In new appeal letter, state tries to shift blame in EB-5 scandal
The winds of blame in South Dakota’s immigrant-investor scandal shifted again this week as state government officials formally disputed allegations that they are responsible for wrongdoing by a private contractor.
In a Monday letter and exhibit packet sent to the Administrative Appeals Office of the U.S. Citizenship and Immigration Services, a lawyer for the state of South Dakota argued that the state’s regional center for handling foreign investments in South Dakota economic development projects should not be terminated.
“We trust that these materials, combined with those already on file regarding the Regional Center, will overcome USCIS’ erroneous, unfair, and unnecessary conclusion that the Regional Center no longer serves the purpose of promoting economic growth,” said the letter from Robert Divine, of the Baker Donelson law firm in Chattanooga, Tenn., on behalf of the state.
The USCIS began termination proceedings against South Dakota’s regional center in September 2015 because of alleged improprieties, including the diversion of millions of investor dollars away from allowable expenditures. The termination proceedings are now in the appeal stage, and the Monday letter from the state’s lawyer represented the state’s formal statement in support of the appeal.
South Dakota’s regional center is one of dozens around the country — though most others are not affiliated with state governments — that handle investments from foreigners as part of the federal government’s EB-5 program. “EB-5” is shorthand for the employment-based, fifth-preference visa, also called a permanent-residency “green card,” which is awarded to foreigners who invest at least $500,000 in job-creating projects in the United States.
South Dakota’s EB-5 regional center has been mired in scandal since the October 2013 death of Richard Benda, the former head of what was then called the Department of Tourism and State Development. Benda’s death was ruled a suicide, and it was soon revealed that he had been facing potential prosecution for stealing state grant money intended for a meatpacking project that received EB-5 funding in Aberdeen.
Benda was accused of diverting the grant money as he transitioned from state employment to a job with SDRC Inc., which had a contract with Benda’s state office to operate the EB-5 regional center on behalf of the state from 2009 to 2013.
SDRC Inc. is run by Joop Bollen, of Aberdeen. In the state’s Monday letter, the state attempted to shift blame onto Bollen and SDRC, saying that the state “contracted with SDRC, Inc. to responsibly manage the Regional Center.” The letter further stated that the improper diversion of funds was “attributable only to SDRC, Inc.”
Those claims are in contrast to a position taken by USCIS, which said in a written notice last month that “the regional center designation in 2004 was granted to the state of South Dakota, and it has always been the state’s responsibility to ensure monitoring, oversight and due diligence.”
USCIS has alleged that SDRC Inc.’s mismanagement of the regional center included, among other things, the diversion of at least $1.7 million of investors’ money to an offshore holding company in Cyprus; the diversion of more than $3 million for unapproved expenses; and the diversion of more than $12 million to initially service debt underwritten by a lending company in the British Virgin Islands and then to buy that same lending company. All of that money should have gone to job-creating economic development projects, USCIS has said.
The state's Monday letter and packet referenced an "Attachment A" prepared by SDRC Inc., but Tony Vehnhuizen, chief of staff to Gov. Dennis Daugaard, declined to send the attachment to the Journal and said the request for the attachment should go to SDRC Inc. The Journal sent a request via email to Bollen and one of his attorneys but did not immediately receive a response.
The appeal of the USCIS attempt to terminate South Dakota’s regional center could take six months. That’s the time frame in which the USCIS Administrative Appeals Office attempts to resolve appeals, according to the USCIS website.
Meanwhile, the revelations about the state's EB-5 regional center have spawned several lawsuits, some changes to state laws and policies, and an ongoing state criminal prosecution of Bollen. He is accused of illegally using $1.2 million of EB-5 money for personal gain, including the purchase of ancient artwork, before paying some of the money back.
Across the country, the federal EB-5 program is embroiled in similar scandals. The controversial program is scheduled to expire after Sept. 30 unless it is reauthorized by Congress.
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