Remember how they nailed Al Capone?

One of the trickiest parts the EB-5/Northern Beef Packers/Governor's Office of Economic Development scandal is figuring out whether anyone broke the law. We've gotten mixed signals from the Governor and the Attorney General about Richard Benda's culpability, but since Benda is dead, we'll never get a verdict on whether he committed any outright crimes. Who's left to perp walk, and for what?

How about Joop Bollen, for tax evasion?

Joop Bollen's private company, SDRC Inc., makes loans and mortgages through subsidiary paper corporations. SDRC Inc. took $550,000 from Northern Beef Packers to pay Richard Benda monitor SDRC Inc's loans to Northern Beef Packers. As I reported last November, one would think this activity would make SDRC Inc. a bank.

SDRC Inc's lawyer Jeff Sveen thinks so. In a May 11, 2011 letter pertaining to litigation in California, Sveen says pretty much what I'm saying, that SDRC Inc., like a bank, lends money:

SDIBI is primarily involved in export promotions and facilitating direct investment for the State of South Dakota. It involves many components, including seminars and workshops, export finance, international trade resources, assisting companies with the South Dakota Foreign Trade Zone, Trade Lead Generators, and South Dakota Exporter's Directory.... It promotes economic development in South Dakota. EB-5 is just one component of the foreign direct investment activities offered by SDIBI. Under that EB-5 component, only equity projects are promoted. In contrast, SDRC, Inc. is completely different in its functions. It is not a facilitator in any equity programs. SDRC, Inc. does not promote economic development, but simply obtains funding through EB-5 and functions similar to a bank by lending those same funds to projects in South Dakota" [Jeffrey T. Sveen, letter to Jennifer S. Elkayam, 2011.05.11].

SDRC Inc. lends money, like a bank, says SDRC Inc's lawyer.

Why does this matter? Because South Dakota imposes an income tax on banks. We call it the bank franchise tax. If you make money lending money—and SDRC Inc. did—then you pay taxes on that money to South Dakota—and SDRC Inc. did not.

Look at the list of money lender licenses issued by the South Dakota Banking Commission. The economic development corporations in Aberdeen, Huron, Webster, and Eureka have had to get lending licenses. The Lutheran Church Missouri Synod had to get one for who knows what. But SDRC Inc. doesn't have a money lender license.

Now lending money without a license is only a misdemeanor. But not paying bank franchise tax to the state... that will hit players in the pocketbook. If SDRC has avoided getting a lender license, it has likely avoided paying the 6% on its net income required by the bank franchise tax. It's hard to know how much Bollen, Sveen, Benda, and friends have skimmed from the millions in EB-5 investment, but if they're loans, they owe South Dakota some bank franchise tax, plus penalties and interest.

So if Bollen and Sveen and Mike Rounds and Dennis Daugaard will appear before the Legislature's Government Operations and Audit Committee on September 24, or heck, maybe at Friday's State Fair debates, we should open with these questions:

  1. Was Joop Bollen running a bank?
  2. Did Joop Bollen license his bank?
  3. Did Joop Bollen pay bank franchise taxes?
  4. On #3, if not, why not, and when will he?

Richard Benda is dead. Saying we would have arrested him or fired him is unprovable hindsight fall-guyism. We have Joop Bollen right there, sitting in his nice house in Aberdeen, quite possibly still collecting interest on loans floated to EB-5-backed enterprises and sitting on money that lawfully belongsto the State of South Dakota.

Attorney General Jackley, Governor Daugaard, are going to collect that bank franchise tax? Or are we o.k. with tax evasion?

Update 09:32 CDT:P&R says he'd get rid of EB-5 even if there were no illegal or unethical activities in South Dakota's exploitation of that program. But the point here is that there may well be illegal activities. That's what makes the EB-5/Northern Beef Packers/GOED/Benda/Bollen story so complicated: we have at least two levels of critique, with bad actors abusing bad policy.