House committee wants trust secrecy cut after Pandora Papers

SIOUX FALLS, S.D. (AP) — Democrats on a U.S. House committee pushed Wednesday for reducing the financial secrecy that has allowed many of the world's richest and most powerful to hide their assets in South Dakota and other trust-friendly states.

During a hearing called by the Oversight Subcommittee for the House Ways and Means Committee, Democrats said they were appalled by revelations in an investigation by the International Consortium of Investigative Journalists, dubbed the Pandora Papers, that show a booming, secretive trust industry in the United States, with South Dakota leading the way.

Advocates for greater financial transparency urged House lawmakers to make sure a recently-announced initiative from President Joe Biden's administration sweeps trusts into reporting requirements for law enforcement and financial regulators.

“Letting this accumulation of hidden wealth go unchecked will only exacerbate our two-tier tax system," said U.S. Rep. Bill Pascrell, a New Jersey Democrat who chairs the subcommittee. "I will not be complicit in further-cementing a have and have-not economy."

The federal government potentially stepping in to regulate trust industries would likely be an unwelcome development for Republican lawmakers in South Dakota, who have worked closely with the trust industry to develop a financial haven. When the Pandora Papers investigation revealed in October that South Dakota had forged the way for the United States to become a leading destination for the world's wealthy to park their assets, the state's GOP wore the distinction as a badge of honor.

Pascrell on Wednesday singled South Dakota out as the “the Grand Cayman of the Great Plains” but also acknowledged that Democratic-run states have indulged in the practice. Trusts in South Dakota have more than quadrupled over the past decade to $360 billion in assets, including an increase of $100 billion in the last three years, the Pandora Papers investigation showed.

South Dakota Gov. Kristi Noem, a Republican who sat on the House Ways and Means Committee while in Congress, declined an invitation to testify at Wednesday's hearing, saying she had prior commitments. Her office did not immediately respond to a request for comment from the Associated Press. Pascrell said he would send a list of questions to the governor.

During Wednesday's hearing, Republican members mostly objected to the committee's topic, saying instead they should be looking into recent leaks of tax information. They also cast trusts as an innocuous practice that small business owners use and pointed out that the Pandora Papers investigation didn't find any explicitly illegal activity.

“No one here supports foreign nationals laundering money in the United States,” said U.S. Rep. Mike Kelly, a Republican from Pennsylvania. “I worry that the majority wants to go after trusts in the U.S. generally through massive reporting regimes and new regulations. But farmers, small businesses and millions of average Americans use trusts to plan for the future.”

However, more than 330 current and former politicians identified as beneficiaries of the secret accounts include Jordan’s King Abdullah II, former U.K. Prime Minister Tony Blair, Czech Republic Prime Minister Andrej Babis, Kenyan President Uhuru Kenyatta, Ecuador’s President Guillermo Lasso, and associates of both Pakistani Prime Minister Imran Khan and Russian President Vladimir Putin.

Erica Hanichak, the government affairs director with the Financial Accountability and Corporate Transparency Coalition, told the committee, “It is imperative that Congress fill its oversight and appropriations role to aid the administration in denying financial safe haven, not only to tax evaders, but also to drug traffickers, human rights abusers, kleptocrats, terror financiers and sanctions dodgers."