DOVER, Del. (AP) – A mention of “tax havens” usually conjures up images of Caribbean escapes bathed in sunshine like the Cayman Islands or the buttoned shores of Switzerland. Not South Dakota.
But a report detailing how world leaders and some of the richest people on the planet are hiding their wealth has drawn new scrutiny of the growth of tax havens in the United States.
The liberation of the “Pandora Papers” report by the International Consortium of Investigative Journalists shed light on the financial transactions of the elite and the corrupt and how they have used offshore accounts and tax havens to protect billions of dollars in assets.
In addition to familiar offshore havens, the report also revealed secret accounts in trusts scattered across the United States, including 81 in South Dakota, 37 in Florida and 35 in Delaware.
According to the report, among those who have used South Dakota’s trusts as tax havens are Guillermo Lasso, President of Ecuador, and family members of Carlos Morales Troncoso, a sugar industry mogul and former vice -President of the Dominican Republic.
David Tassillo, co-owner of Pornhub, one of the world’s largest online porn sites, was linked in the Pandora Papers to two shell companies registered in Delaware.
Here’s a look at some of the ways some US states have established themselves as attractive places for the wealthy to park billions of dollars:
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HOW DID IT BEGIN?
South Dakota launched its financial industry in 1980, an era of double-digit interest rates where banks paid higher rates to borrow money than the interest rates they were allowed under usury laws to charge on credit cards and consumer loans. In an effort to help South Dakota’s banks and boost the state’s dying economy, authorities removed the state’s usury limit on banks. She then invited the financially troubled New York-based Citibank to set up a credit card transaction, which she did the following year. Other banks and a burgeoning trust industry soon followed.
In 2019, the state had more than 100 trust companies with combined assets of approximately $ 370 billion. Only one company, South Dakota Trust Company LLC, boasts on its website that it has more than $ 100 billion in assets under administration, with more than 100 billionaires and 300 âcentimillionaireâ clients. International families from 54 countries represent 15% of its clientele, according to the website.
Delaware launched its credit card and financial services industry in 1981. The state now oversees 47 state and state trust companies with approximately $ 3.8 billion in assets. It is also the headquarters of over 1.6 million business entities, including limited liability companies whose members and operations are generally not subject to public scrutiny. Franchise taxes on business entities are the state’s second-largest source of revenue after personal income tax, bringing in nearly $ 1.3 billion last year.
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WHAT MAKES MONEY IN THESE STATES?
One of the main reasons that many wealthy people turn to certain states as tax havens is that their legislators have abolished the ârule against perpetuitiesâ. The elimination of the rule allowed for the creation of so-called dynasty trusts, in which wealth can be passed from generation to generation while avoiding federal estate taxes.
The laws of South Dakota and Delaware also allow “asset protection trusts,” which protect wealth from claims against creditors. Such trusts can be attractive to high net worth lawyers and physicians as a way to protect their assets against malpractice claims. They can also be used to protect the assets of ex-spouses, future spouses, disgruntled business partners, or angry customers. Both states have a host of other laws that give the wealthy considerable flexibility to establish, control, and modify trusts as they see fit.
Tax evasion is another big draw. While most states levy a tax on trust income, trusts established in Delaware are not subject to state income tax if the beneficiaries are not residents of Delaware. South Dakota does not tax personal income, corporate income, or capital gains.
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WHAT ABOUT PRIVACY PROTECTION?
The Pandora Papers have revealed how hundreds of politicians, celebrities, religious leaders and drug dealers have used shell companies and trusts to hide their wealth and investments.
“The Pandora Papers are only about individuals using secret jurisdictions, which we would call tax havens, when the goal is to evade tax,” said Steve Wamhoff, director of federal tax policy at the Institute of left on taxation and economic policy in Washington. .
South Dakota offers extensive privacy protections for assets held in trusts, including the sealing of court documents and legal proceedings related to the trust. Delaware is a popular place to register limited liability companies, which can include shell companies created specifically to hide assets or financial transactions. Delaware law does not require public disclosure of the names of the owners or members of the LLC.
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HOW DO STATES BENEFIT FROM IT?
The trust industry can be lucrative, not only for the wealthy and the businesses that help them protect their assets, but also for government coffers.
In South Dakota, the state bank franchise tax fund balance, which included franchise taxes paid by trust companies, stood at more than $ 44.6 million during the l fiscal year 2020, up from $ 34.7 million the previous year and more than double the balance in 2015.
Delaware collected nearly $ 81 million in franchise taxes from banks and trust companies in fiscal 2020. Bank franchise taxpayers are exempt from Delaware corporation tax. But the overall impact of the fiduciary industry is much greater. A 2011 report commissioned by a coalition of Delaware law firms and banking institutions estimated that non-state trusts contributed between $ 600 and $ 1.1 billion annually to Delaware’s economy.
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ARE WE DOING SOMETHING?
While some members of Congress are calling for a stricter scrutiny of trust companies working with foreign clients, the response to the Delaware Pandora Papers has so far been muted.
Delaware State Department spokesperson Rony Baltazar said the agency was not aware of any calls from lawmakers or tax fairness groups to change the way the state handles registration corporations or trusts.
Federal officials, meanwhile, targeted some privacy protections with the enactment of the Business Transparency Act earlier this year. The law requires many companies to identify their âbeneficial ownersâ who exercise substantial control over an entity, or who own or control at least 25% of the stakes, with the Financial Crimes Enforcement Network of the Ministry of the Treasury, or FinCEN.
The law aims to ban anonymous shell companies that criminals and foreign officials have used to hide financial transactions and launder money, but it includes exemptions and exceptions. Among other things, the term âbeneficial ownerâ does not apply to a person whose only interest in the entity is an inheritance right.
Foreclosures see sharp increase as federal protections end – RISMedia
October 20, 2021
Montana Loans
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Roberta T. Mainor
As expected, the end of federal protections in September coincided with a significant increase in foreclosures, as notices of default, scheduled auctions or bank foreclosures rose 34% in the third quarter of this year according to a new report from ATTOM Data Solutions®, potentially foreshadowing a difficult winter for homeowners still struggling with the pandemic.
The extent of any looming crisis remains uncertain, as industry experts hope lenders will work with distressed homeowners to avoid the most drastic consequences of financial hardship.
But without government protections, it looks like many banks are ready to at least start the process. New foreclosure filings in September 2021 more than doubled from September 2020, according to the report, as lenders rushed to start the process as soon as protections ended.
âSo far the government and the mortgage industry have worked together to do an extraordinary job of preventing millions of unnecessary foreclosures by using the foreclosure moratorium and mortgage forbearance program,â said Rick Sharga, vice-president. executive chairman of ATTOM subsidiary RealtyTrac, in a press release. “But there are hundreds of thousands of borrowers who are expected to come out of forbearance over the next two months, and we may see a higher percentage of those borrowers defaulting on their loans.”
In numbers
In news that could be interpreted as positive, foreclosures overall are well below levels seen in recent years and are highly unlikely to exceed those criteria by the end of the year, even with significant increases according to the report.
âDespite the increased level of foreclosure activity in September, we are still well below historically normal numbers,â Sharga said. âSeptember’s lockdown actions were almost 70% lower than they were before the COVID-19 pandemic in September 2019, and third-quarter lockdown activity was 60% lower than in the same quarter this year- the.”
This is almost certainly because of forbearance and the federal moratorium on foreclosures, rather than a reflection on the broader economic outlook for borrowers. And the situation for many could still be dire.
Bank foreclosures also jumped 22% in the third quarter, according to the report; and last month saw an 8% increase in foreclosures from the previous month, indicating that many borrowers are unable to defer payments or get out of foreclosure in any other way.
Overall, a total of 45,517 properties were subject to foreclosure in the third quarter of 2021.
Geography
The foreclosure rate in the third quarter of 2021 does not appear to correlate geographically with a particularly strong trend. In order, Nevada, Illinois, Delaware, New Jersey and Florida were the top states, all seeing more than one in 2,000 properties being foreclosed. As for the subways, Atlantic City, New Jersey (one in 709 housing units with a foreclosure filing); Peoria, Illinois (one in 754); Bakersfield, Calif. (One in 923); Cleveland, Ohio (one in 936); and Las Vegas, Nevada (one in 1,167) were the hardest hit.
The least affected states were decidedly more rural and included South Dakota, West Virginia, Oregon, Montana, and North Dakota. All had foreclosure rates lower than one in 15,000 properties.
In terms of foreclosures, Illinois and Florida (with 965 and 564 properties, respectively) were joined by Pennsylvania (480 properties); Michigan (401) and New York (370). Overall, 2,682 homes nationwide were foreclosed in September, up 33% from a year ago.
Jesse Williams is the Associate Online Editor of RISMedia. Send him your ideas for real estate news by email at [email protected].