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Perp Walk for Bollen: Where’s Our Bank Franchise Tax on EB-5 Loans?

Last updated on 2014.09.03

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.


  1. Moses 2014.08.27

    C H very good we will see if he answers any of these.What are we ranked for cronism is it number 8 or 10.Imagine republicans unable to defend this.

  2. jerry 2014.08.27

    Sveen nails it down for sure by his own admission. He says that they are a source of lending and have been a source of lending. I think asking the current governor as well as the former governor those questions is not only fair, but it is a matter of recovery of taxpayer funds. What say you fellow republicans, democrats and independents? Do you agree that we need to recover our taxpayer dollars? Why is Bollen any different than the folks we either jail or garnish from for lack of payment of their sales and use taxes? What about all of you contractors, how can you sit on your hands and allow these present and former people of responsibility get away with stealing your money. By the way, what about the Russians and their involvement with the banking needs for the EB-5? I seem to recall that the news that they had provided some skin in the con game.

  3. Liberty Dick 2014.08.27

    Taxes are for poor people. Rich people don't pay taxes you silly goose. Hell we will tax the poor to pay rich people to start big businesses here putting the small mom and pop shops out of business! Bottom line is GOED and EB5 are bad policy and unfortunately legal. This Rounds, Benda, Daugaard witch hunt is getting ridiculous. Let's recoup what we can, make Bollen pay the taxes owed, and stop the crony capitalism. Maybe invest that money in something like a bonus pay for teachers, roads, or bridges.

  4. Bill Fleming 2014.08.27

    Interesting premise, Cory. Does the SDRC make the loans directly, or do they manage loans coming from other sources who are licensed... Like SD Economic Development for example. I do see that name on the list.

    Looks like you need a password or something to look at their stuff:

  5. caheidelberger Post author | 2014.08.27

    Bill, that's a good question. I saw that state board on the list and wondered if SDRC, contracted to the state, might be able to use their authority. But as far as I know, the state doesn't appear on the notes. The lender is always one of the limited partnerships that Bollen creates under SDRC Inc.

    Besides, note what else Sveen says in his letter to Darley's lawyer: "SDRC Inc. does not promote economic development." If SDRC Inc. draws a line between itself and economic development to shield itself from arbitration in California, it would be hard-pressed to come back claim it does economic development on behalf of the state in order to expropriate unto itself the SD Board of Economic Development's lending license authority.

  6. Bill Fleming 2014.08.27

    Ah, interesting link Larry. So maybe SDRC is an exempt lender?

  7. 96 Tears 2014.08.27

    If it looks like a duck, swims like a duck, quacks ... you know the rest. Excellent work here, Cory. Tax evasion. Failure to file. Looks like a job for an Attorney General, if we had one.

    Jackley. Jackley. Jackley.

  8. larry kurtz 2014.08.27

    Bill, maybe the lawyers who wrote this contract are gods.

  9. Steve Sibson 2014.08.27

    Cory, do investment banks also pay the bank franchise fee? Commercial banks can't make loans over $10 million. That was what I understood during a Mitchell School Board meeting regarding the financing of the proposed $13.5 million fine arts center.

  10. caheidelberger Post author | 2014.08.27

    SDRC an exempt lender? I wondered that, too, Bill. The article Larry gives us appears to say that credit unions get out of bank franchise tax because of their co-op status: credit union members are basically lending money to themselves. SDRC Inc. and its loan funds are not cooperatives; they are Joop Bollen playing with other people's money and taking cuts from both lenders and borrowers.

    SDCL 54-4-54 tells us who is exempt from bank franchise tax:

    "...The State of South Dakota, any political subdivision of the state, and any quasi-governmental organization created by an executive order of the State of South Dakota and any subsidiary of such organization; any nonprofit United States Treasury Community Development Financial Institution, Small Business Administration Certified Development Company, or Regional Revolving Loan Fund; or any commercial club, chamber of commerce, or industrial development corporation formed pursuant to § 9-12-11 or 9-27-37 is exempt from the payment of this tax."

    Notice that that clause applies only to paying bank franchise tax, not to getting a lender license. None of those categories cover SDRC Inc., a mere private company formed to lend money.

  11. Bill Fleming 2014.08.27

    Actually, I was looking at the Ag exemption in Larry's link, Cory.

  12. Bill Fleming 2014.08.27

    ...the "Farm Credit System" thingie.

  13. larry kurtz 2014.08.27

    my sense, too, bill: and no examiner.

  14. Bill Fleming 2014.08.27

    "Hell Jim, I'm a spin doctor, not a banker!" LOL

  15. caheidelberger Post author | 2014.08.27

    Ah, sorry to misread, Bill! I guess I'd need to see the specific statutory language that exempts the Farm Credit system. The article seems to suggest it's because Farm Credit is tax-subsidized? If that's the criterion, and if it applies anything beyond Farm Credit, it wouldn't catch SDRC, which was a state contractor but not subsidized directly by tax dollars.

  16. larry kurtz 2014.08.27

    Deadwood Mountain Grand have an ag angle?

  17. Rorschach 2014.08.27

    Are you sure the Joopster wasn't selling securities without a license? I'm not sure anyone gets an EB-5 visa for putting their money in a bank or simply lending it to someone else who has a project going. But what do I know? Do those moneyed foreigners need an equity stake in a project to get a visa?

    Seems to me the Joopster is trying to have it both ways. Either he's selling securities without a license or he's running an unlicensed bank without paying taxes. But if the state charges him with some crime, then he starts talking. None of the GOPsters in charge want him to talk.

  18. 96 Tears 2014.08.27

    Jackley said the investigation was all over. Joop isn't on the ballot, so Marty doesn't have that excuse if there were possible charges. I guess that means Jackley saw this and decided to go no further. Just like when he said going after the $550,000 was not his concern.

    Other than join frivolous lawsuits to stop Obama from doing anything as President, what does Jackley do?

  19. jerry 2014.08.27

    Jackley, like Brendan Johnson, do nothing but sit on their fannies and collect checks from different sources it seems. Exactly who is paying these clowns is what I would like to know.

  20. Shirley Schwab 2014.08.27

    In looking back on the Benda timeline since last fall, it is amazing how the scenario has drastically changed.

    Just a few months ago the State would not release the Benda investigative information in respect to his family's wishes even referencing Benda's ex-wife and young daughter along the way.

    The climate has now changed to where the State is doing whatever they can to defame and blame a dead man with no apparent remorse or respect to the Benda family.

    Pretty transparent I would say.

  21. OJ 2014.08.27

    The legal definition of conspiracy:

    The crime of conspiracy, according to its modern interpretation, may be of two kinds, namely, conspiracies against the public, or such as endanger the public health, violate public morals, insult public justice, destroy the public peace, or affect public trade or business.

    The real conspiracy started in 2007 prior to any businesses being formed, any salaries being cut to qualify for No-Bid contracts, the collection of funds or the disbursement of funds it started when Governor Rounds, Lt. Governor Daugaard and Bollen discussed setting up the EB-5 program and the SD Attorney Generals involvement.

    That is were the questions need to start from and be directed at.

  22. Deb Geelsdottir 2014.08.27

    Very good point, Ms. Schwab.

  23. El Hefe 2014.08.28

    Can someone help me figure out where I'm going wrong here? The relevant part of SDCL 10-43-1 defines a "financial institution" as

    "...persons in the business of making installment repayment and open-end loans which may be unsecured or secured by real or personal property, which loans are in an aggregate amount exceeding five hundred dollars, which are repaid in two or more installment payments or one lump sum payment extending over a time exceeding thirty days from the day the loan was made..."

    It sounds to me like SDRC fits that part of the definition. However, the next two parts of that chapter talk about which institutions are subject to the bank franchise tax, 10-43-2 and 10-43-2.1.
    43-2.1 states that "An annual tax is hereby imposed upon every national banking corporation or production credit association or savings and loan association doing business within this state...", so it looks like it only applies to nationally chartered banks and thrifts. 43-2 addresses financial institutions (which I think we agree applies to SDRC) and states that "An annual tax is hereby imposed on every financial institution, except those institutions organized under the laws of the United States, doing business in this state for the grant to it of the privilege of transacting or for the actual transaction by it, of business in this state during any part of its tax year." It sounds to me like SDRC gets an exemption here since they are organized under the laws of the United States.
    Furthermore, the annual bank franchise tax return instructions defines financial institutions as " Any banking institution or savings and loan association organized under the laws of the United States and located or doing business in this state and any bank, savings and loan association, mutual savings bank or trust company organized under the laws of this state or any other state doing business within this state, any person licensed in this state pursuant to SDCL 54-4 and any person in the business of buying loans, notes or other evidences of debt but not including brokers licensed pursuant to SDCL 47-31B must file an annual return." It sounds like the only part of that definition that SDRC would fall under would be 54-4 (as Cory already pointed out) but 54-4-36 defines financing institutions as "any person engaged in the business of creating and holding or purchasing or acquiring retail installment contracts." The key term here is retail, which in the banking industry denotes loans made to consumers for the purchase of things like automobiles, houses, etc. Credit cards also fall under retail credit. However, I think we would all agree that SDRC only provided commercial lending, which makes me think that 54-4 would not apply. As I said earlier though, please don't hesitate to correct me if I'm wrong. Cory, I very much agree with you in that it sounds like SDRC is a "lender", but it just seems like the state law is worded so as to allow a corporation like SDRC to avoid the bank franchise tax and money lender registration.

  24. caheidelberger Post author | 2014.08.28

    Good reading, Hefe. That's why I'd like a straight-up answer from Governor Daugaard and/or the state banking commission.

    If you can make the case from your reading above that SDRC is exempt from lender licensing and the bank franchise tax, then you can perhaps even more easily make the case that Epoch Star, the group of unknown Asian investors who floated NBP a loan in 2010 as a stopgap/bridge in anticipation of the next wave of EB-5 cash, was not a bank. Not retail, just one loan, etc. Yet Epoch Star and Richard Benda felt the need to take Epoch Star's loan to the state banking commission to ask for an explicit declaratory ruling on whether Epoch Star was a bank for regulatory and tax purposes. Why would they have felt the need to get an official ruling on an apparently easier situation but not ask for a ruling on the more complicated situation (ongoing loans, multiple clients) of SDRC Inc?

  25. El Hefe 2014.08.28

    I completely agree, I would love to hear a straight answer from someone who can give one. I also agree that it's weird that they pushed through an exemption for Epoch when it seems even less like a lender than SDRC. The only theory I have is that since it was based in the Caribbean and so was its holding company, they wanted to cover their bases and have it on record that neither entity was a lending institution. Complete speculation on my part, though.

  26. Jane Smith 2014.08.28

    You are correct Shirley they are trying to make a deadman the fall guy. Out of respect for the Benda Family the citizens of SD should demand answers all the more. The real conspirators are enjoying their life, while a family is mourning the loss of a family member. A complete financial audit of all transactions during the time Joop Bollen managed the SDIBI, SDRC and all those LLC's associated with Bollen personally or otherwise will clarify the mysteries. How was he able to afford multiple homes, rental properties, art works, lavish life style in such a short time? Was the income legitimate? Did he report the income properly? Did he pay taxes properly?
    Net net he should not be allowed to participate in the EB5 program in any state, why is he continuing to conduct business?

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