As we wait for the South Dakota Division of Banking to determine whether Joop Bollen should have been paying bank franchise tax on the money he made fleecing foreign investors, an eager reader finds a hint that Bollen's boon companion James Park may also have been evading bank franchise tax.

Before Northern Beef Packers, the Veblen dairies were the biggest project in South Dakota's EB-5 program. The Veblen dairies received $13.5 million in EB-5 investment from 27 Korean investors before violating South Dakota environmental rules and going bankrupt in 2010.

Among the creditors listed on the Veblen East Dairy list of unsecured claims was Park's firm Hanul Professional Law Corporation, which claimed to have loaned Veblen East $2 million. Mikkel Pates reported that Hanul had $2.45 million in claims against the associated Dairy Dozen Veblen LLP but received only $248 in the bankruptcy settlement.

Hmm... so Hanul was a law firm, but they were lending at least $2 million to the Veblen dairies. As with Bollen's EB-5 shop SDRC Inc., Hanul appears neither to have obtained a lending license nor paid bank franchise tax on any proceeds from loans nor even an official exemption like the one the Banking Commission granted to shady offshore lender Epoch Star to save Northern Beef Packers.

The more we investigate South Dakota's EB-5 program, the more we find EB-5 players Joop Bollen and James Park trying to avoid the rules by which honest South Dakotans play.

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One more detail sneaks out of Denise Ross's report on Joop Bollen's inept management of Northern Beef Packers. The South Dakota Banking Commission may have exempted an honest-to-goodness bank from our bank franchise tax:

Kang said once it became clear that Chinese Development Industrial Bank out of Taiwan was willing to loan Northern Beef $30 million through its subsidiary, Anvil Asia Partners, Hanul and Bollen began working directly with bank officials [Denise Ross, "Source: Bollen, Lawyer in Control of Northern Beef Operations, Finances," Mitchell Daily Republic, 2014.10.17].

Remember: Northern Beef Packers got a $30 million loan from Epoch Star Limited, which was a subsidiary of Pine Street Special Opportunity Fund, which was a subsidiary of Anvil Asia Partners, which Kang says was a subsidiary of the Chinese Development Industrial Bank.

Under pressure from the Governor's Office of Economic Development, the South Dakota Banking Commission said Epoch Star didn't have to pay bank franchise tax on that loan.

Cut out the middle words, and we see the South Dakota Banking Commission saying a bank making a loan wasn't really a bank making a loan.

Gee, Republicans, I think calling that a "special tax break to a shady offshore corporation" is putting it mildly.

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District 28 Senate candidate Rep. Betty Olson (R-Prairie City) earned herself some media attention this week. It seems only fair that we give her opponent in the Senate race, Parade Democrat Oren Lesmeister, a little air time.

Hat, cattle, and mustache—Oren Lesmeister, Democratic candidate for District 28 Senate

Hat, cattle, and mustache—Oren Lesmeister, Democratic candidate for District 28 Senate

Lesmeister runs Fox Ridge Ag Supply in Parade, Dewey County, on the Cheyenne River Indian Reservation east of Eagle Butte. He also raises wheat, sunflowers, corn and cattle on his patch of the high plains. He spoke to me Thursday from a motel room in Belle Fourche, about 150 miles from home. District 28 covers more territory than any other legislative district in the state: all of Dewey, Ziebach, Corson, Perkins, and Harding counties, most of Butte, and the northeast corner of Meade—14,700 square miles, almost a fifth of South Dakota, with about 3% of the state's population. He drove 235 miles just the preceding evening

That's sparse country to be out rustling up votes, but Lesmeister says campaigning is an "absolute blast," even for a Democrat campaigning in what Betty Olson's representation makes clear is hard right Republican country. Lesmeister reminds us that he comes from the eastern, reservation side of District 28, which leans Democrat. But even on the western side, where he says he gets skunk eye over that D in front of his name "every day," Lesmeister says he has great conversations with very "receptive" voters.

What do they talk about? Education funding comes up. Lesmeister says his school district, Eagle Butte, comes out better than others, since it receives a fair amount of impact aid from the federal government to make up for tribal land that doesn't pay property tax. But he looks around at the sprawling, far-flung school districts of District 28 and sees the state's "broken" funding formula failing to meet their needs. Lesmeister says we need more money for schools, but he's not proposing new taxes. He first wants to look at the hundreds of millions in sales tax exemptions as well as economic development handouts to corporations as sources of revenue to bolster our schools.

Lesmeister does talk taxes with his neighbors, particularly the agriculture productivity tax. In 2008, South Dakota revised its property tax to assess ag land not on the basis of land sale and rental values but an Olympic average (eight years, drop high and low) of crop prices and yields for comparable land. Lesmeister says that taxing ag land based on the corn or hay it could have produced according to past averages of neighbors' activity is like taxing a 40-story building for 200-stories: you could have built a taller skyscraper, so we're going to tax you as if you had!

Replacing that tax methodology is tricky, and Lesmeister wants to have more conversations with experts, but he'd rather return to assessing land on sale and rental value than keep the current system. At least with land sale prices, says Lesmeister, we're dealing with real numbers.

In general, Lesmeister says, the best tax reform would allow everybody to pay less. But he recognizes that we've got to pay for what we need. Nowhere is that tension more apparent than in road funding. He admires the efforts of Senator Mike Vehle (R-20/Mitchell) to find money to improve our roads. He praises Senator Vehle for pushing people to get beyond griping and propose real solutions. Lesmeister says the ugly reality is that federal funding will dwindle and that state and county governments will have to pick up more of the tab for getting from Buffalo to Timber Lake.

Lesmeister says we could take some of the pressure off our highways by expanding railroads. He doesn't favor state ownership, but he would support incentives for private industry to build more rail shipping capacity.

Lesmeister does not support the Keystone XL pipeline. He says laying pipe across South Dakota to ship North American oil out to the global export market doesn't do South Dakota a bit of good. He challenges the assertion that running against Keystone XL will do in Democrats; in his district, the tribes are strongly opposed to the pipeline, and folks in Bison and elsewhere along the Keystone XL route don't say much nice about the pipeline to Lesmeister. (Remember: Betty Olson thinks Keystone XL is just peachy, as do far too many other South Dakota legislators.) At the very least, Lesmeister says we should learn from examples in Wyoming and North Dakota and not let Big Oil walk all over us.

Lesmeister also talks Medicaid expansion with his District 28 neighbors. He says South Dakota will eventually accept the money being offered under the Affordable Care Act to cover low-income South Dakotans. We have to, says Lesmeister, in part to make up for the $14 million he says we'll lose in the coming year as our increasing state income lowers the federal aid we qualify for under existing Medicaid rules.

Lesmeister recognizes the need for economic development in his big corner of the state, on reservation and off. He says the major challenge to creating jobs in District 28 is not lack of workers or skills; contrary to certain prejudgments, Lesmeister says his neighbors on the Cheyenne River Reservation want to work. Simple geography makes it hard to lure businesses: Eagle Butte and Lemmon are a long way to ship inputs and outputs. Economic development needs to focus on improving and maintaining the infrastructure necessary to connect West River businesses to their suppliers and customers. Lesmeister says Northern Beef Packers would have been a great project to build in his neighborhood, given that it could have relied on local supply. (Hmm... EB-5 to benefit the reservations... don't forget that idea!)

I mention women's issues to Lesmeister, and he focuses on legal protections against domestic abuse and sex trafficking, an issue of particular concern for reservations near the proposed Keystone XL construction camps and the man camps of the Bakken oil fields in North Dakota. He doesn't propose new laws; he says we can protect women sufficiently by stepping up our enforcement of laws already on the books.

As for abortion rights, Lesmeister says he as a legislator should never decide such issues. He says he would resist legislative efforts to further curtail women's reproductive rights. "It's too big of an issue" for the Legislature to decide, says Lesmeister; any abortion legislation should go straight to the ballot so all South Dakotans can vote.

Lesmeister wants to talk about these issues and everything else on voters' minds right through Election Day. He invites his neighbors to give him a shout via his Facebook campaign page and his campaign phone (605-365-6856—yup, he said I could publish that). Ping him, ring him... Oren wants your thoughts and your vote on November 4!

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On May 11, 2011, attorney Jeff Sveen wrote a letter saying that his client, SDRC Inc., functioned like a bank:

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].

I've cited this statement as support for the contention that SDRC Inc. was sufficiently bank-like to be subject to  lending license laws and bank franchise tax. I've wondered whether SDRC Inc. ever sought a lending license or at least guidance from the South Dakota Banking Commission on its status.

It turns out Jeff Sveen sought such guidance. According to a February 18, 2010, letter from Sveen to Banking Commission director Roger Novotny, Sveen and Novotny discussed money lending license requirements on January 18, 2010. In the letter, Sveen says the Department of Tourism and State Development (known now as the Governor's Office of Economic Development) contracted with SDRC Inc. to "administer the program for the State of South Dakota and make sure that the program requirements are completed."

Sveen then describes how SDRC Inc. administered EB-5:

A partnership is then formed consisting of the foreign investors and a South Dakota limited liability company for the sole purpose of providing the money to a business for job creation in South Dakota. The individuals, in return, receive a permanent visa for themselves and children under the age of 21. The limited partnership then makes a loan to the business. The investors themselves, do not necessarily receive any interest payments and the loan itself would be very low interest and probably in the area of 1% or 2%. Most of the interest goes to cover costs of administering the program.

It is my position that the partnership is not in the business of lending money, but in the business of obtaining visas for foreign individuals. The partnership completes one transaction and no others. Once the jobs have been created and five years have passed, the partnership is then paid back the principle [sic].

The actual money is deposited into a bank in Brookings, South Dakota. The bank then prepares whatever loan documents may be necessary, which usually includes a Promissory Note and a Security Agreement. It may or may not include a Mortgage. The partnership is not open to the public and is not open to any United States citizens.

As we discussed, I do not think such an isolated transaction would require the partnership to obtain a money lending license. Could you please verify that for my records. The program, as stated earlier, is controlled by the State of South Dakota with the partnership only acting as a conduit for the investment, which is required by the Department of Immigration [Jeffrey T. Sveen, letter to Roger Novotny, South Dakota Banking Commission, 2010.02.18].

Notice that Sveen says nothing of the bankly nature of SDRC Inc. that he freely averred in his 2011 letter. Instead, he focuses Novotny's attention on the partnerships, legal fictions created by SDRC Inc., limbs with no purpose or corporate will independent of SDRC Inc.

To say that the "business" of this corporate Frankenstein was "obtaining visas for foreign individuals" requires a creative blindness. Helping foreigners get visas was a means toward the end, economic development, for which South Dakota contracted with SDRC Inc. If those foreigners had not been providing $500,000 a pop (plus tens of thousands in fees and 1% ownership stakes for SDRC Inc.) that SDRC Inc. could then loan out to favored businesses, obtaining visas would have been none of South Dakota's business.

SDRC Inc. itself calls these limited partnerships its "Loan Projects." The limited partnerships issued mortgages prepared by Sveen and listing SDRC Inc. chief Joop Bollen as the lender. Northern Beef Packers had to pay SDRC Inc. (not the loan fund partnership!) sizable fees to monitor its loan.

The first business favored with a loan from SDRC Inc. was Dakota Provisions, the turkey plant in Huron for which Sveen traveled to China in 2008 to recruit EB-5 investors who ultimately made possible $60 million in SDRC Inc. loans to the Huron plant... of which Sveen is now chairman, agent, and primary shareholder.

SDRC Inc. set up loan funds in 2008. It gave out loans in 2009. Sveen said in 2011 that it worked like a bank. But in 2010, when Sveen decided to chat with the director of the banking commission about SDRC Inc's operations, he soft-pedaled what SDRC Inc. was really doing and asked for a piece of paper to "verify" his interpretation.

Director Novotny provided that piece of paper. In a March 10, 2010, letter to "Jeff", Novotny wrote, "Based upon the facts presented I do not disagree with your conclusion."

Novotny's letter is nothing like the declaratory ruling that Epoch Star Limited obtained less than four months later to verify that it did not need to obtain a lending license or pay bank franchise tax to loan $30 million to Northern Beef Packers. Epoch Star's investors wanted official assurance, obtained through public due process, that they would not get hit with license fees or taxes. Sveen and SDRC Inc. avoided such public scrutiny and presented the director of the Banking Commission far less than the full picture of their operation but just enough to get him to write a letter that might—might—get them out of trouble with the Banking Commission if anyone ever asked questions.

The Brown County Commission has asked the big question: where's our bank franchise tax from SDRC Inc.? If Novotny's March 2010 letter to Sveen answered that question, you can bet the Banking Commission would have quickly cited that letter and put that fire out. But current state banking director Bret Afdahl has done no such thing; instead, his office is looking into Brown County's question.

SDRC Inc. worked like a bank. Jeff Sveen told others that, but he avoided telling the Banking Commission that. That omission is one more sign that SDRC Inc. was up to monkey business that cost South Dakota a lot of money.

p.s.: In the Everything Connects file, Roger Novotny retired in 2011, but his wife Nila still works for the state. She's the administrative assistant in the Capitol who accepted service against the state in the Darley v. SDIBI case in July 2009... which came about because Joop Bollen founded SDRC Inc. to pirate the EB-5 visa fees and profits away from Darley.

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Mike Rounds's campaign manager Rob Skjønsberg has been burning up Twitter saying Rick Weiland is an extreme, far left liberal whose views are out of synch with South Dakotans...

...as opposed to the liberal, red-state-moocher policies of Rounds, Daugaard, and Noem that are in synch with South Dakota.

Consider transportation funding. South Dakota Republicans have bleated about the need for Congress to prop up the federal Highway Trust Fund. Rounds and Daugaard have touted how great they made South Dakota roads thanks to federal stimulus dollars.

But they don't back that call for federal spending with an equal commitment to state-level responsibility. Nationwide, state spending on transportation, adjusted for inflation) dropped 20% from 2002 to 2011. Federal spending over the same period, including stimulus dollars, dropped just 4%.

Nationally, the federal share of transportation funding is 24%. In South Dakota, the feds pick up 37% of the highway tab, the ninth highest in the nation.

Federal share of transportation funging 2007–2011, Pew 2014For a red state, we look awfully blue on that map. In other words, if "liberal" means relying on the federal government, South Dakota is one of the top ten liberal states in the nation.

Governor Daugaard has acknowledged that South Dakota's state-level funding is dwindling. He has proposed that we "restore the purchasing power of the gas tax," which is the hilarious conservative euphemism for "Let's raise taxes!" If "liberal" means asking people to pay more taxes, well, there Dennis goes.

South Dakota Republicans like to shout "liberal!" They are projecting their self-loathing, because when they get down to the brass tacks of practical policy like highway funding, they realize that we South Dakotans are all liberals.

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Larry Kurtz gets me reading this Wallet Hub ranking of the fairness of state tax systems. Wallet Hub asked 1,050 Americans to say what percentage (between 0 and 25) of income households in ten income brackets ought to pay in state and local taxes. Americans are progressive taxers: the ideal fair tax rates bubbling up from this survey rise from 2.5% for households making $5,000 a year to 16.36% for households making $2.5 million a year.

Wallet Hub then lined these survey figures up with actual state and local tax burdens calculated by the Institute on Taxation and Economic Policy for each state's five income quintiles. From these calculations, Wallet Hub offers this tax fairness map:

WalletHub

 

Montana comes out with the state and local tax system imposing burdens closest to the ideal rates found in Wallet Hub's survey. South Dakota, ranking 36th nationwide, has the least fair tax system in the region:

State Tax Fairness Rank Rank among Liberals Rank among Conservatives
Montana 1 1 1
Minnesota 7 6 11
North Dakota 15 16 10
Nebraska 23 24 26
Iowa 25 21 27
Wyoming 28 34 22
South Dakota 36 37 31

Wallet Hub breaks respondents by general ideology and finds conservatives and liberals give different ideal tax rates. Conservatives advocate higher tax rates than liberals for the lowest three income categories Wallet hub asked about and lower rates for the upper seven. But conservatives still favor consistently progressive tax rates. Conservatives and liberals rank Montana as the fairest state; conservatives and liberals alike place South Dakota in the bottom half for tax fairness.

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...But Is Banking Commission Already on That Case?

The Brown County Commission today voted 4–1 in favor of a resolution brought by Commissioner Tom Fischbach to ask the State Banking Commission to determine whether GOED/NBP/EB-5 scandal figure Joop Bollen evaded bank franchise tax. Bollen managed loans and mortgages through his corporation SDRC Inc. but never got a lending license. If SDRC Inc.'s lending operations are subject to South Dakota's bank income tax, Bollen could owe the state $2.4 million in back taxes, $1.76 million of which, according to Fischbach's resolution, could go to Brown County. That would patch a lot of potholes between Hecla and Groton.

One commissioner, Mike Wiese, opposed the resolution. He doesn't oppose the idea of investigating Joop Bollen. But in the most important paragraph of Scott Waltman's report, Wiese says he thinks the state is already conducting that investigation:

Commissioner Mike Wiese voted against the resolution. After contacting the state Department of Revenue and state Department of Labor and Regulation, Wiese says he believes the issue is already being looked into and taken seriously. He said he wants Brown County to collect the bank franchise tax if the determination is it should have been paid. However, a resolution from the county commission will not carry much sway, according to Wiese [Scott Waltman, "County Commissioners Ask State to Look into EB-5 Taxes," Aberdeen American News, 2014.09.09].

A GOED/NBP/EB-5 issue "being looked into and taken seriously" by the state.* How rarely we hear such words, and how gratefully we hear them... "we" being all of us South Dakotans not being paid to make excuses for Mike Rounds.

*Update 18:03 CDT: Ben Dunsmoor confirms that the state is on the case:

The South Dakota Director of Banking, Brett Afdahl, confirmed Tuesday afternoon that he has already sent a letter to SDRC Inc. requesting information. Afdahl says it can take up to 30 days for a response from the company and then follow up questions will be asked before a final determination about the company’s status is made [Ben Dunsmoor, "Brown Co. Commissioners Ask If SDRC Inc. Is Bank," KELOLand.com, 2014.09.09].

*   *   *

Rep. Kathy Tyler did not include that $2.4 million in the $140-plus million she calculates Bollen may have defrauded from the state by other means. The bank franchise tax hangs on an entirely separate statutory peg.

But that $2.4 million in tax evasion could have political implications equal to those we can derive from Rep. Tyler's argument. Recall that when it came to the EB-5 activities that the Governor's Office of Economic Development conducted to benefit Governor Mike Rounds's pet project, Northern Beef Packers, the Rounds Administration demonstrated a keen awareness of banking regulations. In 2010, when Northern Beef Packers arranged a $30 million bridge loan from the mysterious Asian bank Epoch Star Limited to tide it over until a new round of EB-5 investors wrote checks, the Rounds Administration sent GOED chief and EB-5 cognoscente Richard Benda to assure the Banking Commission that Epoch Star was not a bank, did not need a lending license, and did not have to pay bank franchise tax.

The Rounds Administration looked at a one-off offshore funding trick and said, "Jeepers, we'd better get a ruling from the Banking Commission!" The Rounds Administration then looked at its man Joop Bollen, who'd been constructing a fistful of loan funds from EB-5 dollars to supplant local commercial lending, and said... nothing.

Could the Rounds Administration not smell its own shtuff? Or were they so committed to shielding Joop Bollen and his profits that they couldn't risk the scrutiny of the Banking Commission... even if that meant stiffing Brown County $1.76 million?

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Word of the day: Capone!

Remember how last November I mentioned that EB-5/Northern Beef Packers scandal fulcrum Joop Bollen might have broken the law by lending money without a license and not paying bank franchise tax? I elaborated on that tax-evasion thesis last week.

And now Brown County Commissioner Tom Fischbach thinks there might be some there there:

Tom Fischbach wants his fellow Brown County commissioners to consider a resolution that might allow the county to collect $1.76 million in bank franchise taxes.

...SDRC Inc. doesn’t have a money lending license to legally make loans and does not pay the bank franchise fees, according to the resolution.

In that vein, the resolution said, SDRC Inc. “may have defrauded South Dakota of $2.4 million in bank franchise tax avoidance with a $480,000 ongoing annual tax avoidance.”

The bulk of the overall total would be owed to Brown County, according to the resolution [Scott Waltman, "Fischbach Calls for SDRC Investigation," Aberdeen American News, 2014.09.03].

Fischbach says he isn't sure whether SDRC Inc. qualifies as a bank, but his resolution asks the South Dakota Banking Commission to figure that out for us. Fischbach sprang the resolution on his fellow commissioners unannounced yesterday, so commissioners told him to keep his pants on until next week's meeting.

Did Joop Bollen run a bank without a license? Did Joop Bollen evade bank franchise tax? Those questions aren't just academic or blogospheric scandal-mongering. Those questions can tell us whether Joop Bollen, acting under the authority of Governor Mike Rounds and Governor Dennis Daugaard, cheated Brown County and South Dakota out of another couple million dollars.

I think those questions are worth answering. So does Commissioner Fischbach.

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