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North Dakota House Bill 1026 focuses on preventing grain fraud

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North Dakota House Bill 1026 focuses on preventing grain fraud

ND District 15 State Rep. and Chairman of the House Agriculture Committee Dennis Johnson, left, and ND District 25 State Sen. and Chairman of the Senate Agriculture Committee Larry Luick.

Stronger grain regulation is coming to North Dakota on the heels of one of the most prolific grain frauds in the state’s history.

House Bill 1026 is currently moving through the North Dakota House of Representatives. The bill focuses on several forms of regulation within the industry including how grain elevators are audited and licensing.

“It’s something that we’ve been looking at probably the last few years. We’ve had some insolvencies, some processors, some elevators. We had a roving grain buyer that really got out of hand here a few years, so we just started digging into this to see what we could do and sort of wanting new eyes on the oversight of the industry,” District 15 State Representative and Chairman of the House Agriculture Committee Dennis Johnson said.

Hunter Hanson was the roving grain buyer that got out of hand. His grain buying business began in 2017 and was based in Devils Lake, North Dakota.

A roving grain buyer is an individual who purchases grain but doesn’t have a physical location in the state or area in which they are purchasing grain.

After some bounced checks and some investigation it was discovered that Hanson was operating a Ponzi scheme that defrauded grain producers and sellers.

In July 2019, Hanson pleaded guilty to money laundering and wire fraud charges. He was sentenced to eight years and ordered to pay $11.1 million in restitution.

“Not only were the farmers hit by this but in some cases, it was a double whammy because they actually had grain elevators that were selling to this individual that went insolvent. Some of the major amounts were actually from some of the grain hand handling facilities that were co-ops that lost money or grain to this guy,” District 25 State Senator and Chairman of the Senate Agriculture Committee Larry Luick said.

Currently, grain buyers are physically audited meaning the contents of their elevators and storage are examined, however, financial audits of the businesses are not performed, Luick said. Audits will also occur more frequently.

“Just the standalone fact that we’re going to have a different auditing practice of the facilities financial records, that alone is going to give us a tremendous amount of protection by itself,” Luick said.

Roving grain buyers have had few requirements to buy and broker in North Dakota which is another area the bill is planning to address, Luick said.

“We’ve got to make sure that they just don’t come in and buy very large quantities of grains and then go away and we have nowhere to track them down,” he said.

Licensing for grain elevators is set to change in the current bill, too. Grain elevators are traditionally licensed by volumes. Now, they would be licensed by value.

“There’s such a difference between soybeans or oats or flax or wheat … It was a little fairer to probably charge for a license if you go by the value you work with instead of the volumes,” Johnson said.

Previously warehouses and roving grain buyers were licensed, the bill would also license processors and brokers, Johnson said.

If a bad check is written or a failure to pay occurs and a complaint is filed, the state agricultural inspector can seize operations until a review of the operation is completed. Although that may sound intimidating, it’s also meant to help honest businesses get back on track if they’re struggling.

Federal inspectors have had the ability to seize operations when insolvency began, but now the same power is being given to state agencies. Previously state inspectors had to get approval from the courts to seize an operation, which could take up to three or four weeks in some instances, Johnson said.

“I think that’s a big tool to help everybody involved,” Johnson said.

Larger grain facilities in the state will also return to annual licensing instead of bi-annual licensing. Smaller grain facilities and roving grain buyers had been operating on annual licenses, now all licensing will be annual.

The bill is still in its early stages and changes are still likely to occur. Both Luick and Johnson are happy with how the bill is shaping up.

Luick said this legislation isn’t the end all be all, laws will continue to be updated and changed over time.

“We know that in any law that we pass, more ideas come to us all the time. The industry changes so we have to tweak things. There are cunning individuals out there that make us change the laws,” Lucik said.

Johnson said he believes the bill is designed to help protect everyone involved in the industry.

“I believe that the ag department is there to help them just have a second (pair of) eyes on their operation .... And obviously, yes, to assure producers are doing business with reputable businesses, licensed and bonded. I think it’s a little bit in here for everybody ... Our main industry in North Dakota is agriculture, and we want a very strong business plan going forward here,” Johnson said.

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