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How SD became a top place for foreign money

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How SD became a top place for foreign money
Mitchell South Dakota 120 South Lawler 57301

By Bob Mercer

Capitol Correspondent

PIERRE — Just a few years ago, South Dakota was considered by some in China as a top place for an immigrant investor and their family to qualify for permanent U.S. visas. To qualify, the investor needed to make a half-million dollar loan to a business program, and if enough jobs resulted, would earn their papers.

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It was a remarkable achievement. Just a decade earlier, state government’s efforts at increasing South Dakota’s involvement in international trade were built upon a modest two-person program at Northern State University in Aberdeen.

The focus back then was attracting peo- ple from other countries to move to South Dakota, so they could buy and operate dairy farms that were crucial to producing more milk that cheese producers needed.

By 2009, the international program had mushroomed into a privately operated financing center that now collaborated with overseas agents in the search for immigrant investors willing to each make $500,000 loans to major projects.

One thing didn’t change: Joop Bollen. He was the main man at the South Dakota International Business Institute when it was operated under a state contract at Northern State. He remained the main man when he left SDIBI behind at the end of 2007 and formed a private company called SDRC Inc. in January 2008.

From 2008 through 2013, SDRC gathered tens of millions of dollars in loan pools for a half-dozen big projects, including $60 million for the Northern Beef Packers that was opened at Aberdeen, from immigrant investors under the federal government’s EB-5 visa program.

But in September, the Governor’s Office of Economic Development decided to halt South Dakota’s involvement in the federal EB-5 program and terminated its 2009 contract with SDRC. The contract was supposed to run through June 30, 2014.

Commissioner Pat Costello severed the contract after a major financial impropriety was found. It involved a $1 million state grant that then-Gov. Mike Rounds approved in December 2010.

The money was intended to compensate the Northern Beef Packers project in Aberdeen for some of its construction and equipment expenses. Instead, $550,000 was diverted to SDRC, according to state Attorney General Marty Jackley.

Jackley said the money went for pre-payment of service fees that normally were charged to immigrant investors. The fees cover expenses for recruiters, agents and events and, according to SDRC records provided to GOED, often were $50,000 on top of $500,000 loans the investors were making to businesses.

Because SDRC was a private company, it currently remains unknown how much SDRC was profiting from the fees and how much was being paid to others elsewhere in the United States and overseas who were involved in the complicated recruiting process.

However, the 2009 contract and an amended 2010 version spelled out three special funds that were to be created by SDRC as financial protection for state government. The contract established the percentages that would be remitted into the funds from fees that SDRC would collect.

SDRC would put money from percentages of those fees into an account known as indemnification fund one. It would be swept periodically into an expense fund and otherwise be kept as protection for claims that might be brought against state government.

The expense fund’s balance, in turn, was to be maintained at $350,000 and replenished as necessary. Its purpose was to pay for state government’s costs of participating in SDRC’s efforts and related work.

Additional money from the fees collected by SDRC were to flow into an account called indemnification fund two. It was required by contract to have a balance of $1 million no later than Dec. 31, 2011. SDRC wasn’t required to put any more into indemnification fund two unless the balance fell below $1 million.

The SDRC, with its complex fee arrangement, was the first of its kind involving the international efforts by state government.

The previous contracts by the Governor’s Office of Economic Development were with Northern State University. GOED simply paid NSU to run the SDIBI office.

What led to the formation of SDRC by Joop Bollen isn’t clearly known. There were several circumstances at the same time.

A lawsuit was filed against SDIBI involving a development project, but the case fell apart when SDRC was established in January 2008 and Northern State couldn’t be sued.

Meanwhile, Bollen filed first partnership papers for SDRC’s first EB-5 loan pool in January 2008, too. The money was for Dakota Provisions, the turkey processing center at Huron that Hutterite colonies operate.

Aberdeen attorney Jeff Sveen filed paperwork later in 2008 that identified himself as chairman of the board for Dakota Turkey Growers, the Hutteritedominated supplier for the plant, and later named himself as a manager for Dakota Gobblers, another Hutterite business that was part of the Dakota Provisions operation.

Meanwhile, Bollen told a legislative committee in 2008 that foreign investors weren’t very interested in small projects such as dairies. He said they instead wanted large projects so they could seek permanent visas under EB-5.

In 2009, Sveen filed amended incorporation papers for SDRC. As for the 2009 contract between SDRC and GOED, and the amended version in 2010, Sveen was involved with those, too.

The contracts were worked out between Tim Engel, a private attorney in Pierre who has provided services for GOED for many years, and with Sveen representing SDRC. That is according to information that Engel provided Tuesday to a spokesman for Gov. Dennis Daugaard.

Engel, who declined to directly answer a reporter’s questions, told spokesman Tony Venhuizen that he worked on the SDRC contracts at the direction of Richard Benda. The contracts were signed by Bollen and Benda.

Benda was secretary for tourism and state development from 2006 through the end of 2010 when Rounds left office. Daugaard didn’t hire Benda for his administration.

Daugaard, in a statement Friday, said Benda went to work for SDRC as a loan monitor for the Northern Beef project in 2011. Venhuizen said Tuesday it was common knowledge at the time.

Whether Benda had any role in the diversion of the $550,000 from Northern Beef to SDRC hasn’t been stated publicly. The attorney general said Friday he provided information about the diversion to U.S. Attorney Brendan Johnson, who confirmed receiving Jackley’s letter.

The letter didn’t mention Benda in connection with the diversion. The letter reported that Benda was found to have double-dipped and received overpayments from state government for two airline tickets to China and one airline ticket to Las Vegas while he was secretary.

Bollen hasn’t responded to reporters’ questions for weeks and Sveen stopped more than 10 days ago. Neither has acknowledged various e-mails sent to them requesting information.

The Dakota Provisions turkey operation received two sets of proceeds from EB-5 investors, totaling approximately $55 million. A third loan pool totaling $46 million for the Huron operation was disallowed this year by the U.S. Citizenship and Immigration Services agency.

The state contracts with SDRC weren’t reviewed by the attorney general. Engel wasn’t involved in the previous contracts between GOED and SDIBI, according to information he gave to Venhuizen.

During the attorney general’s investigation into Benda’s travel vouchers, the Northern Beef grant diversion came to light. Engel asked that he temporarily step aside as GOED’s attorney during the investigation to avoid the appearance of a possible conflict of interest.

Engel was replaced on an interim basis by Paul Bachand, an attorney from Pierre, now in private practice and with previous experience in the attorney general’s office.

The Sept.19 contract-termination letter from Costello to Bollen included copies to Sveen and Engel.

The earlier SDIBI contracts show how fast and far the international efforts developed before Bollen created the SDRC company with Sveen.

The 1999 contract, for example, set out three pages of specific duties and three pages of budget, with NSU contributing $40,576 and GOED paying $35,514. Among the activities, the institute conducted seminars, engaged in promotions and focused export-import banking.

The 2003 contract followed a similar format with NSU paying $61,577 and GOED paying $54,338. While many of the activities continued from the past, the contract now called for Bollen to spend 70 percent of his time on foreign direct investment activities.

The 2005 contract continued past activities, but also now specifically called for a focus on dairy development, including a trade mission to South Dakota and international marketing trips to Holland, Ireland, Canada and the United Kingdom.

The budget grew with the increased emphasis. NSU paid $107,860, while GOED paid $132,697.

GOED reportedly didn’t have a contract with SDRC after its establishment in 2008. The switch to the fees-based contract in 2009 with SDRC specifically recognized that state government was the federally designated regional center for South Dakota, with SDRC serving as the administrator.

The contract called for state government to pay $45,000 to SDRC, while the company would be required to place money into the indemnity and expense funds for state government to use if needed.

The contract required that GOED receive money from the three accounts at the conclusion of the deal. There reportedly was $1.1 million in indemnification fund one and $1 million in indemnification fund two, while the expense fund had just $28,000, well short of the $350,000 balance required by the contract.

Benda died Oct. 20 from what a state investigation determined to be a selfinflicted gunshot wound that was ruled a suicide.

No state or federal charges have been filed, but it is now known that a federal grand jury issued a subpoena for information from the governor’s office in March and that federal authorities have reportedly questioned at least three people involved with the Northern Beef project, including Benda.

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