[Music]

Drew: Given our needs, given the absolute necessity for growth, given the future, the truth is joining John Bontecou was every bit as certain as death and taxes.

Joe Black: Death and taxes?

Drew: Yes.

Joe Black: Death and taxes?

Drew: Yes.

Black: What an odd pairing.

Drew: It's just a saying Mr. Black.

Joe Black: By whom?

Drew: You're not familiar with the phrase in this world nothing is certain, but death and taxes?

Joe Black: I am now.

Melissa Harris-Perry: That little exchange is from the 1998 movie Meet Joe Black. Brad Pitt is cast as an unlikely Grim Reaper, and he is surprised and maybe even a bit tickled to discover that his own inevitability as death is commonly mentioned in the same breath with the certainty of taxes. I can see why it might seem to be an overstatement. Compared to death taxes seem relatively minor, but remember, even the mighty have been fell by excursion into evasion.

Speaker: What is this?

Speaker: If we can establish that any of these coded entries indicate payment to Capone then we can put Capone away.

Melissa Harris-Perry: Yes, it might be tempting to sidestep the treasury department altogether, but if you watch enough Hollywood movies from The Untouchables to The Firm, to The Wolf on Wall Street, you'll notice a different lesson emerge. Don't evade taxes and risk jail. Secure a crafty accountant to keep more of your coins in your pocket while staying just on this side of the law. Heck in 1994's Shawshank Redemption, Andy Dufresne uses his free incarceration accounting skills to cheat death and he got a little justice in a corrupt system.

Andy Dufresne: If you want to keep all that money give it to your wife. The IRS allows a one-time-only gift to your spouse for up to $60,000.

Captain Adler: Bull [beep] Tax-free?

Andy Dufresne: Tax-free. IRS can't touch one cent. It's perfectly legal. Go ask the IRS. They'll say the same thing, but you do need someone to set up the tax-free gift for you. I suppose I could set it up for you. That would save you some money. If you get the forms I'll prepare them for you. Nearly free of charge. I'd only ask three beers apiece for each of my coworkers.

Melissa Harris-Perry: Apparently the state of South Dakota is offering a masterclass in this powerful loophole lesson. Just a little over a month ago an unprecedented global investigation leaked nearly 12 million financial documents to the International Consortium of Investigative Journalists in Washington and over 600 journalists around the world. All the Pandora Papers, the documents give the public a glimpse into a shadow financial system benefiting the world's most wealthy and powerful. Among the most surprising is that the United States has become a major tax haven for foreign assets. The primary location for these assets?

Singer:

[music]

Hail South Dakota,

A great state of the land.

Health, wealth, and beauty,

That's what makes her grand.

Melissa Harris-Perry: Oh, yes. South Dakota is the new Cayman Islands. Out of the 200 trusts identified in the US by the Pandora Papers, more than 80 of them were located in South Dakota. The Pandora Papers show that over the past decade, the amount of money in these South Dakota trusts has more than quadruple to at least 360 billion, but that might not even be the full extent of it. Some financial experts have estimated that as much as $1 trillion could be hiding in South Dakota's trusts. That's where we start today. I'm Melissa Harris-Perry, and this is The Takeaway. Casey Michel has authored a new book American Kleptocracy: How the U.S. Created the World's Greatest Money Laundering Scheme in History. It's going to be published in just about a week. Thanks for joining us, Casey.

Casey Michel: Thanks so much for having me, Melissa.

Melissa Harris-Perry: What are the regulations or maybe the deregulation that led up to this moment in South Dakota?

Casey Michel: Melissa, that's really the trillion-dollar question that we are dealing with right now. As best as we can tell, this transformation of South Dakota, which is, again, part of a far bigger transformation of the US itself into this global leading offshore haven, again, with South Dakota, so few of us paying any attention to this transformation in South Dakota, you really have to go back to the 1980s. This isn't something that happened overnight. This isn't something that happened yesterday. This is something that's really decades in the making, again, with so few of us paying any attention to this.

You think back to the 1980s, remember, especially places like the American Midwest and the American Rust Belt, we had agriculture falling on hard times. You had manufacturing in the US falling on hard times, and especially states like South Dakota that were so reliant on these industries really falling off an economic cliff along, again, with a number of other states right here in the US. What we now know is that the leadership in the state, which was governed at the time by a guy named Bill Janklow, and he had this great nickname, Wild Bill. He was this swaggering, bigger-than-life politician. He had an idea. He saw an economic lifeline.

Where others were still trying to bring manufacturing or agricultural jobs back, Governor Janklow, he decided to do something else. That was two things. One, he tried to attract, of all things, the credit card industry into the state of South Dakota. He ended up repealing the interest rate caps on credit cards. Again, we think back 40, 50, 60 years ago, it's almost a foreign idea that there used to be these low, low, low caps on interest rates for credit cards. Now, obviously, we're talking about trillions of dollars of credit card debt. Janklow said there's no reason that we need to have those credit card interest rates. Why can't banks just charge what they want in terms of interest rates? By the way, they can come to South Dakota and do that.

Lo and behold, some banks took them up on that and that's one of the reasons South Dakota is the leader in the credit card industry. What we saw from that though, is that Janklow realized what a success that could be, what a success these financial deregulations could be. He saw something else. He saw there was another opportunity when it came to trusts. What we're talking about in South Dakota, we're talking about off-shoring and financial secrecy and in large all these illicit and suspect and dirty money assets from abroad coming into South Dakota. We're talking not about the credit card industry, but we're talking about trust.

Melissa Harris-Perry: Casey, hold on. I want to ask one thing. How do we know the money's dirty? In part as I'm listening, I'm taking notes. Like, okay, when your state has fallen on hard times, diversify, make some choices, get new industry. If you're rich, then find a place to shelter your money. Does that follow that it is dirty money?

Casey Michel: Certainly not all of it is dirty money. We know, for instance, that any number of Americans, successful Americans, American entrepreneurs, wealthy Americans who have built industries, who have built companies, have been taking advantage of the financial secrecy provisions in South Dakota. I'm not saying that all of the money, all of this estimated up to $1 trillion of money that we now know is housed in South Dakota is dirty, but what we do know, and especially what we saw out of the Pandora Papers just a month ago, is that there's every incentive for anybody who has any kind of dirty money burning any hole in their pocket to flock not to the Cayman Islands, not to Switzerland or Panama, but to flock to the newest offshore haven in the world and that is South Dakota.

Again, this is what all those of us who've been researching this field, studying and investigating this transformation in the US, we've been trying to ring the alarm bells about this for a few years, that, again, there's every incentive for those narco traffickers, those arms traffickers, those oligarchs, those crooked politicians elsewhere, when they're looking to transform their money, looking to hide their money, looking to use their money without anybody being able to track it back to them, we know that South Dakota is now the perfect home for them. When I say dirty money, we're not talking about the totality of everything in South Dakota. In fact, we only know a fraction of a fraction of who's actually been taking advantage of South Dakota. We do know that even within that fraction, we have rights abusers, we have those who are responsible for environmental crimes, we have corrupt or crooked politicians that are flouting local laws and moving and hiding their money for themselves, for their families, for their friends, and then being able to do whatever they want with it because nobody can track it back to them.

Melissa Harris-Perry: If I'm Average Joe South Dakotan, how did these deregulations that are allowing this new influx of foreign dollars, how did it impact my life?

Casey Michel: Well, you know what's funny, Melissa, if you're an average South Dakotan, this didn't actually end up impacting your life that much. This didn't bring in tens or hundreds of thousands of jobs into South Dakota. Heck, the South Dakota government doesn't even necessarily see any revenue from all of these trusts coming into the state, all of these figures coming into the state. What we saw is that white-collar accountants, white-collar financial managers, white-collar lawyers, this upper crust, well-educated, a well-trained cohort of professional class South Dakotans, those were the ones that really benefited. We're not talking about the farmers. We're not talking about those who actually lost their jobs in the manufacturing base. What we saw instead was an influx of white-collar professionals into the state. Again, these are the trust managers, these are the accountants, these are the lawyers that then are able to, in this case, bankroll local politicians, bankroll local political forces, and really ingratiate themselves with the South Dakota Legislature. In Political Science, they had this term, "Captured State". When you have local legislators that are effectively betrothed to, or intimately connected with, a single industry.

Think of oil and gas in Texas or think of, in this case, shell companies in Delaware. What South Dakota now has is it's been effectively captured by the wealthy, powerful clique that runs the trust industry in South Dakota. Ironically enough, we're not, again, talking about tens of thousands of jobs that will affect the average South Dakotan. We're talking about those who are most closely connected to the South Dakota Legislature that have been benefiting for years and years and years. Again, attracting and incentivizing the inflows of all of this questionable, suspect, anonymous, and in many cases as we now know, dirty money into the state and there's no reason to think that that won't continue for the foreseeable future.

Melissa Harris-Perry: Typically, Casey, with a captured state, partisanship doesn't matter nor does ideology. It doesn't really matter what party the mayor of Detroit is from. The mayor of Detroit is always going to be captured by the auto industry is kind of the claim. Is that similar here? Do we see across ideology, across party, that capture in South Dakota?

Casey Michel: We have seen that exactly for decades. It doesn't matter what side of the political aisle the legislators are on, time and time and time again, across the political aisle, these legislators have supported the growth of the expansion of, and the entrenchment of this trust industry. I think a great case in point for that is one of the things the governor did, not only did he create the incredible deregulatory moves, one of the things that he did, which is, frankly, a genius move on his part for however horrific the outcome of this has been afterward, is he actually created what is called a Trust Task Force.

When we're talking about captured states, it doesn't get more in your face than this Trust Task Force because who are the people on this task force? You have the state legislatures. Some of them in the state house, in the state senate. Then on the other side of the task force, you have those professionals that are running the trust industry. The task force is a meeting of the minds where you have the professionals in the trust industry directly recommending, directly telling the legislators, what specific policies should they implement, what specific bills should they pass, and what specific deregulation should they make sure to implement so South Dakota can still remain at the head of this explosion of the offshore economy here in the US.

Melissa Harris-Perry: If I think about television or movies, I'm thinking about the bad guys are on their boat in the Cayman Islands, or maybe they're hiding money in Switzerland or Bermuda. I guess I can't imagine them out in the Badlands in South Dakota.

Casey Michel: Well, you know what's funny, Melissa, is the beauty of South Dakota, it's similar to a couple of other states that have also really refined the practice of offshore wealth here in the US. Really, the beauty of South Dakota is these guys never have to set foot in the state of South Dakota. They never actually have to go to Sioux Falls or to Pierre in the Capitol. All they have to do is make a phone call. All they have to do is send an email, or maybe even better yet, hire an American lawyer or a South Dakota lawyer to do that for them. Then, oh, by the way, add that added level of secrecy with the attorney-client privilege. When you say you can't imagine these guys out in the Badlands, Melissa, you're exactly right. They never go to the Badlands. They never go to South Dakota.

They just use their computer. They use their phone to set something up right there in the state, and again, the state has made it so, so, so easy for them to do so. All that they want to do in South Dakota, all the legislature wants to do, is make it as easy and quick and simple a process as possible for these oligarchs, for these kleptocrats, for these criminal or corrupt figures abroad, to move their money, to house their money, to launder their money, and then be able to enjoy their money for as long as they want without anybody else being able to track it back to them.

Melissa Harris-Perry: Is this fundamentally different than the ways that wealthy people and wealthy corporations have been hiding their money forever? Is this just an outrage because we don't have the same cash they do?

Casey Michel: What's funny about that, Mellisa, is that you are in so many ways exactly right. You are hitting on a specific reality and dynamic in the growth of the global offshoring economy. Again, when we're talking about the global offshoring economy, we're talking about an estimated tens of trillions of dollars right now. We're talking about an offshoring economy with the equivalent GDP of something like China. It's almost an offshore superpower. You think of these traditional offshore havens, again, the Caymans, the British Virgin Islands, Switzerland, and Panama, that have been really providing so many of these similar services.

Again, South, Dakota's not the only jurisdiction that provides, in this case, anonymous perpetual trust. We see this elsewhere, but what happened in places South Dakota or Delaware or Wyoming or other parts of the US is that American legislators or South Dakotan legislators, realized that there is this incredible geyser of illicit, suspect, dirty money that is just erupting around the world and looking for a home. What they realized is that you have the marriage of a few different things. The marriage of American private property rights. You have the American legal regime. Then even beyond that you have South Dakota as a sovereign state.

We still have a federal polity here in the US. South Dakota can create its own regulations. It can create its own financial architecture to attract that. What we really have, and again, this is another political science term, is a race to the bottom. Not only among American states, but among all of these global offshore jurisdictions. A race to see who can provide the most secrecy, the most protections, the most, as another journalist said, potent force fields for hiding your wealth for yourself, for your family, for your children, for your friends, for the rest of your regime for as long as you possibly want.

Melissa Harris-Perry: Who else is in the race?

Casey Michel: Certainly, here in the US, we have a number of states. We have, again, South Dakota on the anonymous trust side, but when we're talking about things like anonymous shell companies, which is, again, a very popular building block of the broader offshoring architecture, you got to think of states Delaware, you gotta think of states Wyoming, states Nevada. Again, some of these smaller states that maybe don't have as much natural resources or industry, but that nonetheless realized that, again, there's trillions and trillions of dollars floating around the offshoring world looking for a home, looking to be hidden and anonymized and laundered.

Again, you have all these American states that realize they can tap into that. They can provide new jobs for certain professionals. They can, as we see in certain states, even take commission of some of that money that comes in to help fund state budgets. They can even go beyond that and begin cutting taxes elsewhere for constituents. You have this dynamic that builds upon itself and again, we see this in the US, we see this in other offshore jurisdictions elsewhere, but it's the same story time and again. It's these smaller states, smaller jurisdictions, that realize they have the actual legal and financial power to create this architecture to hide all of this money.

It's really more money than you could imagine. It's too big to see in many ways. We are only just now, learning about the depths to which South Dakota has sunk, and who has been taking advantage.

Melissa Harris-Perry: Does the federal government have any incentive to step in and regulate this?

Casey Michel: The short answer is yes. That's for a few reasons. If you think about the federal government, the US still likes to position itself as this global anti kleptocracy leader. In many ways, the US, it is. It was the first country to criminalize the bribing of foreign officials. It was the first country to criminalize money laundering in and of itself. I know, certainly, the Biden administration and many in Congress would like to make sure that the US is still seen as a leader in the fight against corruption and the fight against offshoring. It's tough for American officials to look foreign counterparts in the eye and say, "You need to clean up your offshoring sector," when all they have to do is come back and say, "What about Delaware? What about South Dakota?"

That's one dynamic, but the other one is that the more this offshoring world continues to exist and expand, the more places South Dakota continue to feast at this trough of suspect and dirty money. That dynamic, that can't last perpetually. Something is going to break because what you have is populations in developing countries that are watching their crooked or corrupt political figures, loot youth education budgets, health budgets, infrastructure, budgets, really decimate local populations, and soak up so much of the wealth that should be for those populations. We know what that leads to. That leads to domestic instability, that leads to revolution, that leads to civil war that eventually leads to national security concerns for the US, or it leads to immigration crises that, as we see right here in the US, do impact those of us here in the United States of America.

You have, also, these national security concerns that are absolutely going to come and are absolutely going to accelerate, because of what South Dakota has transformed into. Yes, Melissa, absolutely, the US Federal Government has an interest in cleaning this up and we're finally beginning to see signs of them beginning to do something about it.

Melissa Harris-Perry: Casey Michel. Casey's new book, American Kleptocracy: How the U.S. Created The World's Greatest Money Laundering Scheme in History, is going to be published very soon. Be on the lookout and be sure you read it. Casey, thanks so much for joining us.

Casey Michel: Thanks so much, Melissa.

[00:20:19] [END OF AUDIO]

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