactly what you might expect. | |
| Sally Herships: | So, we just walked out of the airport, and the first thing that we notice is the smell. It is a pig plant. It’s hard to miss. | |
| Al Letson: | That’s next on Reveal. Don’t go anywhere. | |
| Al Letson: | From the Center for Investigative Reporting and PRX, this is Reveal. I’m Al Letson. There’s a very particular odor that hits you square in the face when you land in Sioux Falls, South Dakota. | |
| Sally Herships: | We just walked out of the airport and the first thing that we noticed is the smell. It is a pig plant. It’s hard to miss. | |
| Al Letson: | Reporter Sally Herships, and her reporting partner, Leah McGrath Goodman, have just arrived. This is farm country, but that’s not why they’re here. Sally and Leah are headed downtown because Sioux Falls is also trust country, and that is where the industry is centered. Jay Jayaraman and Dan Glinert, two local lawyers, are going to show them around. | |
| Jay Jayaraman: | Nice to meet you, Sally. [inaudible 00:00:52]. | |
| Sally Herships: | Nice to meet you. | |
| Dan Glinert: | Nice to meet you. | |
| Sally Herships: | Hi, nice to meet you. My colleague is just getting- | |
| Al Letson: | Jay kicks things off. | |
| Jay Jayaraman: | We are at the heart of the business community over here at the intersection of 11th Street and Phillips Avenue in downtown Sioux Falls, South Dakota. Here’s where the magic happens. Here is restaurants, banks, trust companies. If you are in Sioux Falls, this is where you want to be on this fine day. | |
| Al Letson: | Jay and Dan both moved here to get jobs in the finance industry that took hold decades ago, when a man who Dan says locals call Wild Bill was governor. | |
| Dan Glinert: | And what he did is the Supreme Court said that usury rates could be defined by the states, basically. So the whole credit card industry, if you’ll get your credit card bill, a lot of it’s in South Dakota now. | |
| Al Letson: | Usury is a fancy word for lending at an excessive interest rate. And what Dan’s talking about is in 1978, the Supreme Court decided that banks and credit card companies could use the interest rate in the state where they’re headquartered instead of the home state of their customers, which of course meant that companies went shopping for states with the most lenient rules. Wild Bill saw an opportunity. So he pushed through an emergency bill that let lenders raise interest rates as high as they wanted. That made South Dakota a magnet for credit card companies. Financial institutions now hold $3.7 trillion here, but that’s not all credit card money. Over $900 billion comes from the trust industry. | |
| Sally Herships: | And I just want to point out one thing before we move any further. Most of these buildings are two stories high. I see a few that are three stories. | |
| Leah McGrath Go…: | It’s very cute. It’s not tall skyscrapers. | |
| Al Letson: | As Leah and Sally are standing outside the trust companies tucked between coffee shops, chic boutiques, and five and dimes, they’re surprised because you would never suspect so much money is held here. | |
| Sally Herships: | And one question for you guys, if we were to drive outside of the city limits, what would we see? | |
| Jay Jayaraman: | Corn and soybeans. | |
| Sally Herships: | So this billion-dollar city center, we drive outside just a little ways, and it’s cornfields. | |
| Jay Jayaraman: | It’s cornfields. Corn and soybean fields. | |
| Al Letson: | This land of corn and soybean fields is investing in a new crop, and it’s paying off. In just five years, the size of the trust industry in South Dakota has more than doubled. Sally and Leah head to the center of the action and ask if there’s enough oversight as the billions pour in. | |
| Sally Herships: | The population in Sioux Falls is small, just over a couple of hundred thousand and about 100 trust companies have set up shop here. It’s an industry built on privacy, so it was hard to find someone willing to talk. But eventually, we did. David Warren. How’s that? Are we all okay? | |
| David Warren: | I can hear you very well. | |
| Sally Herships: | Like Alessandro, he runs his own company, Bridgeford Trust. Only his is a lot bigger, $25 billion in assets. | |
| David Warren: | And thanks for reaching out to us. How’s South Dakota. I heard it’s not too cold there today. | |
| Sally Herships: | We got lucky. It’s sunny. It’s really beautiful. It’s my first time here. David doesn’t actually live in South Dakota. He made it clear that like many people, he just opened his business here to take advantage of all the trust-friendly laws. So we hopped on a Zoom call with him from the red velvet couch of our Victorian Inn in Sioux Falls. | |
| Leah McGrath Go…: | David sees the work that he does as something that can help families even save lives. He likes to use the word virtuous to describe it. | |
| David Warren: | What has happened unequivocally, and some people don’t like it when I say this, but it’s the truth, the United States has been considered in the last three or four years as a tax haven and a privacy haven and an asset protection haven. People get nervous about that word haven, but New York Times used it so I can use it. The point is international families that are in countries that are far less stable than the United States are looking for stability and certainty and safety and privacy. | |
| So I feel like we’re doing very good work and virtuous work because these families, in some cases like in Mexico, it’s a matter of life and death. If a Mexican family’s discovered to be worth a billion dollars, their kids are going to be targeted and they’re going to be kidnapped and it happens all the time. So I get very defensive of our industry because it’s easy to criticize, but we’re not selling tax evasion and we’re not working giving asset protection to people who are breaking the law. What we’re doing is very virtuous, I believe. | ||
| Leah McGrath Go…: | David says there are other good reasons to create trust too. He says wealth can be destructive. Take the rich families who pass on their wealth over generations. | |
| David Warren: | It’d be great for all of us to have a billion dollars, but you know what happens to the third generation? They’re all drug addicts, they kill themselves, and they’re not productive members of society. So that’s why I say what we’re doing is pretty virtuous because this money does destroy families. | |
| Leah McGrath Go…: | Put the money in a trust though, and you can set it up so that third generation can only spend it on certain things like say college or a house. | |
| Sally Herships: | Trust companies like David’s love South Dakota. The state has gone out of its way to sell itself the same way it did with credit card companies. In 1997, Governor Janklow, the guy locals call Wild Bill, established the Governor’s Task Force on Trust Administration Review and Reform. David is a fan. | |
| David Warren: | Oh, I love the Task Force. It’s the only state in the country that I’m aware of that has it. It’s one of the reasons why I came to South Dakota. | |
| Sally Herships: | The Task Force’s goal, and I am quoting from the South Dakota Division of Banking website here, is establishing and maintaining South Dakota stature as the premier trust jurisdiction in the United States. Some see it as a rubber stamp committee, but not David. | |
| David Warren: | It is extremely effective. As you probably know, they develop a bill every year called the Governor’s Bill. And really what it’s there to do is to continue to enhance, tweak the trust laws, and continue to keep South Dakota, I believe, number one. The bill is never not passed. And I think in most cases, it’s all they pass unanimously. | |
| Leah McGrath Go…: | And these bills have led to a kaleidoscopic range of trust products for every kind of customer. There’s trust for the unborn, there’s the quiet trust where the beneficiary doesn’t even know the trust exists, and there’s the trust that doesn’t require a beneficiary at all, the purpose trust. | |
| Sally Herships: | What is a purpose trust? | |
| David Warren: | What’s the purpose of the purpose trust? I love the purpose trust. The definition of the purpose trust is to exist to perpetuate a particular purpose or paradigm or goal or objective. It doesn’t necessarily benefit a beneficiary, it benefits a concept, which I love. | |
| Sally Herships: | It turns out the most common concept is a pet, people leaving money to their pug or chihuahua or both. But as you already know, trusts come with a far less cute and far more dangerous side. The secrecy they offer leaves room for serious criminal activity. | |
| Leah McGrath Go…: | Victoria Haneman is a professor at the University of Georgia Law School. She specializes in taxes, trusts, and estates, and she’s been watching states compete to be the most trust-friendly places in the country, states like Wyoming, Alaska, Tennessee, and especially Nevada. | |
| Victoria Hanema…: | Nevada is giving South Dakota a run for its money. At the end of the day, there are many things that make Nevada a more attractive trust jurisdiction, including the fact that if you visit, you may not get snowed in for a week eating at a TGI Fridays next to an airport. | |
| Sally Herships: | Seriously though, Victoria’s concerned about secrecy, wealth disparity, and more. So from her point of view, these states are in a race to the bottom. They’re strengthening laws that make trust secretive and protect them from outside interference like lawsuits. But from the client perspective, these are positives and they’re actual lists that rank the states. | |
| Victoria Hanema…: | Picture US News and World Report for college rankings, but a state-by-state ranking of states that are the best state to set a trust up in. | |
| Sally Herships: | We were on a Zoom call with Victoria when we asked if we could look at a list together. I actually have these lists open. Can I screen share for a minute? Okay. South Dakota, tell us what we’re looking at. | |
| Victoria Hanema…: | The first category is whether or not you can have a trust that lasts forever. So you notice that the South Dakota trust statute has no time limit. You can have a perpetual trust. Nevada puts a limit of 365 years. | |
| Sally Herships: | Well, wait a second. We have to stop you here for a second. Why would you need a trust that lasts forever? | |
| Victoria Hanema…: | Because if the goal is to amass wealth, you’re only going to die being able to spend so much of it. The wealthy and the ultra wealthy seem very interested in cryogenic preservation after death. They want to live forever. They want to be frozen and potentially be brought back. This is the conversation in the Hamptons right now. | |
| Sally Herships: | And this is your bank account when you come back? | |
| Victoria Hanema…: | Well, so here’s the thing. If you’re resurrected, you don’t want to come back poor. You don’t want to be brought back to life just to have to fly commercial. | |
| Leah McGrath Go…: | David, the trust company owner, knew all about the kind of trust Victoria’s talking about. It’s a kind of purpose trust. So we asked him if South Dakota is a hotspot for them. | |
| David Warren: | It has the best and most flexible purpose trust statute in the country, so I think the answer is yes, and that’s why they’re coming to South Dakota. And South Dakota, they want these statutes to be the best in the country, by the way. They’re doing this on purpose, as I’m sure you’ve learned. This isn’t accidental at all. This industry’s very important to the economy of South Dakota, and I actually think it’s brilliant. | |
| Sally Herships: | Forever trust hadn’t been possible because states had laws limiting how long a trust could last. That was supposed to prevent the hoarding of wealth over generations. But South Dakota was the first state to make trust that lasts forever legal. Still, leaving money to a future thawed-out cryogenic self is untrodden legal territory. | |
| Victoria Hanema…: | It’s fascinating because the cryogenics trusts are really testing the outward boundaries of theory on how flexible we want these instruments to be. And do we even give a shit about wealth inequality and what that’s going to look like in two or three centuries as money just compounds? | |
| Leah McGrath Go…: | The wealth gap, not just between the rich and poor, but the wealth gap between the dead and alive. To be clear, this is a case of trust diverting money out of the tax system and away from the public, possibly forever. | |
| Victoria Hanema…: | And you also have the IRS who refuses to comment right now on what happens if you come back to life. We don’t know if you’re going to be treated as a new taxpayer or as an existing taxpayer. | |
| Sally Herships: | Aside from tax questions about “corpsicles,” as Victoria likes to call them, there are more pressing matters when it comes to trusts. Victoria says it’s really the secrecy that’s the big worry, and that’s something South Dakota excels at. | |
| Victoria Hanema…: | So no public trust registries and limited disclosures and trustee silence provisions and quiet trust statutes. Beneficiaries may not even know that a trust exists and creditors can’t find assets and courts don’t have any visibility unless litigation’s forced. So there are statutes protecting transparency and secrecy, which also, as an aside, makes it extraordinarily difficult for the federal government to ensure that assets are being taxed properly. If you can’t find assets, you can’t audit assets. | |
| Sally Herships: | We wanted to ask whether South Dakota is going too far and if there’s enough oversight. | |
| Leah McGrath Go…: | So we reached out to Governor Larry Rhoden’s office. His press secretary emailed a statement that said the trust industry in South Dakota is a major reason why the state has, quote, “One of the strongest economies in the nation and that it’s following federal laws and keeping bad actors out.” But that was it. The governor declined to be interviewed. | |
| Sally Herships: | We also tried Bret Afdahl, the head of the state’s Division of Banking, the main regulator. He also declined. We even reached out to the chair of the Governor’s Task Force on Trusts, Jennifer Bunkers, multiple times. She didn’t respond. But the Task Force has 10 members and almost all of them work at law firms and trust companies right here in Sioux Falls. So we went looking for them. | |
| Leah McGrath Go…: | So we just stopped at our first office. It was Dorsey and Whitney Trust Company, and he was in a meeting. So we’re still on the trail for people at the Trust Task Force. | |
| Sally Herships: | Here we are at stop number two, Trident Trust Company, here at General Trust Company, number three on our list. | |
| Leah McGrath Go…: | So the office was completely empty. It looks like it moved. | |
| Sally Herships: | We’re looking for General Trust Company. They were listed as being on the second floor and wondering if you know if they’re still in the building. | |
| Speaker 3: | I have no idea. | |
| Sally Herships: | You have no idea? Check with the owner of the building. | |
| Speaker 3: | Two doors down. | |
| Sally Herships: | Two doors down. Okay. | |
| Leah McGrath Go…: | It was a wash. No one would talk to us except one guy, Tom Simmons. He’s a trust lawyer, a professor at the University of South Dakota’s Knudson School of Law, and a member of the State Trust Task Force. Unlike someone who works at a law firm or secretive trust company, Tom says he gets a pat on the back when he gets quoted in the press. That’s why he was open to speaking with us. | |
| Sally Herships: | Tom is firmly pro-trust. | |
| Tom Simmons: | I think it’s fair to say it means jobs. It means pretty well-paid jobs, white-collar jobs, and an industry that doesn’t have a lot of smoke stacks. | |
| Sally Herships: | Right. There’s no lumber, coal. There’s not a lot of that going on? | |
| Tom Simmons: | There’s no trust open pit mining, right. | |
| Leah McGrath Go…: | Here’s Tom’s philosophy about trusts. He thinks the wealth gap is real, but the trusts only play a small role. In fact, he doesn’t think trusts are that problematic. And he says worries about them being used for nefarious purposes are overblown. | |
| Tom Simmons: | I think honestly, if you’re a really bad guy like from The Breaking Bad show and you had the barrels of money and you wanted to stick it somewhere, I think Walter White buries it in the desert and that doesn’t turn out that well, but he’s trying to hide ill-gotten funds. I would think that one of the last places you would want to put criminal enterprise funds is in a trust with a trust company or a bank because of their reporting requirements to law enforcement and taxing authorities. | |
| Sally Herships: | There are reporting requirements, but over the years they’ve been watered down, and there are other problems, everything from a lack of reporting to a lack of enforcement. When you talk to Tom, you learn pretty quickly that he has this very abstract way of thinking, like this one idea he talks about, that bad people can have money that’s clean. | |
| Tom Simmons: | I once mentioned this in an interview and my wife heard it and cautioned me, “Never make that example again,” but I’m going to go ahead and do it. You take Bill Cosby. Bill Cosby has done criminal, horrible, offensive, repulsive things. I don’t know that he should be prohibited from having a bank account. | |
| Leah McGrath Go…: | What if those horrible repulsive things had to do with money? | |
| Tom Simmons: | That’s a very good point because the point with that example is that the horrible things that he did didn’t generate funds. So we could say that all of the funds that Bill Cosby had are from I Spy and Sesame Street and Jell-O commercials, and those aren’t ill-begotten funds. | |
| Sally Herships: | Last month, Bill Cosby lost a nearly $60 million civil suit. So yes, maybe his Jell-O money isn’t ill begotten, but in theory, someone like him could still use trusts to hide assets to avoid legal penalties. And when it comes to potentially dirty money, like the kind from foreign autocratic leaders sanctioned by the US, Tom says it’s not always black and white. | |
| Tom Simmons: | One of the Pandora Papers’ disclosures that I thought was interesting was there was a trust company with a trust for the benefit of one of Vladimir Putin’s girlfriends. That doesn’t necessarily tell us that there was anything wrong about the funds that were in the account. | |
| Leah McGrath Go…: | On the other hand, those funds might have belonged to Putin himself. We just don’t know, and that’s why the secrecy of a trust is a major problem. Still, we want to be clear that there are those who use trusts for totally legit reasons, like when a family creates a trust for one of their kids with a disability who can’t care for themselves. Tom sees the privacy trust provide in those kinds of cases as necessary, even humane. | |
| Sally Herships: | Since none of the state banking regulators would talk to us, we had a lot of questions for Tom. For example, yes, the state is supposed to examine trust companies every two to three years, but they don’t share the results or even verify if they were done at all. Why not? | |
| Leah McGrath Go…: | I think if you’re a journalist and the state is saying, “We’re really careful with compliance and governance. We do this exam every 24 months,” and then you see something like a trust company have a big problem. The question is, “Was anyone examining them?” So when the state comes back and says, “That’s not public information. It doesn’t have great optics.” But I’m curious if there are other reasons why the state would think that it would be worthwhile to keep things like that hidden. | |
| Tom Simmons: | Yeah, I don’t know. I would just speculate that, I guess, I can see the discussions being, “If we tell the public we examined this trust company last month, is that really helpful information for consumers in any way, or is it potentially misleading?” Does it suggest they were in trouble? If I get audited by the IRS, it’s not a regular occurrence and it’s probably a bad thing. I would imagine that’s some of the discussion. I think you can safely say though that if the state is required to examine every trust company every two years, they’re doing that. And if they won’t confirm when the last examination was, it’s just because their rules don’t permit that. | |
| Sally Herships: | You said that if the state is supposed to inspect trust companies every 24 months, that we can assume that it’s done so. And I thought, “What? Are you kidding me? Not where I come from. We can’t trust the government for anything.” So I was like, “Really?” I’m like, “Really? Are we supposed to just trust the government?” And I see you kind of cracking up in your quiet way, smiling. | |
| Leah McGrath Go…: | It’s the first time a conservative state ever said, “Trust the government.” | |
| Tom Simmons: | I personally would have a high degree of confidence that the Division of Banking is being operated according to the rules. I know enough people that work there that are of very high integrity. That would be something that if I had to guess, I would guess that they’re doing it by the book. | |
| Leah McGrath Go…: | David Warren, the owner of the trust company we heard from earlier, did confirm that his trust company had been examined by state auditors. | |
| David Warren: | It’s tedious and it’s a lot of work and they really go over everything with a fine tooth comb and they should because if we’re selling ourselves and the marketplace is doing good work and not doing anything bad, then we have nothing to hide. And you would not believe how expensive these regulatory exams are. And they’re ongoing for weeks and weeks and weeks. | |
| Sally Herships: | David really only has one quibble. Once the state does the examination, they rate the company kind of like the way the Department of Health rates restaurants. Only, he says, they won’t let the trust companies publicize their ratings. | |
| David Warren: | It’s like getting a report card and you got an A. I can’t tell anybody? What’s the point of having a report card? | |
| Leah McGrath Go…: | It also means the public can’t know how a trust company stacks up. We searched high and low, but couldn’t find any record that South Dakota had ever cracked down on one of its trust companies for wrongdoing. Tom also told us the state had never revoked a trust company charter. We asked the Division of Banking about this. They never responded. Just one more layer of secrecy. | |
| Al Letson: | What’s happening in South Dakota is much larger than this one state, and it’s a vast network of more than just trust companies. | |
| Speaker 4: | There’s 2,000 tax lawyers in Washington DC and they’re not working for you and me. | |
| Al Letson: | The impact on the nation and the world, that’s next on Reveal. | |
| Al Letson: | From the Center for Investigative Reporting and PRX, this is Reveal. I’m Al Letson. We’ve been telling you about the booming trust industry in South Dakota. Now, we’re going to introduce you to a guy who can explain the implications of financial secrecy far beyond Sioux Falls. Jim Henry is a lawyer who spent years working for corporations like General Electric, IBM, and the international consulting firm, McKinsey & Company, where he was the Director of Economic Research. Today, Jim is a Global Justice fellow and lecturer at Yale and a Founder and Chairman of United Against Money Laundering, an international group that works to expose financial crime. He also helped create the Tax Justice Network, an organization that advocates against tax havens. Jim has been investigating tax havens for five decades, and he’s joining me to talk about what he’s learned. Jim, thanks so much for being here. | |
| Jim Henry: | Good to be with you. | |
| Al Letson: | Take me back. What did the tax haven landscape look like when you first started investigating this industry? | |
| Jim Henry: | When I started studying this industry, there were 15 offshore havens at most. Switzerland, Panama, the Channel Islands. By now, there’s more than 160 and it’s become an explosive industry and the US has taken on the role of being the biggest laundromat for the world’s money with lots of Russian money, Chinese money, money from the developing countries, and the Middle East pouring into the United States because it is a secrecy haven, and it’s also the center point for the enablers. | |
| Al Letson: | So, what do you mean by enablers? | |
| Jim Henry: | A lot of folks have focused on financial secrecy jurisdictions, the top havens. But in the background, there’s an industry that cuts across borders that’s populated by banks, hedge funds, asset managers, and accounting firms. There are giant international law firms that make their living every day by setting up secrecy structures that protect their clients from regulation, from disclosure, from their relatives who want to sue them for a share of the trust. And those are the key players in terms of exercising regulatory influence. There’s 2,000 tax lawyers in Washington DC, and they’re not working for you and me. | |
| Al Letson: | I always thought that places like, I don’t know, The Bahamas or somewhere like Switzerland were the places that people were hiding money because of financial regulation. But actually, the United States is a place where people are doing that. | |
| Jim Henry: | Well, beginning in the late 90s, many states in the United States started offering LLCs in addition to Delaware, but they also started to offer trusts. And by now, there’s 15 states that offer secretive trusts that are as good as anything you can find in the Channel Islands or Cook Island. They’re offering protection against creditors. They have very short statute of limitations. The US role has become paramount. There’s no question that the total sums that we’re talking about in terms of assets that are protected by financial secrecy in the case of trusts are tens of trillions of dollars in the case of the United States, and that we become the largest single market for financial secrecy. | |
| Al Letson: | Yeah. Who’s responsible for enforcing laws when it comes to these financial crimes? The ones that are actually financial crimes, because a lot of this stuff has been codified, right? It’s legal. | |
| Jim Henry: | Yeah. | |
| Al Letson: | But the things that are not legal, who is tasked with enforcing those laws? | |
| Jim Henry: | Well, the power is unfortunately distributed all over the federal government, but let me take the example of US Treasury. They have a unit called FinCEN. They have about 200 people with a budget of about $200 million, and they are extremely stressed. They’re administering a system that the banks every year spend about $55 to $60 billion to identify transactions that they’re “suspicious”. This is a gigantic case of Kabuki theater because they’re piling up all of these identified suspicious activity reports and trying to keep up with having them investigated by either the IRS criminal division or the FBI. Law enforcement is only able to select a tiny fraction of these suspicious activity reports to audit. But in the case of specific example, we had JP Morgan having identified more than 4,125 suspicious activity reports involving Jeffrey Epstein. They sat on those until Epstein died because they didn’t want to raise hackles. | |
| And Epstein, it turned out, had introduced a lot of influential clients to JP Morgan. So, that’s an example of where FinCEN reports were being covered up, but it isn’t really a partisan issue. The Biden administration also sat on these Epstein FinCEN reports while he was in office. There are a lot of laws that have been on the books to fight bribery, corruption, and money laundering. And the real issue is whether you have administrations that are willing to enforce them and what resources they have. | ||
| Al Letson: | So, how do these financial crimes affect everyday Americans in ways that maybe we don’t know of? | |
| Jim Henry: | Well, they’re affecting our political system. They are making our lawmakers very responsive to certain interests rather than others. You visited South Dakota. This industry has enormous influence on the state level, as well as in the federal government. But in terms of just having a tax code that’s not responsive to ordinary Americans, it’s become profoundly regressive. And I think that’s one impact they need to understand is how the tax system has been corrupted. | |
| Al Letson: | Do you see any glimmers of hope anywhere? | |
| Jim Henry: | Well, in principle, the problems that we’re solving, we’re addressing here are relatively straightforward. It isn’t like we’re trying to cure cancer here. We just need to get back to working constructively. And the global haven industry, I think, is an example of a problem that’s relatively easy to solve. It’s not a theoretical issue. You have outrageous levels of financial secrecy. You have really unfair corporate taxation that’s basically not enforced. These are all things that are not technical problems. They are political problems. The real challenge for us, I think across borders is to organize and to identify a handful of very practical solutions that we can support. In New York State right now, for example, I’m supporting a movement to restore a 0.1% tax on stock trades, which was on the books from 1905 until 1982. Since then, it has been rebated to Wall Street. | |
| You’re talking about $75 to $100 billion a year that’s being handed back to Wall Street. But that’s an example of a very practical, progressive sales tax, something that people should organize around and get behind. But it turns out when you look at who are the biggest contributors to political parties in New York, they are the high frequency traders on Wall Street, and that includes the Democratic Party’s biggest donors. | ||
| Al Letson: | Yeah. | |
| Jim Henry: | So, it’s a political problem, and we somehow have not been able to tackle these problems that have really solid, I would say, solutions. | |
| Al Letson: | Jim Henry, thank you so much for talking to me today. | |
| Jim Henry: | Great. My pleasure. Keep up the good work. | |
| Al Letson: | That was Jim Henry, an economist, attorney, and tax haven expert. Sally Herships and Leah McGrath Goodman reported today’s show. Sally also produced the episode with help from Claire Davenport. Cynthia Rodriguez edited the show. Thanks to Nolan Edgar for help with sound engineering at Brattleboro Community Television. Artis Curiskis and Melvis Acosta fact-checked today’s show. Legal review by Victoria Baranetsky and James Chadwick. Our production manager is the great Zulema Cobb. Score and sound design by the dynamic duo, Jay Breezy, Mr. Jim Briggs, and Fernando “My Man, Yo” Arruda. Taki Telonidis is our deputy executive producer. Our executive producer is Brett Myers. Our theme music is by Camorado, Lightning. Support for Reveals provided by the Reva and David Logan Foundation, the John D. And Catherine T. MacArthur Foundation, the Jonathan Logan Family Foundation, the Robert Wood Johnson Foundation, the Park Foundation, the Schmidt Family Foundation, and the Hellman Foundation. | |
| Support for Reveal is also provided by you, our listeners. We are a co-production of the Center for Investigative Reporting and PRX. I’m Al Letson. And remember, there’s always more to the story. | ||
Cynthia Rodriguez is a senior radio editor for Reveal. She is an award-winning journalist who came to Reveal from New York Public Radio, where she spent nearly two decades covering everything from the city’s dramatic rise in family homelessness to police’s fatal shootings of people with mental illness.
In 2019, Rodriguez was part of Caught, a podcast that documents how the problem of mass incarceration starts with the juvenile justice system. Caught received an Alfred I. duPont-Columbia Award for outstanding journalism in the public interest. Her other award-winning stories include investigations into the deaths of construction workers during New York City's building boom and the “three-quarter house” industry – a network of independent, privately run buildings that pack vulnerable people into unsanitary, overcrowded buildings in exchange for their welfare funds.
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Al Letson is the Peabody Award-winning host of Reveal. Born in New Jersey, he moved to Jacksonville, Florida, at age 11 and as a teenager began rapping and producing hip-hop records. By the early 1990s, he had fallen in love with the theater, becoming a local actor and playwright, and soon discovered slam poetry. His day job as a flight attendant allowed him to travel to cities around the country, where he competed in slam poetry contests while sleeping on friends’ couches. In 2000, Letson placed third in the National Poetry Slam and performed on Russell Simmons’ Def Poetry Jam, which led him to write and perform one-man shows and even introduce the 2006 NCAA Final Four on CBS.
In Letson’s travels around the country, he realized that the America he was seeing on the news was far different from the one he was experiencing up close. In 2007, he competed in the Public Radio Talent Quest, where he pitched a show called State of the Re:Union that reflected the conversations he was having throughout the US. The show ran for five seasons and won a Peabody Award in 2014. In 2015, Letson helped create and launch Reveal, the nation’s first weekly investigative radio show, which has won two duPont Awards and three Peabody Awards and been a finalist for the Pulitzer Prize twice. He has also hosted the podcast Errthang; written and developed several TV shows with major networks, including AMC+’s Moonhaven and Apple TV+’s Monarch; and is currently writing a comic for DC Comics. (He loves comics.) When he’s not working, Letson’s often looking for an impossibly difficult meal to prepare or challenging anyone to name a better album than Mos Def’s Black on Both Sides.