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Examining EB-5 in South Dakota

PIERRE -- Pieces are moving into place for the Legislature to analyze state government's involvement in the now-suspended EB-5 immigrant investor program and decide whether further action should be taken.

The eight Democratic and Republican leaders and assistant leaders in the House of Representatives and the Senate together filed a resolution calling for legislative hearings into the operations of the Governor's Office of Economic Development.

The joint Government Operations and Audit Committee will conduct the hearings. They would start after the final report on GOED's finances has been issued by the state Department of Legislative Audit.

Gov. Dennis Daugaard is promising his cooperation.

Among the projects that received EB-5 financing were the Northern Beef Packers meat-processing plant in Aberdeen; the Dakota Provisions meat-processing operations at Huron; the Deadwood Mountain Grand casino and hotel complex at Deadwood; and the Day County wind farm involving Basin Electric.

Last week, Daugaard distributed to legislators the reports from two private accounting firms that examined GOED's internal controls practices and audited two of the office's programs.

Those were conducted at the request of state Commissioner of Economic Development Pat Costello. The work covered activities dating to 2009. The Stulken Petersen received a total of $35,000 for its work and the Eide Bailly firm got $12,724.

Daugaard also provided to legislators the responses from State Auditor Steve Barnett and the state Bureau of Human Resources regarding the accountants' findings.

The governor, in a letter accompanying that information, said Department of Legislative Audit officials expect to conclude their work "in the next few weeks." Daugaard said he would share that third set of results with legislators, too.

The Department of Legislative Audit is a sub-branch of the Legislature that conducts an annual compliance and financial of state government.

The state auditor is an elected state officer whose staff processes payment requests such as for payroll, services and purchases.

The Legislative Audit inspection was also conducted at Costello's request. Its cost isn't known yet.

The legislative resolution, HCR 1010, calls for hearings into GOED's operations to start upon receipt of that audit. The committee is to issue its own report of its findings within 30 days of completion of the hearings and no later than Dec. 1.

"I have always believed that legislative hearings to consider the findings of these reports are advisable, and I agree the Government Operations and Audit Committee (GOAC) is the appropriate forum for that discussion," Daugaard told legislators in his letter.

The governor said he intends to ask the auditors to present their findings to the committee. He said state officials from the respective agencies involved will discuss their recommendations and responses to the findings.

"I believe GOAC should expect to spend a full day on these topics, and auditors could be available in the week after the DLA audit is completed," Daugaard said.

The legislative resolution gives wide authority to GOAC's five senators and five representatives. The GOAC chairmen are Sen. Larry Tidemann, R-Brookings, and Rep. Dan Dryden, R-Rapid City.

"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 resolution states.

"The committee's powers to summon witnesses and issue subpoenas may be exercised as necessary," it continues.

A federal grand jury issued a subpoena last March to the Daugaard administration seeking eight sets of information.

The governor's lawyer then contacted state Attorney General Marty Jackley to conduct an investigation into travel billings submitted in 2009 and 2010 by Richard Benda, who was secretary of tourism and state development in the administration of then-Gov. Mike Rounds.

None of that became publicly known until approximately one month after Benda's death on Oct. 20. The official ruling was that Benda committed suicide using a stick to fire a shotgun into his abdomen while dressed in hunting clothes at a relative's farm near Lake Andes.

Still unknown is the substance of the other seven sets of information sought by the federal subpoena.

Benda had signed a contract with SDRC Inc. of Aberdeen for SDRC to manage the EB-5 investment program for South Dakota.

EB-5 refers to a federal visa provision that allows a foreign investor to loan at least $500,000 to a U.S. project and, if sufficient jobs are created, the investor can receive a permanent visa for the investor and immediate family to live anywhere in the United States.

SDRC routed tens of millions of dollars in foreign investments, largely from China and Korea, to projects in South Dakota starting in 2008. Benda wasn't retained by the Daugaard administration in 2011 and went to work for SDRC.

Costello terminated state government's contract with SDRC in September after learning the results of the attorney general's investigation. No criminal charges have been filed. Attorney General Marty Jackley turned over his findings to federal investigators.