Concern raised about first update to trust industry since 2021
South Dakota’s trust law is getting its first update since the Pandora Papers reporting on the trust industry in 2021.
Supporters said the update will save time and money. But some observers worry the change makes it easier for those hoping to launder illicit money.
The new law allows for digital execution of trust documents. That means real pens signing real paper is no longer needed.
The bill is part of a near semi-annual update to the state’s trust law. The bill is crafted by the Governor’s Trust Task Force—a group comprised of trust officials, bankers and lawyers who write the bill that routinely becomes law.
Tom Simmons is a member of the task force and said digital signatures are still required.
“Trustees would be free to continue to insist upon wet signatures or to insist upon wet signatures if circumstances suggested that would be prudent," Simmons, who teaches trust law at the USD Knudson School of Law, wrote.
The bill amends the state's contract law surrounding electronic transactions, which has been in place since 2000.
"[It] has been seemingly functioning adequately in other contexts including, for example, multi-million dollar purchases, loans, or transfers of property and assets," Simmons added. "I recently purchased a new home and, but for the deed, everything was conducted with electronic signatures."
The Tax Justice Network ranks the United States as the top jurisdiction in the world for allowing individuals to hide finances from the rule of law. South Dakota has one of the premier trust landscapes within the country. The state has neither an income tax, nor rule against perpetuities, meaning the assets can be registered in South Dakota tax free for eternity.
Some in financial transparency groups worry the update to state law will make trusts more accessible to unsatisfactory characters hoping to park their money offshore.
“This new law allowing digital signatures makes trusts much more accessible, including to the world’s corrupt officials and criminals who are looking for places to park their dirty cash—behind a veil of secrecy and beyond the reach of law enforcement," said Erica Hanichak, government affairs director of the FACT Coalition.
Hanichak said the state needs to bolster laws that allow law enforcement to understand who benefits from trusts registered in South Dakota.
Earlier this year a South Dakota registered trust company, Kingdom Trust, was fined by a federal agency for failing to flag $63 million in wire transfers from illegal drug sales. The state Division of Banking is required to examine a trust company once every 3 years. It’s unclear when the state last examined the company. The state has 15 examiners monitoring 115 trust companies that hold about $600 billion in assets.
Last year, trust assets dipped for the first time since 2008. Some observers attribute that to rising interest rates and the decline in cryptocurrency value.
The bill passed near unanimously in the state legislature, with two voting against it in the Senate and one voting against the bill in the House. It went into effect on July 1.