Gary He/AP Images for Westrock Group)

Report: Sioux tribal government mismanaged $25M in federal loans

Human Rights Watch alleges ‘patterns of debilitating financial mismanagement’ from 2007 to 2013

About $25 million in federal loans to the Lower Brule Sioux tribal government appears to have been diverted from services like education and economic development and remains unaccounted for, according to a Human Rights Watch report released Monday.

The report alleges that from 2007 to 2013 the South Dakota tribe’s government engaged in “patterns of debilitating financial mismanagement” and made deliberate attempts to withhold information from tribal citizens during that time, affecting their human rights.

“This is one of the poorest places in the country, and huge amounts of money have been diverted by a government who is principally responsible for providing social benefits, education and other things,” said Arvind Ganesan of Human Rights Watch. “As a result, the conditions on the reservation are terrible, and the government refuses to disclose what it’s doing.”

The Lower Brule Sioux Reservation is small — 404 square miles — and is home to 1,664 people. In 2000 the median household income was $21,146. The tribe’s leadership has been in power since 1980, according to Human Rights Watch.

According to the report, budgets and financial audits were unavailable to the public despite the tribe’s constitutional requirement that both be published, and “withholding information appears to be systematic practice affecting all who might seek information, including tribal members, the Bureau of Indian Affairs, human rights organizations and even some members of the Tribal Council.”

Lower Brule Tribal Chairman Michael Jandreau did not respond to multiple requests for comment on the report, and Tara Adamski, general council for the Lower Brule, declined to comment.

“Reading this report and assuming it’s true, Lower Brule has had a long-term breakdown in political accountability and transparency,” said Matthew Fletcher, director of the Indigenous Law and Policy Center at Michigan State University and a consultant on the report. “This is what can happen when you don’t have enough disclosure and foreclose on the ability of tribal citizens to engage with the government.”

In the most notable financial mismanagement outlined by Human Rights Watch, in 2009 members of the Lower Brule Tribal Council purchased Westrock Advisors, a New York–based brokerage firm that was essentially insolvent at the time of purchase.

“In effect, the solution to bail out Westrock and pay back investors was to have one of the tribe’s shell companies obtain an economic development loan guarantee from the U.S. government, then lend that guaranteed money to another tribal shell company in a paper transaction to finance the purchase of an insolvent brokerage,” reads the report. “Then they would sell the guaranteed loan for cash to a third party and use the new cash to try to keep Westrock solvent, pay investors and perhaps profit.”

In 2011 Westrock Advisors went belly up, which means that the federal government is now on the hook to repay the loan instead of Westrock and its subsidiaries, as they no longer exist to pay it back.

“We found evidence in a New York court case that about $12 [million] to $13 million of that $20 million went to repay shareholders in the defunct brokerage firm,” said Ganesan. “Some of those people were members of the board of the tribal company, which happened to be five members of the then–Tribal Council and two of their business partners.”

In another instance, about $2.6 million, allocated primarily for schools on the Lower Brule Reservation, was diverted into the tribe’s general budget by council members and has not yet been accounted for. By the end of the school year in which the money disappeared, Human Rights Watch found that “only about 25 percent of students were proficient or advanced in reading and only about 25.7 were proficient or advanced in math.”

Human Rights Watch also outlined a number of conflicts of interest, including tribal government officials’ owning businesses or holding positions that benefited from public resources. In one instance, members of the Mni Wiconi Rural Water Supply Project steering committee reviewed costs for a water system, and Tribal Council members approved the costs as well as stipends for the committee. The committee and Tribal Council consisted of the same people, according to the federal government's audit.

“Part of the problem here is that there isn’t enough federal government oversight,” said Ganesan. “There just isn’t enough capacity to investigate, and there may not be enough political will to do it either, because clearly there have been problems for several years now, and it doesn’t really look like anybody looked into it seriously.”

The report’s authors recommend that the Lower Brule Sioux Tribal Council release documents per the tribal constitution, establish an entity to review waste and fraud and investigate fund diversions as well as the Westrock purchase. They also recommend the federal government launch an investigation into the Lower Brule tribal government as well as the Bureau of Indian Affairs and consider delaying funds to the tribe if the Tribal Council does not follow its constitution in regard to transparency.

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