Lawmakers in US push to uncover riches shielded by state secrecy laws

The Dome of U.S. Capitol build­ing in Washington, D.C.

Amid the hunt for Russian assets, reform­ers say finan­cial trans­paren­cy in the U.S. is long overdue.

Lawmakers in one of the most lib­er­al tax havens in the United States are press­ing to end a key tenet of finan­cial secre­cy by requir­ing the own­ers of high­ly con­fi­den­tial trusts to iden­ti­fy themselves.

The pro­pos­al in Alaska is part of a grow­ing push to stop the flow of undis­closed mon­ey into the United States, which has for years drawn inter­na­tion­al wealth through state laws that pro­vide anonymi­ty for the own­ers of trusts, lim­it­ed lia­bil­i­ty com­pa­nies and oth­er finan­cial arrangements.

New York and Wyoming are also weigh­ing reforms and, at the fed­er­al lev­el, the bipar­ti­san Enablers Act would for the first time require trust com­pa­nies, reg­is­tered agents and oth­ers to scru­ti­nize clients and report sus­pi­cious transactions.

State and fed­er­al law­mak­ers say the changes are long over­due. They cite new efforts to trace and seize the assets of Russian oli­garchs as well as find­ings from the Pandora Papers, a glob­al media inves­ti­ga­tion pub­lished in October by the International Consortium of Investigative Journalists, The Washington Post and more than 150 oth­er media out­lets. The sto­ries exposed how oli­garchs, polit­i­cal elites and oth­ers hide wealth in the United States and around the world.

The inves­ti­ga­tion iden­ti­fied 206 U.S.-based trusts hold­ing com­bined assets worth more than $1 bil­lion. Nearly 30, many of which were in South Dakota, held assets linked to peo­ple or com­pa­nies accused of fraud, bribery or human rights abuses.

I think this is a good moment when every­one is focused on Ukraine and on strength­en­ing sanc­tions enforce­ment to move the bill for­ward, strike while the iron and steel are hot,” said Rep. Tom Malinowski (D‑N.J.), a key spon­sor of the pro­posed Enablers Act. “Sanctions don’t work if you can’t find their mon­ey … Our extreme­ly lax laws enable them to hide it almost with­out a trace.”

The pro­pos­al in Alaska, intro­duced ear­li­er this month by the co-chairs of the state’s House Labor and Commerce Committee, would for the first time give reg­u­la­tors insight into indi­vid­u­als and fam­i­lies who shel­ter mon­ey and oth­er assets in Alaskan trusts.

When Vladimir Putin invad­ed Ukraine, I reflect­ed on all the ways a state could have an impact on wealth that oli­garchs … might be able to hide,” said com­mit­tee co-chair Zack Fields (D). “We need trans­paren­cy to make sure the bad actors are not abus­ing the system.”

Sanctions don’t work if you can’t find their mon­ey … Our extreme­ly lax laws enable them to hide it almost with­out a trace.

— Rep. Tom Malinowski (D‑N.J.)

Alaska Gov. Mike Dunleavy, a Republican who has direct­ed state agen­cies to divest from Russia, has not tak­en a posi­tion on the pro­pos­al. Former Alaska Gov. Tony Knowles, a Democrat who approved the state’s first major trust law in 1996, said in an email that the pro­posed leg­is­la­tion is “very time­ly and impor­tant pro­tec­tion for Alaska’s secu­ri­ty as well as our nation­al security.”

If passed,” he said, “Alaska would be a leader in trust assets reform.”

The non­prof­it, Alaska Trust & Estate Professionals, has pub­licly opposed the mea­sure. In a sub­mis­sion to law­mak­ers, the group said the bill “will have a com­plete chill­ing effect on the cre­ation of trusts in Alaska.”

Fields said debate in Alaska’s leg­is­la­ture has so far been min­i­mal. “A bill like this giv­en the sit­u­a­tion in Russia cer­tain­ly has more of a chance … we’ve seen in the leg­is­la­ture a lot of inter­est,” he said.

Citing the Pandora Papers and oth­er reports, law­mak­ers in New York last month intro­duced leg­is­la­tion requir­ing lim­it­ed lia­bil­i­ty com­pa­nies to pub­licly dis­close their own­ers. The pro­pos­al goes one step fur­ther than a new fed­er­al law requir­ing LLCs to pro­vide own­er­ship infor­ma­tion to a gov­ern­ment data­base. That infor­ma­tion will not be made public.

I do have a say in how we gov­ern the world’s finan­cial cen­ter in New York, and I see it as my respon­si­bil­i­ty to ensure our city isn’t a haven for tax eva­sion, mon­ey laun­der­ing, or polit­i­cal cor­rup­tion,” said New York Assembly mem­ber Emily Gallagher (D), who spon­sored the bill.

Gallagher said she ini­tial­ly took up the issue to pur­sue anony­mous land­lords who list­ed only post office box­es as address­es. Then, in February, Russia invad­ed Ukraine.

So much mon­ey is hid­den in New York State and New York City — in par­tic­u­lar, real estate — that it just real­ly seemed like it was the right moment and the right move,” she said.

In Wyoming, the legislature’s joint rev­enue com­mit­tee announced a review of the state’s trust laws lat­er this month. Trust com­pa­nies in the state last year man­aged more than $31 bil­lion, includ­ing assets tied to a Russian oli­garch as well as the fam­i­ly of a for­mer aide to a Latin American dictator.

In oth­er states, includ­ing South Dakota — one of the most pop­u­lar tax havens in the U.S. — reforms aren’t yet on the table.

In South Dakota, with more than $360 bil­lion held in trusts, a small group of pro­tes­tors last month ral­lied in Sioux Falls just before the end of the leg­isla­tive ses­sion to urge law­mak­ers to iden­ti­fy trust ben­e­fi­cia­ries and freeze assets con­nect­ed to Russia.

South Dakota Governor, Kristi Noem,®, has pre­vi­ous­ly said “our trust indus­try does have integri­ty and it has been proven to be an out­stand­ing law­ful sys­tem in the country.”

The leg­is­la­ture adjourned with­out tak­ing any action.

I had some hopes that maybe they could be shamed into doing some­thing right after the war start­ed, and we were flood­ed with images of Ukrainians being attacked,” said Andy Sivertson, a retired social work­er who orga­nized the ral­ly. “But I have my doubts about the South Dakota leg­is­la­ture being able to do any­thing about this in the future.”

Reynold Nesiba, one of the few Democratic mem­bers of the South Dakota Senate, said the surest way to elim­i­nate secre­cy in the South Dakota trust indus­try is through fed­er­al leg­is­la­tion. Without it, Nesiba said, trust hold­ers and com­pa­ny own­ers could sim­ply move to oth­er states.

We have this low­est com­mon denom­i­na­tor com­pe­ti­tion that goes on between Delaware, South Dakota, Nevada, Alaska, in terms of who has the most favor­able trust laws,” said Nesiba, an eco­nom­ics pro­fes­sor at Augustana University in Sioux Falls. “Rather than par­tic­i­pate fur­ther in that race to the bot­tom, it would real­ly help to have some fed­er­al guardrails, par­tic­u­lar­ly on disclosure.”

In February, a coali­tion of finan­cial trans­paren­cy advo­cates called on Congress to pass the Enablers Act. The bill’s spon­sors in recent weeks have urged the House Committee on Financial Services to take up the mea­sure, fueled in part by the glob­al hunt for the assets of oli­garchs. A bipar­ti­san bill called the KLEPTO Act, which would impose stricter dis­clo­sure rules for U.S. pur­chas­es of assets like real estate, yachts, and pri­vate jets, was also recent­ly intro­duced, cit­ing ICIJ investigations.

This month, the U.K. sanc­tioned the cousin of Russian alu­minum mag­nate Oleg Deripaska as part of a broad­er effort tar­get­ing the rel­a­tives, asso­ciates and employ­ees of oligarchs.

A Pandora Papers sto­ry ear­li­er this month described how Deripaska’s cousin, Pavel Ezubov, set up an LLC in Delaware to buy a $15 mil­lion man­sion near Embassy Row in Northwest Washington. In October, the FBI searched the home as part of an unspec­i­fied fed­er­al inves­ti­ga­tion. Ezubov did not respond to a pre­vi­ous request for comment.

Deripaska, a key Putin ally sanc­tioned by the United States in 2018, has denied own­ing the home.

This sto­ry was updat­ed to include infor­ma­tion about the KLEPTO Act. 

Original source of arti­cle: www.icij.org

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