By Casey Michel
For years, a small company headquartered in South Dakota toiled in one of the most boring niches imaginable. Specializing in servicing individual retirement accounts, Kingdom Trust acted as a so-called custodian for these IRAs, focused on maintaining slow, steady growth. But in the mid-2010s, the firm began soliciting a radically different group of clients—shadowy companies based in notorious offshore havens that were having trouble opening US accounts.
On the surface, there was nothing illegal about this strategic shift. But what drove Kingdom Trust (which now also goes by Choice) into the sights of federal regulators was its egregious lack of due diligence. It “had virtually no process to identify and report suspicious transactions,” Himamauli Das, acting director of the Treasury Department’s Financial Crimes Enforcement Network, announced last spring.
It was the first time that FinCEN—ever, in its 30-year history—had busted a trust company for violating money-laundering prevention laws. And its investigation spotlighted not just the lapses of Kingdom Trust but an entire system that helps kleptocrats (who have looted their countries for private gain) and wealthy Westerners alike anonymously route their money through the US economy. It’s a system that’s evolved over decades—a race to the bottom led by states desperate to ensure a steady flow of revenue. It involves a sprawling network of trust companies, law firms, and real estate agencies that facilitate the transfer of suspect money. And it’s made the United States one of the world capitals of kleptocratic cash.
Today, there’s no need to stash your money in the Bahamas, Malta, or the Caymans when you can keep it in places like Sioux Falls, South Dakota. Thanks to favorable laws that make it an ideal refuge for the world’s wealth, America now sits at the center of the global offshore economy—an international pot of riches even larger than the GDP of China, by some estimates.
Journalistic investigations like the Panama Papers and Pandora Papers have helped expose the scourge of shell companies that are the linchpins of these offshore networks. Such corporate formations—which provide anonymity to the people behind them and are largely impenetrable to authorities trying to track the money—are not unique to the United States. Other Western democracies, including the United Kingdom, have also allowed them to flourish. But the US has gone far beyond most other countries in the level of secrecy that it provides, and it has done so at a far greater clip than any of its peers.