PIERRE, S.D. (CN) - Citing corruption and administrative blunders, the federal government is shutting down South Dakota's EB-5 investor visa program for wealthy people who want to become U.S. residents.
The U.S. Citizenship and Immigration Service (USCIS) notified the state on Sept. 28 that it could no longer participate in the program.
The Employment-Based Fifth Preference Immigrant Investor Program, or EB-5, was established in 1990. Foreigner can get an EB-5 visa, and begin the process of obtaining permanent legal residence, if create jobs by investing $500,000 to $1 million in a U.S. enterprise, depending on the economic climate of the area.
Each state's participation in the EB-5 program is handled by regional offices.
South Dakota's Regional Center (SDRC), a private entity overseeing the state's program, came under scrutiny in 2013 for misappropriation of government funds and fraudulent record-keeping in EB-5 investments. The company's loan monitor, Richard Benda, committed suicide before the state's attorney general could charge him with theft for converting $550,000 in investment funds for his own use.
The state terminated its contract with SDRC in 2013, and the Governor's Office of Economic Development took over the EB-5 program. But the federal government says that even under new leadership, South Dakota hasn't adequately cleaned up its act.
A federal investigation that concluded in June uncovered numerous ongoing discrepancies. Courthouse News was unable to obtain a copy of the document before deadline, but the Rapid City Journal reported Tuesday that the Sept. 28 notice to South Dakota stated that $5 million in EB-5 funds were still unaccounted for, $1.7 million had been transferred to a Cyprus holding firm that owns Russian railway companies, and $3.3 million had been improperly spent on expenses. The state also continues to file inaccurate and incomplete reports, according to the Sept. 28 federal notification of the program's demise.
"The USCIS findings almost all relate to SDRC's management of the Regional Center," Gov. Dennis Daugaard's Chief of Staff Tony Venhuiza told Courthouse News.
"USCIS also questions the accuracy of reports since that time, because they built upon information SDRC had reported."
South Dakota sued SDRC on Friday in Hughes County Court, Pierre, asking it to "indemnify the state for expenses the state incurred as a result of the services provided by the SDRC and SDRC's officers, directors, employees, agents and consultants."
It also claims that SDRC failed to contribute to an "indemnity fund" and refused to deliver records.
"The state's priority is to make sure that investors and projects who relied in good faith on the Regional Center are not caught in the middle," Venhuizan said.
The South Dakota Democratic Party jumped on the opportunity to blame the shutdown on "Republican corruption," in the Republican-dominated state. Only 20 members of the 105-member bicameral Legislature are Democrats.
"The federal government's move to terminate South Dakota's participation in the EB-5 program provides even more evidence of the mismanagement of public funds that has occurred in South Dakota under Republican leadership," Democratic Party Executive Director Suzanne Jones Pranger said Tuesday.
The SDRC was awarded stewardship of the EB-5 program by then-Gov. Mike Rounds in 2009. The scandal did not prevent Rounds from winning a U.S. Senate seat in 2014. Daugaard too is a Republican.
South Dakota's regional EB-5 center is still listed as one of 1,029 such centers on the USCIS website and has not been added to the "terminated centers" list. The USCIS has terminated 35 centers to date for failing to comply with reporting requirements and failing to promote economic growth.
South Dakota has until the end of the month to respond to the federal notification. Venhuizan said the governor is conferring with counsel about the best way to respond.
A USCIS representative told Courthouse News that the "USCIS remains committed to preventing fraud and ensuring the integrity of the EB-5 Program."
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