For the first time in nearly two decades, South Dakota lawmakers heard no bills this year focused on the state’s trust industry.
The financial sector drew international attention when the Pandora Papers report dropped last October. Reporting from those leaked documents offered financial details about the world’s global elite and how South Dakota’s trust industry has become a destination for foreign assets.
The reporting by the International Consortium of Investigative Journalists identified the source of some of the assets held by South Dakota-based trust companies. One account belonged to a Colombian textile magnate who allegedly laundered drug proceeds. Another trust was tied to a Brazilian businessman who settled with that government for allegedly colluding to underpay local farmers. Yet another trust was owned by a sugar producing family in the Dominican Republic accused of forcibly evicting families from their homes.
The investigation did not prompt South Dakota lawmakers from either party to present legislation that would update oversight or regulation of the industry.
"I don't buy the report that was presented last fall."Kent Peterson, South Dakota House majority leader, on the Pandora Papers
“I don’t buy the report that was presented last fall," said House Majority Leader Kent Peterson.
The Republican from Salem said the trust industry is great for South Dakota. “It’s fantastic jobs. It’s done so much good for our state.”
There are more than 100 trust companies and state-chartered banks that employ about 500 people.
House Minority Leader Jaime Smith said he considered bringing a bill aimed at the trust industry after the Pandora Papers reporting came out. However, Smith—who is running for governor as a Democrat—said after meeting with trust industry officials he’s confident they’re doing careful screening of potential clients.
“At this point we didn’t believe a bill was necessary to do anything about that, but we are watching that, I want you to know that," Smith said. "I have had conversations with people who were around at the inception of the trusts companies, and they don’t want bad actors in their trusts either.”
The Pandora Papers investigation found that trust assets in South Dakota have more than quadrupled over the past decade.
The massive trove of documents shows $360 billion is held in trusts located in South Dakota. That has increased by $100 billion in just the past three years.
Task force holds back legislation
A task force appointed by the governor reviews state laws that regulate the trust industry. Task force members are comprised of representatives from the trust industry, as well as bankers and lawyers. They meet annually to analyze and review trust laws. The group has been meeting since 1997.
The task force does not publicly announce its meetings. Members review federal changes to trust law, as well as actions in other states and in state courts. The task force provides the governor with an annual report detailing its recommendations by November 1 of each year. That report typically provides the detail for a legislative measure for lawmakers to consider.
That routine bill was not introduced this year.
The task force’s authority came originally from Gov. Bill Janklow and has been extended to each governor, including current Gov. Kristi Noem.
“If they chose not to recommend changes to some of those laws and if legislators chose not to bring any bills I don’t know, necessarily, if there was anything to debate," Noem said.
One member of the state’s trust task force is Tom Simmons. He’s a law professor at the University of South Dakota. He said the group discussed a number of different topics this past year.
“Most it’s fairly technical and mundane," Simmons said. "I think that was the nature of topics this year.”
The bills are generally designed to “revise certain provisions relating to trusts.” They can be lengthy and detailed.
The chair of the trust task force is Carl Schmidtman. In an email exchange, he said the group considered changes this year that didn’t amount to much more than what he called some “cleanup items.”
He said the group chose to wait to introduce a bill until more substantive changes are necessary. Schmidtman adds the decision “was not due to last year’s unfriendly publicity about the South Dakota trust industry.”
Critic: Trust industry laying low
This is the only year since 2003 South Dakota lawmakers have not considered revisions to the state’s trust laws.
One former state lawmaker is not surprised the task force held off this year.
Susan Wismer is a Democrat from Britton. She suspects the trust industry decided to lay low while it was under the microscope.
“To provide an opportunity for discussion in this environment would be tempting fate. They’ve been working at staying up to date," Wismer said. "I’m sure that whatever new proposals they have to fine tune the law can wait for another year so they can let this thing lay for a while.”
Wismer was a vocal critic of the industry during her time in the Legislature. In 2020, Wismer lost a re-election effort to an opponent whose campaign was supported by contributions from the trust industry.
Republican state Sen. Gary Cammack said he’s comfortable the industry does the right thing when taking on new clients.
“The amount of vetting they do to even accept a customer is absolutely amazing," Cammack said. "They chase every rabbit down every trail, before they even consider allowing that customer to even put in an application for a trust.”
Some in the trust industry say the state could do more.
Paul Beckett is a British trust lawyer who has advised clients on trusts for 40 years. He’s a senior counsel with a legal firm on the Isle of Man.
He said the trust industry is a legitimate part of financial and inheritance planning.
And Beckett said to suggest that South Dakota’s trust industry is not well regulated is an overstatement.
“It's nothing to be ashamed of that the industry has achieved huge success very quickly," Beckett said. "Perhaps regulation hasn’t kept up with that success. Because you can borrow from the experience of other similar places, like ours.”
Beckett said trust regulation on the Isle of Man uses an independent authority to set parameters for how trust officials vet incoming business. He said that could help South Dakota industry officials identify high-risk business that might damage the industry’s reputation.
“So the state isn’t acting as the filter, it isn’t rooting out the problem, but it’s guiding the industry so that it does what is necessary,” Beckett said. “You go to 10different trust companies, they’ll have 10 different sets of procedures. They need one.”
Beckett said that kind of independent authority can help trusts stay clear of money from questionable sources.
However, any change to South Dakota trust law will need to wait until next year. The deadline to introduce bills this year has already passed, and the state's annual legislative session ends this month.
List of trust industry bills since 1997
- 2021:
- 2020:
- SB 1 — revise certain provisions pertaining to trusts.
- 2019:
- SB 51 — revise certain provisions regarding trusts.
- 2018:
- 2017:
- 2016:
- HB 1039 — revise various trust and trust company provisions and to establish and regulate South Dakota special spousal trusts.
- 2015:
- HB 1051 — revise various trust and trust company provisions.
- HB 1051 — revise various trust and trust company provisions.
- 2014:
- HB 1047 — revise various trust and trust company provisions.
- 2013:
- HB 1056 — revise various trust and trust company provisions.
- 2012:
- HB 1045 — revise various trust provisions.
- 2011:
- HB 1155 — revise various trust provisions.
- 2010:
- SB 103 — revise certain provisions relating to trusts.
- 2009:
- SB 127 — revise certain provisions relating to trust administration.
- 2008:
- 2007:
- HB 1257 — reduce the minimum number of board members of trust companies.
- HB 1288 — permit trustees to decant a trust under certain circumstances.
- SB 97 — revise certain miscellaneous provisions of the trust statutes.
- SB 98 — revise or clarify certain provisions relating to the classification and creation of trusts.
- 2006:
- SB 68— revise certain provisions regarding the administration of trusts and estates.
- 2005:
- SB 94 — revise certain provisions regarding trusts.
- 2004:
- SB 99 — revise certain statutes governing trusts and powers of attorney.
- 2002:
- SB 140 — revise certain provisions governing trusts.
- 2001:
- SB 81 — provide for and regulate business trusts.
- 2000:
- SB 174 — revise certain provisions regarding the administration of trusts and estates.
- 1998:
- SB 236 — to revise certain provisions regarding trusts and estates.
- 1997:
- HB 1279 — to revise certain provisions regarding the regulation and the taxation of trust companies.
