Documents link state-sponsored company, Keystone XL

state-sponsored company that funneled millions of dollars from wealthy foreign investors to businesses in South Dakota was making a bid to finance a controversial oil pipeline before it ran afoul of state and federal authorities, according to documents obtained by the Argus Leader.

SDRC Inc., a South Dakota company that managed the state's EB-5 immigrant investor program, wanted to supply financing to TransCanada's Keystone XL pipeline, a project that ignited a fierce national political battle between environmentalists and pro-business groups. The pipeline is awaiting approval from President Obama.

The administration announced Friday it is delaying the review period on the pipeline because of the time needed to assess the 2.5 million comments received. A decision might be several months away.

Joop Bollen, SDRC's founder, applied to the United States Citizenship and Immigration Services — which administers the federal EB-5 program — for permission to add TransCanada as a qualifying business under the program, which enables wealthy foreigners to get green cards for investing as little as $500,000 in qualifying projects.

Besides trying to help Trans-Canada, the same application asked to dramatically expand SDRC's geographic area of coverage. Bollen sought federal permission to expand SDRC to Montana and Nebraska in a bid to provide financing to the Keystone XL pipeline from the Canadian border to Nebraska's southern border. SDRC's contract with South Dakota to run the EB-5 program was supposed to be "for the benefit of South Dakota," according to the contract's language.

SDRC had that contract until September. In March 2013, state officials learned that a federal grand jury was investigating South Dakota's EB-5 program. A state investigation revealed that Richard Benda, the former secretary of economic development and tourism under Gov. Mike Rounds, diverted $550,000 of a $1 million state grant to Northern Beef Packers shortly after Benda left state government to work for SDRC.

SDRC funneled almost $100 million to Northern Beef Packers from Chinese and Korean investors who were trying to get green cards through the EB-5 program. Northern Beef Packers filed for bankruptcy last summer, and Benda died by suicide in October.

But SDRC's previously undisclosed relationship with TransCanada is evidence that Bollen and Benda had ambitions far beyond financing meat processing plants, dairies and other mainly agriculture projects in South Dakota. The 2009 estimate for the pipeline's cost in South Dakota alone was $920 million.

The Argus Leader obtained SDRC's proposal to expand the EB-5 program to Keystone XL through a request under the Freedom of Information Act. U.S. Citizenship and Immigration Services released 700 pages related to the Argus Leader's request. Hundreds of those pages were redacted, and the newspaper has filed an appeal to have their contents released publicly.

Besides SDRC's relationship with TransCanada, the Freedom of Information request reveals that:

■ On more than one occasion, Bollen personally lobbied the USCIS to approve provisional green cards for investors in South Dakota EB-5 projects. For example, in a letter dated Feb. 11, 2008, Bollen wrote to then-USCIS official Morrie Berez requesting expedited approval for 28 investors in the Northern Beef project. Berez was chief of the EB-5 program but later went to work on behalf of SDRC.

■ In its early days, South Dakota's EB-5 program courted investments from Europe and elsewhere. But by 2009, the year Bollen started managing the program as a private entity rather than a state employee, China was SDRC's top focus. In 2011 alone, Bollen was scheduled to be the keynote speaker at 10 EB-5 promotional events in China.

■ After the state ended SDRC's contract to run the EB-5 program last September, state officials notified USCIS that Bollen no longer was involved and that the program had reverted back to state control. USCIS responded from a generic email address demanding that the state provide more information. "Any documentation you can provide that may serves (sic) as evidence of this official change is being requested," the email said.

The issue finally was resolved when Pat Costello, the commissioner of the Governor's Office of Economic Development, wrote a letter outlining the state's relationship with SDRC and its termination of that relationship.

Of the documents released by USCIS, the most surprising relate to the TransCanada project. Bollen made the initial application in May 2011 to include TransCanada as a qualifying EB-5 project.

By that time, Gov. Dennis Daugaard had been in office five months. Benda, who had not been retained by Daugaard as a Cabinet secretary, had gone to work for Bollen and SDRC.

Tony Venhuizen, Daugaard's director of policy and communications, said state officials didn't learn until more than two years later — last summer — that Bollen had applied with the USCIS to supply EB-5 financing to Trans-Canada. By then, state and federal officials were investigating the state's program.

"He told them he wanted to get into the pipeline business," Venhuizen said, saying the TransCanada information was a surprise.

But one thing the state officials said they didn't learn until questioned last week by the Argus Leader was that Bollen also was trying to expand SDRC's service area into Montana and Nebraska.

"That was not a detail that he mentioned," Venhuizen said.

Bollen did not respond to an email seeking an interview. He repeatedly has refused to speak to the media since SDRC's travails became public last fall.

The application to expand SDRC's geographic service area and to include two new industries — construction and pipeline transportation — was not a trivial request. It required economic studies and demographic data justifying the area and industries for inclusion in the EB-5 program.

The state's EB-5 program had started in 2004 when Bollen, as a state employee, ran the South Dakota International Business Institute at Northern State University. It was the entity that the USCIS initially certified as an EB-5 regional center in South Dakota for 12 eastern counties.

At first, the state focused on using EB-5 investments to bolster its dairy industry. In 2006, the USCIS allowed the state to expand into meat processing, packing and feedlot operations.

The next expansion came in 2008. The federal government approved EB-5 investments in almost the entire state outside of its major cities, and seven additional industries became eligible in South Dakota for the program, including casinos, wind farms, oil refineries, computer farms and food manufacturing facilities.

By the time Bollen applied in 2011 to include TransCanada, the SDRC had coverage of almost the entire state for 11 targeted industries. But the Trans-Canada request would have dramatically expanded SDRC's geographic scope to 20 Montana and Nebraska counties — all along the proposed Keystone XL pipeline route.

At the time, environmentalists were rallying against Keystone XL. The pipeline was designed to bring heavy Canadian tar sands oil to U.S. refineries. To environmentalists, the project represented a threat to underground drinking water supplies and their campaign to curb fossil fuels and global warming. Because it crossed an international boundary, it needed the Obama administration's approval.

Republicans, pro-business groups and some labor unions were pressuring for approval, touting its benefits as a North American energy supply and a jobs creator.

Bollen's application was oblivious to the political storm surrounding Keystone XL. "Request," Bollen wrote in the application, "USCIS to review and favorably consider as an exemplar project a new proposed multi-state for construction and operations of the TransCanada Pipeline."

Amid questions from the USCIS, Bollen was forced to submit a flurry of paperwork. More than a year after filing his initial application, it still was in limbo.

In one filing, Bollen included two letters from TransCanada executives who wrote to Bollen outlining the project's cost estimates in Montana, South Dakota and Nebraska. The letters were submitted to bolster Bollen's argument that the project would spur economic development. The first, in October 2011, was from Joel Hunter, TransCanada's vice president of finance. The second, from March 2012, was from Rhonda Amundson, the company's manager of capital markets.

It's unclear whether TransCanada approached Bollen or vice versa. The Amundson letter states that per Bollen's request, TransCanada was supplying the financial information "in connection with your consideration of certain proposed loans" to be made by a subsidiary of the SDRC to TransCanada.

In a statement, Trans-Canada spokesman Davis Sheremata said Bollen contacted TransCanada.

"SDRC contacted us on an unsolicited basis offering to initiate an application for EB-5 funding," Sheremata said. "We shared with SDRC publicly available information on estimated costs for the project but opted not to pursue funding through the EB-5 program. Keystone XL is a $5.3 billion project that is completely privately funded."

Sheremata said he didn't know when Trans-Canada decided to forgo EB-5 funding.

Timothy Counts, a spokesman for the USCIS, said the agency couldn't respond to questions about the documents it released under the Freedom of Information Act.

"What was provided will be all we can offer," he said.

Early last year, South Dakota officials would learn that a federal grand jury was investigating the state's EB-5 program, which triggered a state investigation. Within months, Northern Beef Packers would file for bankruptcy, resulting in 200 Chinese and Korean investors losing their money. Spending improprieties were uncovered, SDRC lost its contract and Benda took his own life.

The only thing that hadn't changed was the political controversy surrounding Keystone XL.

The story so far on the EB-5 investigations

The EB-5 visa program, a longstanding federal program in which wealthy foreigners can get green cards for investing $500,000 into certain U.S. projects, is at the core of a still-unfolding scandal in South Dakota involving high-ranking politicians, powerful business interests and alleged criminality.

EB-5 IN S.D.:

Unlike almost everywhere else in the country, the EB-5 program came to South Dakota as a state-run enterprise. The South Dakota International Business Institute, an agency at Northern State University and its director, Joop Bollen, sought foreign investors — mostly Europeans — for South Dakota dairies. Some succeeded, while at least one, the Veblen East dairy, went bankrupt.

TAKING ROOT:

EB-5 in South Dakota took off in 2006 when Bollen expanded the program in the state to cover meatpacking and Gov. Mike Rounds hired Richard Benda as economic development secretary. Benda embraced EB-5 as a development tool and worked closely with Bollen to recruit investors to EB-5 projects.

NORTHERN BEEF:

The biggest, and most infamous, of those EB-5 projects was the Northern Beef Packers meatpacking plant in Aberdeen. Backed by Rounds as an attempt to attract a major factory to South Dakota, Northern Beef received almost all of its $115 million cost from 190 Korean and Chinese investors. Those investors had been recruited by Benda and Bollen recruited the investors during multiple overseas trips at state expense to find EB-5 money.

TRANSFER:

Benda signed a contract in December 2009 with Bollen, under the approval of Rounds, to transfer management of South Dakota's EB-5 projects from the public International Business Institute to a private company run by Bollen: SDRC Inc. Bollen resigned his state job running EB-5 projects and signed the contract the same day to continue doing so at his new company.

SECRET DEAL:

At the end of 2010, nearing the end of his tenure as economic development secretary, Benda quietly reached a deal with Bollen to work for SDRC as a loan monitor. Later, audits concluded Benda created a conflict of interest by not disclosing this new position at the same time that he continued to approve new funding for the SDRC-funded Northern Beef plant.

PROFITING:

SDRC received a potentially huge payday for recruiting and organizing EB-5 investments. On only one fund, which lent $35 million to Northern Beef, each of 70 investors paid $10,000 a year on top of a one-time $30,000 "expense" fee — millions of dollars for one project. But this is actually standard — or even low — for other privately run EB-5 projects around the country, experts say. Only one state, Vermont, has a state-run EB-5 program.

BANKRUPTCY:

Last year, soon after opening, Northern Beef went bankrupt. It later was bought at a steep discount by White Oak Global Advisors, a San Francisco investment firm but hasn't resumed operations.

TERMINATED:

By the time of Northern Beef's bankruptcy, a federal grand jury had begun investigating South Dakota's economic development office as it pertained to the EB-5 program. Gov. Dennis Daugaard asked Attorney General Marty Jackley to conduct his own investigation, and later the state ended its contract with SDRC Inc.

SUICIDE:

In October, Benda was found dead in a southern South Dakota grove of trees. Jackley ruled his death a suicide.

FINDINGS:

Jackley's investigation, and several audits ordered by Daugaard, found Benda misdirected $550,000 from a $1 million state grant intended to help Northern Beef's construction to his own salary at SDRC. A legislative committee has been tasked to examine the economic development office. He double-billed for airfare to Asia, the reports found. The state Legislature's Government Operations and Audit Committee has been tasked to conduct its own examination of the economic development office this year.

— David Montgomery, Argus Leader