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 we?

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.

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I'm looking for the air quotes around "Brilliant":

Yes, Rep. Susan Wismer can claim victory. But Sen. Larry Tidemann played it smart today.... He declared today that he’s inviting Bollen to testify at GOAC’s next meeting scheduled for Sept. 24. Republicans took some tough hits on editorial pages for their treatment of Wismer, so the Tidemann decision today takes some of the steam out of the Democrats’ complaints claiming an EB-5 cover-up by Republicans.

...But here’s the smartest piece of Tidemann’s move. He’s essentially run an entire month off the calendar.... That takes Republicans four weeks deeper into their election campaigns [Bob Mercer, "The Persistence of Rep. Wismer and the Brilliant Move by Sen. Tidemann," Pure Pierre Politics, 2014.08.22].

Crockett and Tubbs—er, SDRC exec Joop Bollen and former Governor M. Michael Rounds

Brilliant: making sure this photo plays in every newspaper six weeks before the general election. South Dakota's EB-5 director Joop Bollen and former Governor M. Michael Rounds

I'm not sure what's so Republicanly brilliant about giving in to Democrats with a complete reversal. Last month Republicans didn't think Bollen was worth discussing. Tidemann maintained that the Government Operations and Audit Committee that he chairs had no authority and no need to ask Bollen questions.

If Senator Tidemann were "brilliant," he wouldn't have obstructed Rep. Wismer's Bollen-subpoena motion. He wouldn't have provoked statewide editorial outrage at the Republican cover-up. He wouldn't have set the stage for KELO to finally pick up my story from eight months ago showing that when the state privatized its EB-5 program, it put Bollen on commission and lowered his official salary below the legal threshold that allowed the state to issue a no-bid contract (now that contract was "brilliant"). A brilliant Tidemann would not have set the stage for Mike Rounds to get his glass EB-5 jaw hammered and Daugaard to get caught without a bucket by a Susan Wismer on fire at the Dakotafest debates. A brilliant Tidemann would not have provoked Democrats to retain formidable attorney Patrick Duffy to dig into the EB-5 documents and identify legal missteps (and Duffy won't sit silently twiddling his thumbs until September 24).

Joop Bollen, director, SDRC Inc.

Joop Bollen, SDGOP's Oliver North?

"Brilliant" (not to mention sensible, logical, responsible, practical...) would have been dragging Joop Bollen's butt before GOAC at its very first EB-5/GOED hearing on March 7 and demanding answers for the people of South Dakota. "Brilliant" would have been taking the EB-5 issue away from Dems before the primary.

"Brilliant" is the full-court press Democrats put on this week to force the SDGOP into a bad position.

Tidemann didn't shine yesterday; he surrendered... to Democrats. He scheduled a media spectacle in the heat of the campaign season. The least damaging outcome of Tidemann's delay is the GOP trotting out an arrogant and secretive foreigner as their Oliver North to declare EB-5 "a neat idea." The middle damage comes when Bollen either pleads the Fifth or declines to appear. The most damaging is Bollen smells the GOP throwing him on the fall-guy pile with Richard Benda and starts talking.

Democrats have known all along that Republicans would try to run out the clock on the EB-5 scandal to protect their candidates. But we have pressed anyway for answers, and now we may get them. Brilliant!

Laugh Line of the Week:

Craig Lawrence, the chairman of the South Dakota Republican Party, said Democratic calls for more investigation are fruitless.

"This is probably one of the most investigated matters in the history of South Dakota," Lawrence said. "Through all this, there's no smoking gun" [David Montgomery, "GOAC to Ask Bollen to Testify Despite Refusing Subpoena," that Sioux Falls paper, 2014.08.22].

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David Montgomery pieces together the most complete profile yet of Joop Bollen, the man who would be the most important witness in any state investigation of the EB-5 visa investment program... assuming any state officials were interested in really investigating the EB-5 visa investment program.

Montgomery provides a number of tidbits about the dashing Dutch EB-5 chief, Aberdeen landlord, and antiquities collector. He gets a little background on Bollen's longtime partnership with Georgia businessman Pyush Patel, who became Bollen's VP at EB-5-running SDRC Inc. after former USCIS official Maurice Berez left the scene.

Perhaps most usefully, Montgomery helps us understand the motivation for taking the EB-5 program out from under the Board of Regents and into a private corporation: Bollen saw a chance to put more money in his pocket.

In 2009, Bollen resigned his job at the International Business Institute to work for his own company, SDRC Inc., which was given control of South Dakota's EB-5 program the same day Bollen quit.

Jim Smith, Northern State's president, said EB-5 had became Bollen's passion — "the work he was doing and that he liked to do."

Working on his own also had financial benefits for Bollen. As a state employee, Bollen earned a fixed salary for promoting EB-5. SDRC Inc. received more money the more investors it recruited for South Dakota projects. Its fees for projects included annual payments to SDRC of $10,000 per investor, per year — millions of dollars all told, given the almost 1,000 approved investors the company signed up [David Montgomery, "EB-5 Secrets Lie with Silent Joop Bollen," that Sioux Falls paper, 2014.08.10].

And remember, Bollen made sure he wouldn't have to compete with other bidders for that payoff by keeping his official, non-commission salary under the $50,000 threshold that would have required the state to seek bids for EB-5 services.

People lost jobs. Foreign immigrants lost investments. South Dakota taxpayers lost $4.3 million. But EB-5 promoted all sorts of economic development in the Joop Bollen household. And it helped Emory University get a really nice mummy mask.

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Want more answers on the GOED/EB-5/Benda scandal? So do South Dakota's newspapers. Four—four!—big dailies across the state say the Legislature is not faithfully executing its charge to investigate the strange shuffling of EB-5 visa investment money that resulted in a bankrupt beef beef plant and a dead man.

The Yankton Press & Dakotan says Attorney General Marty Jackley's revelation that he was preparing to arrest Richard Benda before the former GOED chief's death in October 2013 raises questions the AG and the Legislature should be asking:

...why didn’t this come out many months ago as investigations at the state and federal levels began digging into this matter? This makes very little sense, and adds a new, frustrating mystery to this complex tale of corruption and suicide.

...Last week’s admission by the attorney general brought a curious new light to this subject, but the state doesn’t seem overly curious to wonder why it came out now and what else — if anything — had yet to be revealed.

South Dakotans deserve the whole story. At least they need to know that the veins of evidence have been thoroughly mined. Jackley’s actions last week suggest they haven’t ["EB-5: Why Did This Take So Long?Yankton Press & Dakotan, 2014.08.04].

(I've outlined many of the questions the Legislature has refused to ask here.)

The Watertown Public Opinion observes the 40th anniversary of Richard Nixon's resignation by backing my opinion that GOED/EB-5/Benda is South Dakota's Watergate:

The question yet to be asked, at least publicly, was how Benda could have done what he did without raising eyebrows until former Gov. Mike Rounds left office — he was the one who appointed Benda to his positions — and Dennis Daugaard became governor. Daugaard didn’t re-appoint Benda and it wasn’t too much later that the EB-5 scandal started heating up.

One can’t help wonder how Benda could do what he did without the help, or at least knowledge, of others. Were officials at Northern Beef Packers in Aberdeen, the recipients of EB-5 money, involved? How about SDRC President Joop Bollen, a private company in Aberdeen entrusted with handling EB-5 funds and making sure they got to where they were supposed to go? And how could a portion of the grant money intended for Northern Beef end up being diverted to SDRC in early 2011 to pay Benda’s salary in his new job at SDRC without raising red flags somewhere in state government?

Amazingly, no one on the Legislature’s Government Operations and Audit Committee, the group the attorney general addressed last week, asked him who else, if anyone, was involved, and Jackley said nothing about whether Benda acted alone or had help.

...So in the spirit of 40 years ago and taking liberty with paraphrasing, when it comes to EB-5, “Who knew what and when did they know it?” You’d think that question would be at the top of someone’s list. We can think of more then a few people who ought to be asking that question ["What Did They Know and When Did They Know It?" Watertown Public Opinion, 2014.08.04].

The Aberdeen American News, speaking from the scene of the crime (proverbially and perhaps literally), dishes outright ridicule and shame on South Dakota Republicans for stonewalling the investigation of a scandal in their own backyard:

While the GOP has been quite vocal about such “scandals” as “Benghazi,” “Obamacare” and Common Core, state Republicans are turning down the chance to investigate a real, live scandal in their own backyard.

One they actually have a chance to do something about.

But they don’t want to know anything more.

The EB-5 controversy has been a black mark on South Dakota and state leadership. It is a complex issue and investigation, made more cumbersome by the tangled personal and/or political relationships of former Gov. and Senate candidate Mike Rounds, Gov. Dennis Daugaard, Jackley and Benda.

We can’t believe that state legislators know all there is to know about how the state used EB-5, and who could have stopped its misuse.

What’s more galling is that those lawmakers don’t think you need to know anything more.

For shame ["GOP Fails on EB-5 Scandal," Aberdeen American News, 2014.08.06].

And this morning the Rapid City Journal, the paper I feel most comfortable dismissing as a Republican rag, looks its diehard conservative readership in the eye and says Democrat Susan Wismer is right and that Republicans should answer our questions about GOED, EB-5 and Benda:

The legislative panel should subpoena members of both the Rounds and Daugaard administrations who were involved in the EB-5 visas-for-investment program so the public can hear for themselves what was going on rather than be told what happened by parties who may have an interest in controlling the flow of information.

That doesn’t necessarily mean that there’s more to the story than Benda’s alleged misconduct. But when the Legislature’s committee -- which is tasked with finding out what went on in the EB-5 program and report its findings to the public -- goes into executive session and refuses to hear from anyone other than the attorney general, it invites speculation that we’re not being told all the facts ["Does EB-5 Probe Stop at Benda?" Rapid City Journal, 2014.08.07].

The GOED/EB-5/Benda scandal is real. It lost real money. It destroyed real jobs, It led to one very death. Mike Rounds, Dennis Daugaard, Marty Jackley, Joop Bollen, and everyone else involved in this scandal should answer our questions publicly so that we can understand what went wrong, hold accountable whoever is responsible, and forge better policy in the future.

35 comments

Senator Larry Tidemann (R-7/Tidemann) acts like he's afraid of his own shadow. He chairs the Legislature's Government Operations an Audit Committee. His committee has the power to subpoena witnesses to investigate crimes, corruption, and just plain sloppy work in state government.

Yet, as was the case in June, Senator Tidemann keeps looking for excuses not to use that subpoena power. Heading into today's GOAC meeting, during which the committee is supposed to discuss financial misconduct in the Governor's Office of Economic Development and the EB-5 visa investment program, Senator Tidemann tells David Montgomery that he doesn't think he can subpoena EB-5 chief Joop Bollen:

Tidemann said his committee has a limited scope in terms of investigating a complex scandal that combines government and private business.

“We are not the court system,” Tidemann said. “We can bring in things that deal with state government. I can’t bring you in to talk about your private funds. I don’t think that’s in the authority of GOAC” [David Montgomery, "Legislators Consider Subpoena in EB-5 Case," that Sioux Falls paper, 2014.07.29].

Even though Kurt Evans has taken the weight off my shoulders, permit me to do the attorney general's job for a moment.

GOAC, the Legislature, and all sorts of other public agencies have subpoena power:

1-26-19.1.   Administration of oaths--Subpoena powers--Witness fees--Disobedience of subpoena. Each agency and the officers thereof charged with the duty to administer the laws of this state and rules of the agency shall have power to administer oaths as provided by chapter 18-3 and to subpoena witnesses to appear and give testimony and to produce records, books, papers and documents relating to any matters in contested cases and likewise issue subpoenas for such purposes for persons interested therein as provided by § 15-6-45. Unless otherwise provided by law fees for witnesses shall be as set forth in chapter 19-5 and be paid by the agency or party for whom the witness is subpoenaed.

Failure of a person to obey the subpoena issued pursuant to this chapter may be punished as a contempt of court in the manner provided by chapter 21-34 [South Dakota Codified Law 1-26-19.1].

The Legislature itself acknowledged GOAC's subpoena power in HCR 1010, the resolution the Legislature passed last February to assure us that the Legisalture would do something about the GOED/EB-5 scandal and to forestall pressure for immediate and firmer action against GOED and SDRC Inc.:

...the South Dakota Legislature requests the Joint Committee on Government Operations and Audit to conduct hearings on issues related to the Governor's Office of Economic Development, beginning this 89th Legislative Session upon receipt of three independent audits. Hearings may include a review of all available audits and other information, ordering of additional audits, questioning of persons involved in related economic development projects, and opportunities for public testimony. The committee's powers to summon witnesses and issue subpoenas may be exercised as necessary... [2014 HCR 1010].

Review the rules of procedure for subpoenas in Chapter 15-6, and you find no language exempting private parties or private funds from subpoena. Senator Tidemann may defend his subpoenal reticence with SDCL 2-6-4, which defines the scope of GOAC's investigative power:

2-6-4. Investigative powers of Government Operations and Audit Committee. The Government Operations and Audit Committee may examine all records and vouchers, summon witnesses, and thoroughly examine all expenditures and the general management of each department [SDCL 2-6-4].

That statute refers to government departments. But remember, everything Bollen did in managing EB-5, even after he and Richard Benda finagled EB-5 authority into a private entity to better shield their get-rich-quick schemes from public oversight, he did under authority granted solely by a state contract with the Department of Tourism and State Development (now GOED). The funds Bollen managed were authorized by the state. The $989,946 indemnification fund that Bollen's SDRC Inc. is still holding belongs to the state.

Senator Tidemann, this isn't hard. Governors Rounds and Daugaard allowed the privatization of a state program. Under Bollen, SDRC Inc. was carrying out the functions of a state department. To suggest that state functions are rendered immune from state oversight by handing them to private contractors creates a perverse incentive and escape for corrupt state officials.

Subpoena Bollen. Find out how he used his state authority.

22 comments

Rep. Susan Wismer got the Government Operations and Audit Committee to add the GOED/EB-5/SDRC scandal to its agenda at the last minute last week. The conversation centered around whether the committee should subpoena Joop Bollen, the head of SDRC Inc., the private firm that Bollen spun off from the public agency he ran for the state to manage EB-5 visa investments in South Dakota.

GOAC Chairman Senator Larry Tidemann (R-7/Brookings) is trying to find out whether Bollen is worth subpoenaing:

Tidemann, R-Brookings, said he met Tuesday with state Attorney General Marty Jackley.

Tidemann said he has asked Jackley to present a subpoena template to the Legislature’s committee on government operations and audit.

That could happen at the committee’s next meeting July 29.

...Tidemann said the goal of a briefing by Jackley will be to explain to the committee whether Bollen would provide any useful testimony if a subpoena is issued [Bob Mercer, "Legislative Inquiry on EB-5 Might Seek Subpoena," Rapid City Journal, 2014.06.21].

Joop Bollen in China, April 2009. Downloaded from Facebook 2014.06.23

Joop Bollen in China, April 2009. Downloaded from Facebook 2014.06.23

That Senator Tidemann would turn to Attorney General Jackley to tell the committee whether Bollen has any information worth hearing indicates some two key assumptions:

  1. AG Jackley has information from and about Bollen that he hasn't shared with the rest of us.
  2. AG Jackley has asked Bollen all the relevant questions and looked for all the relevant documents that would help the public understand what he and Richard Benda were up to as they tried to get EB-5 dollars for huge projects like Northern Beef Packers, the Hyperion refinery, and the Keystone XL pipeline.

#1 is quite possible. #2 seems far less likely. AG Jackley has demonstrated his less-than-keen interest in investigating Bollen's management of the EB-5 program, claiming that he has no business inquiring about a fundamentally federal program.

Chairman Tidemann and the Legislature should not feel bound by the Attorney General's lack of curiosity. Bollen was the central figure in the GOED/EB-5/SDRC scandal. If anyone can tell us what happened, he can. Even if he would appear under protest and plead the Fifth to every question Chairman Tidemann, Rep. Wismer, and the other members might pose, Bollen needs to get the message that he worked for the state and that he must answer to the state. GOAC and the public have a right to look Bollen in the eye, ask "What the heck were you and Benda doing?" and hear his response, for the record.

Don't wait for the translation, Larry: issue the subpoena.

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Gordon Howie starts our week off right by airing Part 2 of our conversation about the EB-5 scandal, wherein we discuss the state documents Joop Bollen took AWOL and other details of the public–private transition of the EB-5 program:

You can view Part 1 here.

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Jonathan Ellis has a treasure trove of documents from the U.S. Customs and Immigrations Service exposing the corruption in South Dakota's EB-5 visa investment program. Last week Ellis found the connection between EB-5 and Keystone XL. Yesterday, Ellis revealed similar EB-5 abuses related to Iberdrola's South Dakota wind farm.

SDRC Inc., the private company the Rounds and Daugaard Administrations contracted to run EB-5 in South Dakota from 2009 to 2013, wanted to turn Iberdrola's Buffalo Ridge II project in Brookings and Deuel counties into their next big money-making project. SDRC Inc. exec Joop Bollen and state economic development chief Richard Benda had lined up 200 Chinese investors. But Iberdrola completed the project by 2010, without any EB-5 money. Bollen and Benda were trying to get EB-5 money as a reimbursement for Iberdrola, showing that, much like with TransCanada and Keystone XL, Bollen and Benda weren't using their authority to promote new economic development; they were simply looking for ways to draw big commissions for themselves and their pals by making EB-5 investments happen, regardless of necessity.

Ellis reports that USCIS sensibly rejected the EB-5 request for Iberdrola's finished project. But Bollen kept pressing for his profit... and he got South Dakota's biggest politicos, Republican and Demcorat, to back him:

When U.S. Citizenship and Immigration Services delayed its decision on whether the project would qualify, SDRC's founder, Joop Bollen, appealed to the state's highest elected leaders to intervene. The offices of Sens. Tim Johnson, John Thune, Rep. Kristi Noem and Daugaard responded with a letter signed by all of them asking the federal agency to review the denials it had rendered to the green-card-seeking investors.

Meanwhile, Bollen sent a memo to the investors of the project begging them not to withdraw their money, telling them repeatedly that South Dakota's "political powers" were working on their behalf.

"I can assure you," Bollen's memo said, "that the SDRC and your attorneys, together with the state of South Dakota's governor and its senators will press for and succeed in overcoming the USCIS' erroneous denial and achieve the desired approval of all your cases."

Bollen's memo badly overstated the situation. U.S. Citizenship and Immigration Services did not reverse its denial. Many of the investors in the project withdrew their money or were redirected to other EB-5 projects sponsored by SDRC. About two dozen of them moved their money to the Northern Beef Packers project, where they lost their investments after the plant declared bankruptcy last year [Jonathan Ellis, "S.D. Political Muscle Was Tapped to Intercede for EB-5," that Sioux Falls paper, 2014.04.27].

We have Bollen trading on the authority of South Dakota's elected officials to cling to his profit-making scheme. And we have our Governor, our Congresswoman, and both of our Senators playing along.

Senator Johnson is already stepping down. Senator Thune doesn't face the voters until 2016. But we have the opportunity to fire Rep. Noem and Governor Daugaard for their complicity in the EB-5 abuse of power right now.

*   *   *

Your investment is safe, your achieving the green card is within reach, and the joint efforts of SDRC, Hanul Professional Law, the state of South Dakota, and its political delegation in Washington, D.C. are being marshaled to achieve victory and success on your behalf [Joop Bollen, memo to Iberdrola investors, quoted in Ellis, 2014.04.27].

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