The Pandora Papers are the result of a massive data leak that unmasks the clandestine shell games and tax dodging schemes of the world’s ultra-wealthy, people with $30 million or more.

It was the result of the “largest-ever journalistic collaborative” involving six hundred journalists from a hundred seventeen countries and was coordinated by the ICIJ. Two of the media partners in the collaborative were the Washington Post and the Guardian — and it is worth looking at the rich amount of reporting, especially from the Guardian. As an aside, my role was to brief foreign reporters in advance of the release to understand the US hidden wealth system.

Pandora is a bigger leak than the Panama Papers, which was data siphoned off from a single Panamanian law firm, Mossack Fonseca. The Pandora leaks come from the confidential records of fourteen different offshore wealth service firms in Switzerland, Singapore, Cyprus, Samoa, Vietnam, Hong Kong, as well as firms in well-known tax havens such as Belize, Seychelles, Bahamas, and the British Virgin Islands.

These firms help wealthy individuals and corporations to form trusts, foundations, incorporate companies, and establish other entities in low- or no-tax jurisdictions. Some big names caught up in the leaks were King Abdullah II of Jordan, US billionaire Robert Smith, former UK prime minister Tony Blair, and Shakira.

The Pandora Papers analyzed almost 12 million files from these firms including leaked emails, memos, tax declarations, bank statements, passport scans, diagrams of corporate structures, secret spreadsheets, and clandestine real estate contracts.  Some reveal the real owners of opaque shell companies for the first time. This data will be producing revelations for weeks and months to come.

Yes, thanks to the transnational nature of the global wealth elite — and the mobility of their capital — there are more avenues available for the super-wealthy who want to play hide-and-seek with their assets. They can afford to hire sophisticated “wealth defense industry” professionals — tax attorneys, wealth managers, accountants — or form “family offices” to manage their dynastic family wealth over generations.

But many of the basic mechanisms or tools in the wealth hiding toolbox are the same: bank accounts and anonymous shell companies in secrecy jurisdictions (nation states or territories with few requirements for disclosure of real owners), civil law foundations (not to be confused with charitable foundations), and trusts. Trust ownership entities have been morphed and manipulated to put assets into a form of “ownership limbo,” where it is not clear who owns what — and what should be taxed (in my book The Wealth Hoarders, I discuss in detail why trusts are such a huge problem).

A recent expose by ProPublica revealed how the half of the richest hundred people in the United States deploy a complex trust arrangement called “Grantor Retained Annuity Trusts” [GRATs] to avoid future estate taxes. This really exposes this system.

It is true that the Pandora leak does not include many of the US superrich. That’s because this trove of leaks originated from offshore wealth advisory firms in twelve countries including Samoa, Cyprus, Belize, and Singapore — not places where super-wealthy US citizens go for their “wealth defense” financial services.

Unfortunately, no US wealth-advisory firms were part of the leaks. (If you’re at one of those firms feel free to confidentially reach out!) That’s been the missing ingredient to really engaging US politicians. Nonetheless, more than seven hundred companies revealed in the Pandora Papers have ties to real human owners (what they call “beneficial owners”) in the United States. So, stay tuned.

But you can be sure they use the same toolbox of offshore banks, anonymous shell companies, and opaque trusts that tax dodgers around the world use. And that’s big news for the rest of the world — that the United States has become a major tax haven and global destination for illicit wealth. Earlier leaks, such as the Panama and Paradise Papers, reinforced the misperception that most of these financial shell games take place “offshore,” in small countries with weak banking laws.

We’ve known for a while about the systems that wealthy people use — but what is new is a leak with identities of 206 owners of trusts that were set up in several US states. So, we can tell stories about real people, many with corrupt biographies, who are using the US system.

The reason billionaires love South Dakota is that they pioneered a tool the wealthy deploy called a “dynasty trust.”

A dynasty trust is a form of trust that is designed to sequester wealth for longer than ordinary trusts — sometimes for centuries or forever. They are often formed in US states, such as South Dakota, that have suspended or altered their state “rule against perpetuities,” legislation that previously limited the lifespan of a trust. (For the full wonk-out version see the background brief that Kalena Thomhave and I coauthored about dynasty trusts.)

In the 1980s, South Dakota changed its laws to attract wealthy people looking to park their money in trusts (they did the same thing to attract Citigroup and the credit card industry). A few other states followed suit, such as Wyoming and Alaska. Today, a private trust industry flourishes in South Dakota, helping billionaires hoard their wealth. This trust industry has effectively captured the state’s politicians, including their representatives in Congress.

I’m thrilled with all the critical publicity being focused on South Dakota. But other states are part of the “weak link” in transparency as well. Almost half of US states are now engaged in the interjurisdictional race to the bottom of who will change their laws to help coddle the rich.

It will be hard to tax the wealthy in the United States (or anywhere) under this current global system, where capital can flee to the shadows and dozens of countries and territories compete as “secrecy jurisdictions.” There will always be the Cook Islands, willing to sell off their sovereignty and keep lowering their requirements to attract the treasure. But the United States is obviously an economic Goliath that has more responsibility and possibility for fixing the system.

Federal legislation could override weak state laws when it comes to corporate reporting and trust law. It would be a heavy lift within our federalist system with strong state control over incorporation, trust formation, taxes, etc. But it’s not impossible. At the end of 2020, Congress passed the Corporate Transparency Act to require LLCs to disclose their real owners to the law enforcement arm of the Treasury Department.

For example, there are things the United States should do to shut down our own internal tax havens and fix our warped trust laws. Lawmakers could act at the federal level to ban or discourage the formation of dynasty trusts and GRATs for the purposes of tax avoidance and dynastic succession. Trusts holding assets over a certain size should be recorded in a public registry and beneficiaries should be disclosed. We could pass a federal “rule against perpetuities,” banning perpetual trusts and limiting their lifespan.

The United States should move in tandem to participate in the global treaty-making process and trade agreements that could be used to raise corporate transparency options. If the United States and the UK got together with the purpose of raising standards (as opposed to a “race to the bottom” status quo) — and enforced transparency as part of trade and other economic activity — that would have a huge impact.

For there to be a “global corporate minimum income tax” — something the G20 countries are currently exploring — there would need to be country-by-country tax reporting. So, Apple would have to disclose what they pay in each country and information about their business dealings (sales, number of employees, etc.). All these are examples of the pressure points for change.

The Pandora Papers will shake things up. But it sure would be good to have a couple of leaks from US trust companies to fill out the picture.