report on exim bank’s credit guarantee facility program · · 2017-04-03attached please find...
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Office of Inspector General
Export-Import Bank
of the United States
Report on EXIM Bank’s
Credit Guarantee Facility Program
March 30, 2017
OIG-EV-17-03
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EXPORT‐IMPORTBANK– OFFICEOF INSPECTORGENERAL
EVALUATIONREPORTOIG‐EV‐17‐03
The Export‐Import Bank of the United States (EXIM Bank) is the official export credit agency of the United States. EXIM Bank is an independent, self‐sustaining executive agency and a wholly‐owned U.S. government corporation. EXIM Bank’s mission is to support jobs in the United States by facilitating the export of U.S. goods and services. EXIM Bank provides competitive export financing and ensures a level playing field for U.S. exports in the global marketplace.
The Office of Inspector General, an independent office within EXIM Bank, was statutorily created in 2002 and organized in 2007. The mission of the EXIM Bank Office of Inspector General is to conduct and supervise audits, investigations, inspections, and evaluations related to agency programs and operations; provide leadership and coordination as well as recommend policies that will promote economy, efficiency, and effectiveness in such programs and operations; and prevent and detect fraud, waste, abuse, and mismanagement.
This evaluation was conducted in accordance with the 2012 Quality Standards for Inspection and Evaluation as defined by the Council of Inspectors General on Integrity and Efficiency. This report does not constitute a Government audit and therefore, it was not conducted following the Generally Accepted Government Auditing Standards (GAGAS).
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Office of Inspector General
To: DavidSena,SeniorVicePresident&ChiefFinancialOfficerTroyFuhriman,ActingSeniorVicePresident&ChiefBankingOfficer
From: MarkThorumAssistantInspectorGeneral,Inspections&Evaluations
Subject: ReportonEXIMBank’sCreditGuaranteeFacilityProgram
Date: March30,2017
AttachedpleasefindthefinalevaluationReportonEXIMBank’sCreditGuaranteeFacilityProgram.Thereportoutlinesfiverecommendationsforcorrectiveaction.OnMarch 29,2017,EXIMBankprovideditsmanagementresponsetoadraftofthisreport,agreeingwithfouroftherecommendationsandpartiallyagreeingwithonerecommendation.Weconsidermanagement’scorrectiveactionstoberesponsive.Therecommendationswillbecloseduponcompletionandverificationoftheimplementationofthoseactions.
Weappreciatethecourtesiesandcooperationextendedtousduringtheevaluation.Ifyouhaveanyquestionsorcommentsregardingthereport,pleasecontactMarkThorumat(202)565‐3939orJenniferFainat(202)565‐3439.
cc: CharlesJ.Hall,ActingPresident&ChairmanandEVP&ChiefOperatingOfficerMichaelMcCarthy,ActingInspectorGeneralAngelaFreyre,SVP&GeneralCounselJamesCruse,SVP,PolicyAnalysis&InternationalRelationsInciTonguch‐Murray,DeputyCFOMadolynPhillips,DeputyChiefBankingOfficerAnnetteMaresh,VP,TradeFinanceDivisionHeleneWalsh,VP,PolicyAnalysisDivisionJenniferFain,DeputyAIGIELilithSanchez,SeniorInspectorParisaSalehi,Counsel,OIGLisaClark,Paralegal
Attachment:ReportonEXIMBank’sCGFProgram,OIG‐EV‐17‐03,March2017
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EXPORT‐IMPORTBANK– OFFICEOF INSPECTORGENERAL
WhyWeDidThisEvaluation
WecompletedanevaluationofEXIMBank’sCreditGuaranteeFacility(CGF)program.Weinitiatedthereviewaspartofourannualreviewplan.TheprimaryobjectiveoftheOfficeofInspectorGeneral’s(OIG)evaluationwastoascertaintheadequacyoftheBank’stransactionduediligence,Character,ReputationalandTransactionIntegrity(CRTI)assessment,post‐closingmonitoring,andcompliancewithCGFprogrampoliciesandprocedures.WealsosoughttoconfirmthattheBank’sreachbackpolicyfortheprogramalignswiththeprovisionsofitsCharter.
WhatWeRecommend
OIGrecommendsthatEXIMBank(1)reviewandupdateitspoliciesforconductingcreditfilesreviews;(2)develop,document,andimplementspotorscheduleddisbursementreviews;(3)requiretheGuaranteedLendersfortwofacilitiestoaddress$5.1millioningoodsandprogresspaymentsthatwerenoteligibleforfinancingandguarantee;(4)enhancepoliciestoensureconsistentduediligenceofproposedamendmentsaswellasaprocesstoreviewthoseamendmentsanddeterminetheappropriatelevelofapprovingauthority;and(5)reviewandupdatethereachbackpolicyfortheCGFprogramtobeconsistentwithactualpracticeandreducetheneedforwaivers.
EXECUTIVESUMMARY EvaluationReportCGFProgramOIG‐EV‐17‐03,March2017
For additional information, contact the Office of Inspector General at (202) 565-3908 or visit http://exim.gov/about/oig
WhatWeFound
TheEXIMBankCGFprogramwasdevelopedintheearly1980’stoenablemultiplesalesofU.S.exportstoaforeignbuyer.Theprogramguaranteesmedium‐termloansmadeunderlinesofcreditissuedbyacommercialbanktoaforeignbuyerofgoodsandservices.Withaminimumfacilitysizeof$10million,theCGFhasaoneyeardisbursementterm,whichmaybeextendedifnotfullyutilized.Tofacilitateourevaluation,wejudgmentallyselectedfiveCGFtransactionsforreview,withanaggregateauthorizedamountof$960.9million.TotestcompliancewiththeBank’sdisbursementrequirements,wereviewed16disbursementstotaling$97.6million.
WefoundthatEXIMBankgenerallyadministeredtheCGFprograminaccordancewithitspoliciesandprocedures,streamlinedtheapprovalprocessfordisbursementsandguaranteeissuances,andmaintainedorderlycreditfilesforeachofthefivefacilitiesreviewed.However,theindependentreviewofthefileswasnotfullydocumented.Additionally,ourreviewofdisbursementsidentifiedinstancesofnon‐compliance,resultingin$5.1millioninshipmentofgoodsandprogresspaymentsforservicesthatwerenoteligibleforfinancingandguaranteeundertwofacilities.Further,althoughtheBankmodifiedaneligibilitydatethatwasmaterialtocompliancewithIransanctionsrestrictionswithoutconsistentduediligence,wefoundnoevidencethatthiscontrolweaknessresultedinaviolationoftherestrictions.
Finally,wedeterminedthatcertainCGFtransactionsrefinancedexportsthathadalreadyoccurredyearspriortotheoperativedateofthefacility,waivingapolicyputinplacetoensuretheprogramprovidesadditionalsupportfornewU.S.exports.
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EXPORT‐IMPORTBANK– OFFICEOF INSPECTORGENERAL
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TABLE OF CONTENTS EXECUTIVE SUMMARY .............................................................................................................. i
TABLE OF CONTENTS ............................................................................................................... ii
LIST OF FIGURES AND TABLES ................................................................................................. iii
ABBREVIATIONS AND GLOSSARY ............................................................................................. iv
INTRODUCTION ....................................................................................................................... 1
SCOPE AND METHODOLOGY ................................................................................................... 1
BACKGROUND ......................................................................................................................... 2
PRINCIPAL FINDINGS AND RECOMMENDATIONS..................................................................... 8
CONCLUSION ......................................................................................................................... 22
APPENDIXES .......................................................................................................................... 23
Appendix A: Management Response and OIG Evaluation ................................................ 23
Appendix B: CGF Transactions and Disbursements Reviewed .......................................... 32
Appendix C: CGF Transactions Reviewed – Narratives ...................................................... 34
Appendix D: CGF Lender Eligibility Criteria ....................................................................... 37
Appendix E: CGF Program – Disbursement Support Submission and Retention Requirements............................................................................................................. 38
Appendix F: Summary Results of Disbursements Testing ................................................. 41
Appendix G: Reachback Waivers and Other Amendments ............................................... 42
Appendix H: Reachback Provisions .................................................................................. 44
ACKNOWLEDGEMENTS .......................................................................................................... 45
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LIST OF FIGURES AND TABLES
Figure 1: EXIM Bank Loan Guarantee Structure ............................................................................. 3
Table 1: EXIM Bank Disbursement Methodology ........................................................................... 5
Table 2: Summary of Management’s Comments on the Recommendations .............................. 29
Table 3: Schedule of Questioned Costs ........................................................................................ 31
Table 4: Transactions Reviewed ................................................................................................... 32
Table 5: Disbursements Reviewed ................................................................................................ 32
Table 6: Lender Eligibility Criteria ................................................................................................. 37
Table 7: Disbursement Support – Documentation Submission Requirements ............................ 38
Table 8: Disbursement Support – Documentation Retention Requirements .............................. 39
Table 9: Disbursement Testing Results ......................................................................................... 41
Table 10: Reachback Waivers and Other Amendments ............................................................... 42
Table 11: Reachback Provisions .................................................................................................... 44
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ABBREVIATIONS AND GLOSSARY
Term Description
Aeromexico AeroviasdeMexico,SAdeCV.TheAeromexicotransaction(AP082367XC)isoneoffiveCGFtransactionsselectedbytheOIGforreview.
APS ApplicationProcessingSystem.BankorEXIMBank
Export‐ImportBankoftheUnitedStates.
B/L BillofLading.TheB/L(e.g.,onboardocean,truck,airway,andrailway)isadocumentissuedbyatransportationcompany(e.g.,carrier,freightforwarder)fortheshipmentofgoods.Providedbythetransportationcompany,theB/Lliststhetype,quantityanddestinationofthegoodsandservesasevidenceofexport.
Board TheBoardofDirectors,EXIMBank,isresponsibleforapprovingallmedium‐andlong‐termtransactionsover$10million.
BoardMemo AmemorandumsubmittedtotheEXIMBankBoardaspartoftheprocessforapprovingatransactionforBanksupport.
BuyerorBorrower
ForeignbuyerofU.S.capitalgoodsand/orservices.
CFE ComissionFederaldeElectricidad.TheCFEtransaction(AP087483XX)isoneoffiveCGFtransactionsselectedbytheOIGforreview.
CGF CreditGuaranteeFacility.ACGFisanEXIMBankguaranteedlineofcreditbetweenaguaranteedlenderandaforeignbankoralarge,foreign,corporatebuyer.
CRC CreditReviewandComplianceDivision,EXIMBank.CreditAdministration
AgroupwithintheEXIMBankOMRDivision.TheCreditAdministrationgroupisresponsiblefortheevaluationofrequestsforutilizationunderoperativeloanandguaranteeagreements.
CRTI Character,ReputationalandTransactionIntegrity.CRTIduediligenceisaprocessinitiatedbyEXIMBanktovettransactionparticipants,whichconsistsofanalysesofcompaniesandindividualstoidentifypotentialfraud,corruptionandintegrityrisksassociatedwithpartiestoatransaction.
EC Exporter’sCertificate.TheECisadocumentusedbyEXIMBanktodeterminetheamountandpercentofU.S.contentandthefinancedamountofeachinvoice.ItiscompletedbytheExporterandcontainsrepresentationsandcertificationsrequiredbytheBankandtheU.S.government.Forexample,theExporteratteststotheU.S.andforeigncontentofthegoodsandservicesthatisprovidedunderasupplycontractorsignedpurchaseorderwiththePurchaser.
ECA ExportCreditAgency.AnECAisaprivateorquasi‐governmentalinstitutionthatactsasanintermediarybetweennationalgovernmentsandexporterstoissueexportfinancing.
Ecopetrol EcopetrolS.A.TheEcopetroltransaction(AP084891XX)isoneoffiveCGFtransactionsselectedbytheOIGforreview.
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Term Description
ECP ElectronicComplianceProgram.TheECPisaweb‐basedcertificationsystemutilizedbyEXIMBankfortheapprovalofdisbursementsandissuanceofguarantees.
EOL EXIMOnline.Exporter AnindividualorentityintheU.S.thatsellsgoodsorservicestoa
purchaserinanothercountry.FacilityAgent Alsoknownasthe“FacilityLender,”providesfinancingtotheBorrower
forthepurchaseandexportofU.S.goodsandservicestotheBorrower’scountry.
FacilityAgreement
AnagreementbetweentheBorrower,Lender,andEXIMBankthatsetsoutthetermsandconditionsoffinancingprovidedtotheBorrowerforthepurchaseandexportofU.S.goodsandservicesunderaCGF.
FacilityGuaranteeAgreement
AnagreementinwhichEXIMBankguaranteestheLender’sextensionofcreditpursuanttothetermsandconditionsbetweentheLenderandEXIMBank.
FinalCommitment
AnauthorizationoffinancingbyEXIMBank.
GuaranteedLender
TheLenderthatmakescreditavailabletoaforeignbankorbuyerandEXIMBankguaranteestherepaymentoftheforeignbankorbuyer’sobligations.
GC GuaranteeCertificate.TheGCisEXIMBank’scertificateofguaranteewithrespecttothedisbursementsmadeinaccordancewiththeFacilityAgreement.UndertheECP,EXIMBankelectronicallydocumentsitsdisbursementapprovalandguaranteeintheBank’sEOLsystemthatisaccessibletothelender.
Guarantor TheGuarantorguaranteestotheLenderandEXIMBankthepaymentofprincipalandinterestonthefacilitywhendue,includinganyadditionalamountspayableundertheFacilityAgreementoreachNote.
ISP ItemizedStatementofPayments.TheISPformiscompletedbytheBorrower(orPurchasingAgent)andlistsinformationobtainedfromthestandarddocumentsrequiredassupportforadisbursement(e.g.,invoiceno.,dateofpayment,andamount;B/Lno.anddate,etc.).
LoanManual EXIMBank’sLoan,GuaranteeandInsuranceManual,whichsetsforththepoliciesandproceduresforduediligence,structuringandmonitoringofBanktransactions.
MI MasterInvoice.TheMIisadocumentcompletedandexecutedbytheExporterasanalternativetosubmittingindividualExporterinvoicesunderamodifieddisbursementdocumentsprocess.ThedocumentlistsalloftheinvoicesforanExporter,includingthepurchaserreferenceno.,invoiceno.anddate,descriptionofgoods/services,period(services),invoiceamountandtheamountpaid.
NIOC NationalIranianOilCompany.OCP OCPS.A.TheOCPtransaction(AP088270XX)isoneoffivetransactions
selectedbytheOIGforreview.OIG OfficeofInspectorGeneral,EXIMBank.
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Term Description
OMR OperationsandManagementReportingDivision,EXIMBankOperativeDate TheOperativeDateisthedatethatEXIMBankadvisesthelenderthatall
conditionsprecedent(i.e.,allconditionsandagreements)forthetransactionaresatisfiedandthetransactionisavailableforfunding.
Petrobras PetrobrasBrasilia,S.A.andPetrobrasNetherlands,BV(collectively,Petrobras).ThePetrobrastransaction(AP084193XX)isoneoffivetransactionsselectedbytheOIGforreview.
PurchasingAgent
Personorentitywhoseprimarygoalistolocatesuppliersandtonegotiatethebestpricewithoutsacrificingqualityforthegoodsandservicesneededbytheorganizationitrepresents.
Reachback ThetermreachbackisusedtodescribetheamountoftimepassedbetweentheshipmentofU.S.exportsandthereceiptofthefinalcommitmentorapplicationforloans,guaranteesandmedium‐terminsurancebyEXIMBankforfinancing.ForCGF’s,goodsshippedorservicesperformedthatoccurredupto180dayspriortotheoperativedateofthetransactionareallowableforfinancingundertheBank’sreachbackpolicy.
RGS RecordofGoodsandServices.TheRGSisadocumentcompletedbytheBorrower(orPurchasingAgent)asanalternativetosubmittingB/Lsunderamodifieddisbursementdocumentsprocess.TheformlistsalloftheMIsforadisbursementincludingtheMInos.,Exporters,invoicenos.,descriptionofgoods/services,B/Lnos.anddates,andremarks.Ifavailable,theNorthAmericanIndustryClassificationSystem(NAICS)Codeistobelisted.
TD TransportationDivision,EXIMBank.TFD TradeFinanceDivision,EXIMBank.Utilization TheBorrower’susageofacreditfacility(e.g.,CGF).
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EXPORT‐IMPORTBANK– OFFICEOF INSPECTORGENERAL
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EVALUATION REPORT ON EXIM BANK’S CGF PROGRAM
INTRODUCTION
WecompletedanevaluationoftheExport‐ImportBankoftheUnitedStates(EXIMBankorBank)CreditGuaranteeFacility(CGF)program.Weinitiatedthereviewaspartofourannualreviewplan.TheprimaryobjectiveoftheOfficeofInspectorGeneral’s(OIG)evaluationwastoascertaintheadequacyoftheBank’stransactionduediligence,Character,ReputationalandTransactionIntegrity(CRTI)assessment,post‐closingmonitoring,andcompliancewiththepoliciesandproceduresrelatedtotheCGFprogram.Inaddition,wesoughttoconfirmthattheBank’sreachbackpolicyfortheprogramalignswiththeprovisionsofitsCharter.
SCOPE AND METHODOLOGY
Toachieveourobjective,acombinationofquantitativeandqualitativetechniques,aswellasdocumentreviews,wasemployedaspartoftheevaluationofEXIMBank’sCGFprogram.WejudgmentallyselectedfiveCGFsforreview,withatotalauthorizedamountof$960.9million,andtotalexposureamountof$239.3millionasofSeptember30,2016totestcompliancewiththeBank’spoliciesandprocedures.ThefivefacilitieswereauthorizedbytheBankduringfiscalyears2010to2015.TotestcompliancewiththeBank’sdisbursementrequirementsforthefiveCGFs,wereviewedajudgmentalsampleof16disbursements,totaling$97.6million.SeeAppendixesBandCforalistoftransactionsanddisbursementsreviewed,andtherelatednarratives.
Fortheselectedfacilities,wereviewedapplicablelegaldocumentsandrelatedinternalBankreportsandcorrespondence;interviewedBankmanagementandstaffincludingrepresentativesfromtwofacilityagentsandapurchasingagent;revieweddisbursementrequests,supportingschedules(e.g.,itemizedstatementsofpayment),andstandarddocumentsrequiredassupportfordisbursements(i.e.,invoices,evidenceofpayment,evidenceofexport,andExporter’sCertificate);andreviewedpublicandopensourcedocuments.
Tofacilitatetheevaluation,OIGengagedtheservicesofCliftonLarsonAllen(CLA)throughcontracttoreviewtheBank’spoliciesandproceduresfortheCGFprogramandthecreditfilesandrelateddocumentsforthefivefacilities.CLAalsoparticipatedininterviewsofBankstaffandmanagement.Theresultsoftheirworkhavebeenincorporatedintothisreport.TheevaluationwasperformedprimarilyatEXIMBank’smainlocationinWashington,DC,withfieldworkconductedatthelocationsoffacilityagentsandlendersinCharlotte,NCandNewYork,NY,andapurchasingagentinHouston,TX.
Points of Inquiry
Thefollowingtwopointsofinquirydirectedourfocusandguidedourevaluation:
POINTOFINQUIRY1:DidEXIMBankadministertheCGFprogramincompliancewithestablishedpoliciesandprocedures?
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POINTOFINQUIRY2:IstheuseofareachbackoptionforCGFsconsistentwithEXIMBank’smissiontocreateandsustainU.S.jobsthroughthefinancingofU.S.exports?
TheOIGconductedthisevaluationduringfiscalyears2016‐2017inaccordancewiththeQualityStandardsforInspectionandEvaluationissuedbytheCouncilofInspectorsGeneralonIntegrityandEfficiency.1Thosestandardsrequirethatweplanandperformtheevaluationtoobtainsufficient,appropriateevidencetoprovideareasonablebasisforourfindingsandconclusionsbasedonourevaluationobjective.Webelievethattheevidenceobtainedprovidesareasonablebasisforourfindingsandconclusions.
BACKGROUND
Establishedin1934throughExecutiveOrder,andsubsequentlymadeanindependentagencyoftheUnitedStates(U.S.)throughcongressionalCharterin1945,EXIMBankisawholly‐ownedgovernmentcorporationwhosefundamentalmissionistoaidinthefinancingandtofacilitatetheexportofU.S.goodsandservices,andtocontributetotheemploymentofU.S.workers.EXIMBank’sCharter,throughitsenablinglegislation,establishestheBank’soperationsandprogramsandisreauthorizedonaperiodicbasis.WiththepassageoftheExport‐ImportBankReformandReauthorizationActof2015,theauthorizationoftheBank’sCharterwasextendedthroughSeptember30,2019.2
TheBank’scorefinancingprogramsincludedirectloansandguaranteestoforeignbuyers,exportcreditinsuranceforexportersandforeignbuyers,andworkingcapitalfinancetoU.S.smallbusinessexporters.TheCharterrequires“reasonableassuranceofrepayment”forallBanktransactions,whicharebackedbythefullfaithandcreditoftheU.S.Government.3EXIMBankhasfunctionedonaself‐sustainingbasissincefiscalyear2008,coveringitsoperationalcostsandprovisioningforexpectedlossesthroughloanlossreserves,fundedbyfeesandinterestitchargesitscustomers.4
Credit Guaranty Facility Program
TheCGFprogramwasdevelopedbyEXIMBankintheearly1980’stoenablemultiplesalesofU.S.goodsandservicestoaforeignbuyer.Unliketraditionalmedium‐andlong‐termexportfinancings,CGFsareconsideredgenerallinesofcredittobeusedbytheforeignbuyerintheordinarycourseofbusiness.Thelinesofcreditaremadeavailablethrough
1FormoreinformationontheQualityStandardsofInspectionandEvaluation,seehttps://www.ignet.gov/sites/default/files/files/committees/inspect‐eval/iestds12r.pdf.
2SeetheExport‐ImportBankReformandReauthorizationActof2015,includedin“DivisionE—Export‐ImportBankoftheUnitedStates”ofthe“FASTAct,”whichbecamepubliclawonDecember4,2015(Pub.L.No.114‐94)athttps://www.congress.gov/114/bills/hr22/BILLS‐114hr22enr.pdf.
3SeeTheCharteroftheExport‐ImportBankoftheUnitedStatesathttp://www.exim.gov/sites/default/files/2015_Charter_‐_Final_As_Codified_‐_02‐29‐2016.pdf.
4SeetheExport‐ImportBankoftheUnitedStatesAnnualReport2015athttp://www.exim.gov/sites/default/files/reports/annual/EXIM‐2015‐AR.pdf.
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commerciallendersforthepurchaseofU.S.exportsduringaoneyeardisbursementperiodandmaybeextendedifnotfullyutilized.5CGFsareclassifiedasmedium‐termwithrepaymenttermsofuptofiveyears,orsevenyearsonanexceptionbasis.Withaminimumfacilitysizeof$10million,CGFshavethesamecoverageasotherEXIMBankmedium‐andlong‐termguarantees—100percentunconditionalguaranteetothelenderofprincipalandinterestforupto85percentfinancing,with15percentcashdownpaymentandanyfinancedfees.Seefigure1belowforanillustrationoftheloanguaranteestructure.
AuniqueelementofaCGFisthatthespecificgoodsorservicesarenotdefinedatthetimeofapplicationbutareexpectedtohaveausefullifeconsistentwiththetwo‐tofive‐yearexpectedrepaymenttermoftheunderlyingloans.Further,neitherthefacilitynorthesubtransactionsaresubjecttoareviewbytheBank’sEngineeringandEnvironmentalDivisionunlessspecificallyrequestedbytheLoanOfficerorCreditAdministratorduringtheunderwritingofthefacilityanddisbursementapprovalprocess.6TheindividualdisbursementsforaCGFcannotexceed$10million,excludingtheexposurefee,iffinanced.
Figure 1: EXIM Bank Loan Guarantee Structure
Source: EXIM Bank Loan Manual
5Ifnotfullyutilized,CGFsmayberenewedbytheBank(i.e.,lowerof50percentoftheauthorizedvalueor$10millionofthefacilityhasbeenutilized).
6Forexample,theBorrowerrequestsa7‐yearrepaymentterm.ALoanOfficerrequeststheassistanceofanEngineertodeterminetheusefullifeoftheproductstobefinanced.
EXIM Bank
U.S. Exporter Foreign BuyerGuaranteed Lender (Facility Agent)
Payment of Exposure fee for Risk Reserves
Payment for U.S. exports
Export of U.S. goods and services
Creation of commercial bank loan
Disbursement approval and
guarantee issuance
Review of disbursement
support, request for approval and guarantee
Submission of disbursement requests and support, payment
of principal and interest
Promotion of exports of U.S. goods and
services
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TheinitialeligibilitydateforU.S.exportstobecoveredunderaCGFis180dayspriortothe“operativedate”ofthefacility.7Thispracticeisreferredtoasa“reachback,”wheregoodsshippedorservicesrenderedtotheBorrowerbeforethetransactionbecomesoperativeareeligibleforfinancing.CGFsarechargedaflat1/16thofonepercentperannumfacilityfeeonthefinancedportionofthefacilityplusanexposurefee.8LendersmusthaveadequateexperienceindealingwithsimilarEXIMBankprogramsandadequatecapitalandinfrastructuretohandlethedisbursementdocumentationrequirements.SeeAppendixDforlendereligibilityrequirements.
WithinEXIMBank,theCGFprogramisadministeredbytheTradeFinanceDivision(TFD).TFDhasprimaryresponsibilityfortheunderwritingofCGFsandtheprocessingofamendmentswhileafacilityremainsoperative.9TheBank’sTransportationDivision(TD)isresponsibleforunderwritingandprocessingamendmentsfortransportation‐relatedCGFs.ApplicationintakeandinitialinputintotheBank’sApplicationProcessingSystem(APS)anddisbursementprocessingisaccomplishedbytheOperationsandManagementReportingDivision(OMR).AsofSeptember30,2016,thetotaloutstandingbalanceandexposureofloansguaranteedundertheCGFprogramwas$163.0millionand$239.3million,respectively.10
Underwriting
CGFunderwritingproceduresaredeterminedbythetransactionfinancedamount.Theproceduresforafacilitywithafinancedamountof$10millionexcludingtheexposurefeearesimilartothatofotherEXIMBankmedium‐termtransactionsthatcanbeapprovedbyaBankofficerwithIndividualDelegatedAuthority(e.g.,aCreditmemoisprepared).11ACGFwithafinancedamountgreaterthan$10millionissubjecttotheproceduressimilartothatoflong‐termtransactionsthatrequireapprovalbyEXIMBank’sBoardofDirectors(e.g.,aBoardMemoisprepared).
ThecurrentsystemforunderwritingCGFsislargelymanualandpaper‐based,althougheffortsareunderwaybytheBanktomodifyEXIMOnline(EOL)tobeabletoaccommodate
7ForCGFs,the“operativedate”isthereferencepointforthereachbackpolicy.Thestartingpointofacredit,whichtheBankdefinesas“thedatefromwhichcovertakeseffectonagivenexportcredittransactionandthebasisuponwhichtherepaymenttermcalculationandpremiabegins”iseachconsolidationdateforCGFs.EXIMBankPolicyHandbook,datedJune2005.Theoperativedateisalsothedateusedtodetermineeligibleshipments,theperiodofdisbursementandthefinalutilizationdateofthefacility.Thestartingpointofcreditformedium‐andlong‐termcreditsdependsonthenatureofthetransaction.
8Inadditiontothefacilityfee,anAviationSectorUnderstanding(ASU)guaranteecommitmentfeeischargedforaircraftrelatedCGFs.
9Fornon‐transportationrelatedCGFs,EXIMBank’sAssetManagementDivisionisresponsibleforprocessingofamendmentsrelatingtodefaultsorreschedulings,andanyamendmentspost‐expiryofafacility.
10ThetotalexposureamountisthetotaloutstandingbalanceplusthetotalamountundisbursedforloansguaranteedundertheCGFprogram.
11EXIMBankIndividualDelegatedAuthority,BoardResolutionasofJuly26,2010.
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CGFapplications.12Currently,theBank’sAPSisusedtoenterandtrackthelistofexportersandcreatethecoverpagesoftheBoardMemoforfacilitiesthatrequireboardapproval.
BeginninginOctober2011,EXIMBankrequiredCGFapplicantstosubmittwolistsaspartoftheapplicationprocess:(1)apreliminaryproductlistofgoodsandservices;and(2)acomprehensivelistofexporterstobeutilizedunderthefacility.ThelistsallowBankstafftoperformtheminimumrequiredprescreening,suchastheCRTIcheckofexporter,supplier,andborrowernamesandIransanctionsduediligenceforactivitiesandpersonssubjecttosanctions.TheEXIMBankLoanOfficerdevelopsalistofprequalifiednamesthatarethenenteredintoAPSbyOMR.Priortoutilizationofthefacility,theBorrowerisrequiredtosubmittotheBankaformallistofexporters,whichmaybeupdated,forapprovalbytheLoanOfficer.
Disbursements
UndertheCGFprogram,disbursementsarelimitedtoreimbursementsanddirectdisbursements.ReimbursementsarisewhentheBorrowerhaspreviouslypaidtheU.S.exporterforgoodsandservicesandtheGuaranteedLenderreimbursestheBorrowerforthefinancedamount.DirectdisbursementsarepaymentsmadebytheGuaranteedLenderdirectlytotheU.S.exporterforthefinancedportionofgoodsandservicespurchasedbytheBorrower.Table1belowdescribestheBank’smanualdisbursementapprovalandElectronicComplianceProgram(ECP)requestfordisbursementapprovalprocesses.13InJune2011,theEXIMBankBoardapprovedtheuseoftheECPforCGFs,whichwasimplementedinNovember2013.InOctober2012,theauditresponsibilityforCGFswastransferredfromOMRtotheBank’sCreditComplianceandReviewDivision(CRC).
Table 1: EXIM Bank Disbursement MethodologyManual Approval ECP Approval
Lenderreceivesandreviewsthedisbursementdocuments
Lenderreceives,reviewsandretainsthedisbursementdocuments
LendermakespaymentagainstthedocumentseithertotheBorrowerortheExporter
LendermakespaymentagainstthedocumentseithertotheBorrowerortheExporter
LendersubmitsthedisbursementrequestandalldisbursementdocumentstoEXIMBank
Lendersubmitsthedisbursementrequestandelectronicchecklistsummarizingitsreviewofthedisbursementdocuments
EXIMBankOMRCreditAdministrationstaffreviewthedisbursementdocuments
Afterareviewofthechecklist,EXIMBankelectronicallyapprovesthedisbursement
EXIMBankapprovesthedisbursementandissuesaguaranteecertificateorlegendsthepromissorynote(s)
EXIMBankrandomly“audits”ECPdisbursementsforcompliance
Source: EXIM Bank Amendment Request for Ecopetrol CGF (March 17, 2011)
12EOL,anautomatedapplicationprocessingsystem,isutilizedbytheBankforprocessingapplicationsforshort‐andmedium‐termloansandguarantees.
13In2001,theBankdevelopedECP“toimprovetheefficiencyandturnaroundtimeinapprovingmedium‐termdisbursementsundermedium‐termMasterGuaranteeAgreements.”
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Historically,theBankhasrequiredalldocumentationsupportingCGFdisbursementstobesubmittedformanualreviewandapprovalbytheassignedCreditAdministratorinOMRpriortotheissuanceofaGuaranteeCertificateorlegendonapromissorynote.However,undertheECP,theBankreliesontheGuaranteedLendertocollectandreviewtherequireddisbursementdocumentation,verifyingthattheExporterisontheBank’spre‐approvedExporterlistandthatthegoodsandservicesincludedinadisbursementrequestarenotexcludedfromfinancing.14
TheGuaranteedLendersubmitsdisbursementrequestsandrequiredinformationtotheBankbycompletingtheonlineECPRequestforDisbursementApprovalform.15TheCreditAdministratorreviewstheformanddocumentstheapprovalandguaranteeelectronicallyintheBank’sEXIMOnline(EOL)systemthatisaccessiblebythelender.CRCevaluatesthelender’scompliancewithECPprogramrequirementsthroughrandompost‐disbursementreviews.
AmongthefiveCGFsreviewed,twofacilities(PetrobrasandEcopetrol)weresubjecttothemanualapprovalprocess;however,amodifieddisbursementdocumentationmethodologywasapprovedforonefacility(Petrobras).TheremainingthreeCGFs(CFE,OCPandAeromexico)wereprocessedundertheECPapprovalprocess.ThestandarddocumentsrequiredassupportforadisbursementincludetheU.S.invoice,evidenceofpayment,billoflading,andExporter’sCertificate.16
Prior Reviews of EXIM Bank’s CGF Program
ThisisthefirstevaluationofEXIMBank’sCGFprogrambytheOIG.Priortothisevaluation,theGovernmentAccountabilityOffice(GAO)conductedaperformanceauditoftheBank’sloanguaranteeunderwritingprocedures.17TheobjectivesoftheauditweretoexaminetheextenttowhichtheBank(1)adequatelydesignedandimplementedprocedurestoreasonablyassurecompliancewithitsunderwritingprocessrequirementsforloanguaranteetransactionsandconsistencywithfederalguidance,and(2)adequatelydesignedprocedurestoprevent,detect,andinvestigatefraudulentapplicationsforloanguarantees.WhiletheauditwasnotspecifictotheCGFprogram,itidentifiedopportunitiesforimprovementintheBank’sprocessesforunderwritingloanguaranteesanddocumentingfraudandincludedsixrecommendations.Forexample,GAOrecommendedthattheBankshould“developandimplementdetailedinstructions,priortoloanguaranteeapproval,for
14SeeAppendixEfordetailsonthedocumentstobesubmittedfordisbursementrequestsandapprovalandretentionrequirements.
15TheECPRequestforDisbursementApprovalformincludessummaryinformation(e.g.,transaction,contactanddisbursement),certificationsintheformofyes/noquestions,andExporter/LocalCostProviderinvoiceinformation.
16Supranote14.
17Formoreinformation,seeGAO’sExport‐ImportBank:EnhancementsNeededinLoanGuaranteeUnderwritingProceduresandforDocumentingFraudProcesses(GAO‐14‐574,datedSeptember9,2014)auditreportavailableathttp://www.gao.gov/assets/670/665621.pdf.
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…preparingandincludingallrequireddocumentsoranalysesintheloanfile....”AllsixoftherecommendationsmadebyGAOareclosed.
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PRINCIPAL FINDINGS AND RECOMMENDATIONS
PointofInquiry1:DidEXIMBankadministertheCGFprogramincompliancewithestablishedpoliciesandprocedures?
Applicable Standards, Terms and Conditions
OIGreviewedvariousApplicableStandards,TermsandConditionsandfocusedonthefollowing:
1. ProceduresforprocessingapplicationsandwaiversforanddocumentingCGFsoutlinedinChapters7and12CreditGuaranteeFacilitiesofEXIMBank’sLoan,GuaranteeandInsuranceManual(LoanManual),datedJanuary2010andApril2015,respectively;
2. PolicyandrationaleforCGFsoutlinedintheCreditGuaranteeFacilitiessectionoftheBank’sGuaranteeProgram:TechnicalHandbook(GuaranteeHandbook),datedOctober1995;
3. PolicyforAdditionalityandReachbackoutlinedintheBank’sPolicyHandbook(PolicyHandbook),datedJune2005;
4. ProceduresforprocessingdisbursementsforCGFsoutlinedintheBank’sOperationsandDataQualityDivisionManual,CreditAdministration:GuaranteesandLoans(DisbursementsManual),UpdatedthroughAugust2010andJanuary2016,respectively;
5. EXIMBank’sFrequentlyAskedQuestionsforLoansandGuarantees(FAQs);18
6. AuthoritydelegatedtoseniorBankofficialsbytheBoardoutlinedintheIndividualDelegatedAuthorityBoardResolutionasofJuly26,2010;19
7. TermsandconditionsoftheFacilityAgreementsandFacilityGuaranteeAgreementsforthefivejudgmentallyselectedCGFtransactions;and
8. FederalguidanceoninternalcontrolsandpoliciesforcreditprogramsoutlinedintheGeneralAccountabilityOffice’s(GAO’s)StandardsforInternalControlsfortheFederalGovernmentandtheOfficeofManagementandBudget’s(OMB)CircularA‐123,Management’sResponsibilityforInternalControlsandCircularA‐129,PoliciesforPoliciesforFederalCreditProgramsandNon‐TaxReceivables.
EXIM Bank Policies, Procedures and Guidance
Thebasicfeatures,processingandunderwritingrequirementsoftheCGFprogramareoutlinedinEXIMBank’sLoanManual,lastrevisedinApril2015.Otherelementsofthe
18Formoreinformation,see“CreditAdministrationFactSheets”athttp://www.exim.gov/tools‐for‐exporters/credit‐administration‐and‐operations.TheBankhasFAQsforInvoices,EvidenceofPayment,EvidenceofExportandExporter’sCertificate.
19Supranote11.
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programareoutlinedintheBank’sGuaranteeHandbook,whichdefinestheCGFprogramparametersandrationale.AdditionalguidancecanbefoundintheBank’sPolicyHandbook,DisbursementsManual,on‐lineFAQsforloansandguarantees,andIndividualDelegatedAuthoritypolicy.
ThetermsandconditionsspecifictoeachCGFareoutlinedintheFacilityAgreementbetweentheBorrower,theLender,andEXIMBank.TheFacilityAgreement,forexample,includesascheduleorannexthatliststhegoodsandservicesthatareexcludedfromBankfinancing,20inspectionrights,andtherequireddisbursementdocumentsandrelatedforms.ThetermsandconditionsoftheEXIMBankguaranteeareoutlinedintheFacilityGuarantyAgreement.21
Federal Guidance on Internal Controls and Policies for Credit Programs
AsprescribedinOMBCircularA‐123,Management’sResponsibilityforInternalControl,EXIMBankmanagementhasa“fundamentalresponsibilitytodevelopandmaintaineffectiveinternalcontrol.”22InternalcontrolisaprocesseffectedbyEXIMBank’sBoardofDirectorsandmanagement,designedtoprovidereasonableassuranceabouttheachievementoftheBank’smissionandobjectivesinregardtoeffectivenessandefficiencyofoperations,reliabilityoffinancialreporting,andcompliancewithlawsandregulations.AsstatedintheGAO’sStandardsforInternalControlintheFederalGovernment,“controlactivitiesarethepolicies,procedures,techniques,andmechanismsthatenforcemanagement’sdirectivestoachievetheentity’sobjectivesandaddressrelatedrisks.”23
Managementisresponsiblefordesigningcontrolactivitiestoachieveanentity’sobjectivesandtorespondtorisksinitsinternalcontrolsystem.AcommoncontrolactivityidentifiedintheGAOstandardsis“appropriatedocumentationoftransactionsandinternalcontrol.”24Specifically,thestandardsstatesthat,“Managementclearlydocumentsinternalcontrolandalltransactionsandothersignificanteventsinamannerthatallowsthedocumenttobereadilyavailableforexamination.Thedocumentationmayappearinmanagementdirectives,administrativepolicies,oroperatingmanuals,ineitherpaperorelectronicform.Documentationandrecordsareproperlymanagedandmaintained.”25BoththeOMB
20EXIMBankdevelopedtheExcludedGoodsandServicesListtodistinguishbetweengoodsorservicesthatrequireaspecialreviewversusthosethatdonot.ItisalistofitemsthatwouldrequireadditionalreviewandconsiderationbytheBank(e.g.,byanEngineer)andthereforeareexcludedfromfinancingunderaCGF.
21UnlikeotherBankmedium‐termguaranteeproducts,CGFsarenotsubjecttoaMasterGuaranteeAgreement.
22Formoreinformation,seehttps://obamawhitehouse.archives.gov/sites/default/files/omb/assets/omb/circulars/a123/a123_rev.pdfandhttps://obamawhitehouse.archives.gov/sites/default/files/omb/memoranda/2016/m‐16‐17.pdf.
23Formoreinformation,seehttp://www.gao.gov/assets/80/76455.pdfandhttp://www.gao.gov/assets/670/665712.pdf.
24Ibid.
25Ibid.
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CircularA‐123andGAOstandardsprescribeseparateandongoingevaluationsofinternalcontrolactivitiesaspartofmonitoringbyfederalagencies.
OMBCircularA‐129,PoliciesforFederalCreditProgramsandNon‐TaxReceivables,requiresdepartmentsandagenciesto“[o]perateeachcreditprogramunderarobustmanagementandoversightstructure,withclearandaccountablelinesofauthorityandresponsibilitiesforadministeringprogramsandindependentriskmanagementfunctions;monitoringprogramsintermsofprogrammaticgoalsandperformancewithinacceptableriskthresholds;andtakingactiontoimproveormaintainefficiencyandeffectiveness.”26
Finding 1: Although EXIM Bank generally administered the CGF program in accordance with program policies and procedures, we identified certain control weaknesses.
Overall,EXIMBankadministeredtheCGFprograminaccordancewithitsprogrampoliciesandprocedures.Inreviewingourjudgmentalsampleoffivefacilities,OIGfoundthattheBankfollowedtheproperproceduresforprocessingandunderwritingCGFsasoutlinedinEXIMBank’sLoanManual.Inaddition,theBankhasstreamlinedtheapprovalprocessfordisbursementsandguaranteeissuancesbyimplementingtheElectronicComplianceProgram(ECP)forCGFsinNovember2013,significantlyenhancingtheefficiencyoftheprogram.27However,asdetailedinthefindingsbelow,weidentifiedcertaincontrolweaknesses.
Finding 1A: Credit files were reasonably complete and orderly, but independent review of the files was not fully documented.
EXIMBank’screditfilesforthefiveCGFswerefoundtobereasonablycompleteandorderly,withonlytwounsigneddocumentsidentifiedthatweresubsequentlylocatedandprovidedbytheBank.However,ourreviewfoundthattheBankshouldenhanceitscontrolsoverthecompletenessandintegrityofthecreditfiles.TheextenttowhichsomeoneindependentoftheLoanOfficerreviewedthecreditfiles,orthatthecreditfileswereexaminedspecificallyforcompletenessandcompliance,wasunclearforthefivefacilities.
Section7.2.2.1oftheBank’sLoanManualaddressesthepoliciesforcreditfilereviewandemphasizestheimportanceof“goodfilemaintenance”bytheLoanOfficer.Tothisend,theBank’spolicyrequiresLoanOfficerstoincludeandperiodicallyupdateadocumentandcompliancechecklist(e.g.,APDocumentChecklistandComplianceChecklist)inthecreditfile.Thechecklistsareintendedtoensurethecompletenessofthefileforboardapproval.
26Formoreinformation,seehttps://obamawhitehouse.archives.gov/sites/default/files/omb/assets/a129/rev_2013/pdf/a‐129_main.pdf.
27TheECPisaweb‐basedcertificationsystemfordisbursementapprovalandguaranteeissuancethathadbeenusedforanumberofyearsforotherstandardmedium‐termandsomesmallerlong‐termguarantees.
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Asdocumentsarecompletedandplacedinthefile,theLoanOfficerorresponsiblepartyinitialsanddatestheapplicablelineonthechecklist.
TheBank’spolicyplacesresponsibilityforreviewingtheintegrityofthefilewiththedivisionVicePresident,whoalsoinitialstheBoardMemoapprovingthetransaction.Withoutafullydocumentedindependentreviewofthecreditfile,theBankcannotprovideassurancethatallapplicationprocessing,prescreeningandduediligencewascompletedinaccordancewithBankpoliciesandprocedures.
Finding 1B: Approval of disbursements and issuance of guarantees generally complied with EXIM Bank policies and procedures, but we identified some instances of noncompliance resulting in goods and services that were not eligible for financing and guarantee.
WereviewedcompliancewiththeprocessforapprovingdisbursementsandissuingguaranteesfortheCGFprogram.Forfivefacilities,wereviewedajudgmentalsampleof16disbursementstotaling$97.6millionandconductedon‐sitereviewsattwoFacilityAgentsandaPurchasingAgent.Wedeterminedthatthedisbursementswerecompletedinaccordancewiththerespectivedisbursementapprovalprocess(i.e.,manualorECP).TheFacilityAgentssubmittedtherequireddocumentsandinformationtotheBankforapprovalandthedisbursementfilesreviewedwerereasonablycompleteandorderly.28
However,asillustratedbelow,weidentifiedsomeinstancesofnoncompliancewheredisbursementfilesmaintainedbytheFacilityAgentsand/orPurchasingAgentwerenotreadilyavailableforexaminationasdocumentationwasmissingorgoodsorservicesthatwerenoteligibleforfinancingandguaranteeoccurred.Wealsonotedotherminorerrors(e.g.,transpositionofnumbersandincorrectdates)inourreviewofdisbursementdocumentation.However,theseerrorsdidnotaffecttheamountbeingfinancedandguaranteed.SeeAppendixFforasummaryoftheresultsofthedisbursementtesting.
PetrobrasBrasilia,S.A.andPetrobrasNetherlands,BV(collectively,Petrobras).Disbursementswereapprovedmanuallyunderamodifiedprocesswithrespecttothesubmissionofthestandarddocumentsrequiredassupportfordisbursements.Underthemodifiedprocess,PetrobrassubmittedtotheFacilityAgentaMasterInvoiceandRecordofGoodsandServicesinsteadofinvoicesandbillsofladingforeachdisbursementforreview.Petrobraswasrequiredtomaintainthesupportinginvoicesandbillsofladingforaperiodof10yearsfromthedateofrequestforreimbursement.29
28Supranote15.
29AccordingtoEXIMBankstaff,theGuaranteedLenderforthePetrobrasCGFdidnothavearecordsretentionrequirementbecauseithadsubmittedtherequireddocumentstotheBank.Specifically,foreachsubtransaction,thelendersubmittedtheReimbursementRequest,ItemizedStatementofPayment,Exporter’sCertificate,MasterInvoice,RecordsofGoodsandServicesandEvidenceofPayment(seeAppendixE).
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WetestedfivedisbursementsunderthePetrobrasfacility,totaling$29.5million,andconductedon‐sitereviewsoftheFacilityAgentandthePurchasingAgent.WedeterminedthatthedisbursementfilesmaintainedbytheFacilityAgentwerereasonablycompleteandorderly.However,wefoundthatthefilesmaintainedbythePurchasingAgentforthedisbursementstestedwerenotreadilyavailableforexaminationasdocumentsweremissing.ThePurchasingAgentwasabletolocatesomemissinginvoicesandbillsofladinginitselectronicrecordkeepingsystemandindicatedthattheremainingdocumentsmaybestoredoff‐site.PetrobrasmadeitsfinalpaymentonthefacilityonFebruary16,2016.
CommissionFederaldeElectricidad(CFE).DisbursementswereapprovedandguaranteedelectronicallyviatheECP.CFEwasrequiredtosubmitthestandarddocumentstotheFacilityAgentforreview.
WetestedthreedisbursementsundertheCFEfacility,totaling$17.4million,andconductedanon‐sitereviewoftheFacilityAgent.WedeterminedthatthedisbursementfilesmaintainedbytheFacilityAgentwerereasonablycompleteandorderly.CFEsubmittedtherequiredstandarddocumentstotheFacilityAgentandinformationreportedtoEXIMBankontheECPRequestforDisbursementApprovalformsagreedwiththedocumentssubmittedbyCFE.However,forthefirstdisbursement,wedeterminedthattheFacilityAgentfinancedandEXIMBankguaranteed$3.6millioningoodsthatwereshippedtotheBorrowerpriortotheapprovedinitialeligibilitydateofSeptember30,2012.
OCPS.A.(OCP).Todatetherehaveonlybeentwodisbursementsunderthefacility,totaling$15.9million.ThedisbursementswereapprovedandguaranteedelectronicallyviatheECP.OCPwasrequiredtosubmitthestandarddocumentstotheFacilityAgentforreview.
WereviewedbothOCPdisbursementsandfoundthattheBorrowersubmittedtherequiredstandarddocumentstotheFacilityAgentandtheinformationreportedtoEXIMBankontheECPRequestforDisbursementApprovalformsgenerallyagreedwiththedocumentssubmittedbyOCP.However,forthefirstdisbursement,wedeterminedthattheFacilityAgentfinancedandEXIMBankguaranteed$1.5millioninprogresspaymentsforservicesthatoccurredpriortotheapprovedinitialeligibilitydateofMarch1,2013.30Inresponsetoarequestforfurtherdetailsonthegoodsandservicescoveredbythedisbursement,BankstaffstatedthattheyreliedonthelendertoverifythatthedocumentscompliedwiththeBank’sdisbursementprocedures.EXIMBankhassincereceivedinvoicesfromOCPtotaling$1.7milliontoserveasreplacementforthe$1.5millionprogresspaymentsforservicesthatwerenoteligibleforfinancingandguarantee.
HadEXIMBankconductedareview(e.g.,spot‐checkorscheduledreview)ofthedisbursementsdiscussedabove,inparticularforthePetrobrasCGFwhichwasfullydisbursedasofAugust19,2011,theinstancesofnoncompliancecouldhavebeenidentified
30Fiveinvoicestotaling$9.4millionweredatedandpaidpriortotheMarch1,2013initialeligibilitydateapprovedandconfirmedbyEXIMBank.Aprogresspaymentof$5.4millionwasinvoicedandpaidinJune2012.Progresspaymentstotaling$4millionwereinvoicedinSeptember2012andpaidinDecember2012.
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andaddressedinatimeliermanner.31AccordingtothePurchasingAgentforPetrobras,EXIMBankhadreviewed100percentofdisbursementsofapriorCGFforcompliancewiththeBank’sdisbursementrequirementspost‐expiryofthefacility.Thisallowedforearlieridentificationandcorrectionoferrors(e.g.substitutionofeligibleinvoices).Withoutareview,theBankcannotensuretheaccuracyoforattesttotheappropriatenessofdisbursementsfinancedandguaranteedundertheprogram.
TheneedforareviewofdisbursementsisparticularlyrelevantfortheCGFprogramasthetransactionsprovidelessvisibilitythanotherexportfinanceprogramsastotheexactnatureofthegoodsandservicesfinanced.32AsEXIMBankservesastheGuarantor,itreliesmoreontheGuaranteedLendertoensurethatthegoodsandservicesmeetprogramrequirements.ThisrelianceincreasestheBank’sreputationalriskandoperationalriskshouldaprohibiteditembeshippedorgoodswereshippedtoaprohibitedcountry,orafraudulenteventoccurs.
Tohelpmitigatetheaboverisks,theBankrequiresapreliminarylistofgoodsandservicesandexportersforCGFs.BankstaffthenconductafullCRTIanalysisonthevariousentities.Further,participationintheECPsubjectslenderstorandomreviewsofthedisbursementdocumentsbyEXIMBank’sCRC.However,todate,theCRChasnotconductedareviewofCGFprogramdisbursements.Thedivisionplannedtoconductapost‐disbursementreview,butthelowvolumeofdisbursementsprocessedviatheECPthusfardidnotmeetthematerialitythresholdof$250millionsetbytheBanktoinitiateareviewoftheprogram.ThisapproachlimitedtheBank’smonitoringofdisbursementsundertheCGFprogramandthetimelyidentificationandresolutionofthecomplianceissuesoutlinedabove.NowthattheOCPCGFisoperativeanddisbursing,Bankstaffindicatedthatthematerialitythresholdwillbemetandapost‐disbursementreviewoftheCGFprogramwillbeconducted.
Finding 1C: EXIM Bank modified an eligibility date that was material to compliance with Iran sanctions restrictions without consistent due diligence, but we found no evidence that this control weakness resulted in a violation of the restrictions.
InreviewingthecreditfileforthePetrobrasCGF,wefoundthatEXIMBankmodifiedthetermsofitsstandardreachbackpolicytosettheinitialeligibilitydateforfinancingunderthefacilityasJuly15,2009(firstwaiver)—adateafteraPetrobrascontractwiththeNationalIranianOilCompany(NIOC)hadendedandincompliancewithrestrictionsonprovidingfundingtobusinessesinvolvedinIranianoilproduction.Subsequently,BankstaffapprovedasecondwaiverextendingtheeligibilityperiodbacktoJanuary1,2009,butdidnotconductconsistentduediligencetoassesstheimplicationsofthischangeonIran‐relatedrestrictions.Weconductedadditionalreviewtodeterminewhethertheexpansionoftheeligibilitytimeperiodresultedinfinancingofimpermissibletransactionsanddidnot
31OnAugust19,2011,theGuaranteedLenderdisbursedtoPetrobrasthe$300.5million.Petrobrasmadeitsfinalpaymentof$22.1milliontotheGuaranteeLenderonFebruary16,2016.
32EXIMBankAmendmentRequestforEcopetrolCGFdatedMarch17,2011.
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identifyanyevidenceofimproperfinancing.However,thefailuretoconductduediligencewasacontrolweaknessthatcouldhaveresultedinviolationofIran‐relatedrestrictions.
Iranrestrictions.OnDecember16,2009,theConsolidatedAppropriationsAct,2010(the“Act”)becamelaw.33Inadditiontoappropriatingfunds,theActprohibitedEXIMBankfromauthorizing“anynewguarantee,insuranceorextensionofcreditforanyprojectcontrolledbyanenergyproducerorrefiner”thatcontinuestoengageinspecifiedactivitieswithIran.Thespecifiedactivitiesinclude,forexample,“allow[ing]Irantomaintainorexpand,inanymaterialrespect,itsdomesticproductionofrefinedpetroleumresources….”
AninternalmemorandumtoBankstaffprovidedguidanceoninterimprocedurestocomplywiththeAct’srestrictions,asapplicablefornewtransactions.34Forexample,theinterimproceduresrequiredtheadditionofanotificationintheCommitmentLetterthat“EXIMBank’sauthorizationwascontingentuponthelegaldocumentationincludingarepresentationthatnoneofthepartiesinvolvedisaProhibitedEnergyProducer/Refinerwithcontroloverthetransaction.”TheinterimproceduresdirectedBankstaffto“continuetomaintainaheightenedsensitivitytoanyconnectionwithpartiesinvolvedwithIranforalltransactions”andstatedthatfurtherguidancewouldbeprovided.However,wedidnotfindanyfurtherguidanceissuedbytheBank.
TheExport‐ImportBankReauthorizationActof2012(the“ReauthorizationAct”)amendedEXIMBank’sChartertoincludetheprohibitiononBankfinancingoutlinedintheConsolidatedAppropriationsAct,2010.35Section18oftheReauthorizationActprohibitstheBank’sBoardfromapprovinganytransactiontoapersoninconnectionwiththeexportofanygoodsorservicesis(1)involvedincertainsanctionableactivitieswithrespecttoIranunlesstheycertifyasdescribed,or(2)subjecttosanctionsundertheIranSanctionsActof1996,asamended.36Inaddition,EXIMBankreviseditspoliciesandprocedurestoensureBankstaffcarriesouttheduediligenceprocessinaccordancewiththeIran‐sanctionsprovisionsoftheReauthorizationAct(e.g.,requiredcertifications,duediligence,andprovisionsinthecreditdocumentation).37
33Formoreinformation,seehttps://www.gpo.gov/fdsys/pkg/PLAW‐111publ117/pdf/PLAW‐111publ117.pdf.
34EXIMBankMemorandumdatedJanuary26,2010.
35TheReauthorizationActbecamelawonMay30,2012,withsection18becomingeffective180daysafterenactment.Formoreinformation,seehttps://www.gpo.gov/fdsys/pkg/PLAW‐112publ122/pdf/PLAW‐112publ122.pdf.
36EXIMBankdefinesa“person”tobe“(i)anaturalperson;(ii)acorporation,businessassociation,partnership,society,trust,financialinstitution,insurer,underwriter,guarantor,andanyotherbusinessorganization,anyothernongovernmentalentity,organization,orgroup,andanygovernmentalentityoperatingasabusinessenterprise;and(iii)anysuccessortoanyentitydescribedinclause(ii).Theterm‘person’doesnotincludeagovernmentorgovernmentalentitythatisnotoperatingasabusinessenterprise.”EXIMBankIranActivitiesCertificationandIranSanctionsSanctionedPersons‐Certificationforms.Formoreinformation,seehttp://www.exim.gov/policies/iran‐sanctions.
37Ibid.
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Petrobrastransaction.ThePetrobrasCGFwasapprovedbytheBank’sBoardonFebruary4,2010for$308.2million.Pursuanttothe2010Act’srequirements,theBank’screditfileforthefacilitycontainedinformationtosupportduediligenceconductedbytheBankonPetrobras’businessdealingswithIran.PriortotheBoardmeetingapprovingthefacility,EXIMBankconductedduediligenceregardingcompliancewithIranfinancingrestrictionsanddeterminedthatPetrobrashadacontractwithNIOC,butthatthiscontracthadexpiredonJuly13,2009.Inaddition,PetrobrascertifiedthatitwasnolongerengagedinbusinesswithIran.
TheBoard’sapprovalofthefacilitywas“contingentuponalegalrepresentationinthetransactiondocumentationthatnoneofthepartiesinvolvedisaprohibitedenergyproducer/refinerwithcontroloverthetransaction,asaresult,EXIMBank’sparticipationdoesnotviolatetheConsolidatedAppropriationsAct,2010.”38Further,theBoardapprovedthetransactionwiththeunderstandingthat“byPetrobras’writtencommunicationandalsobyourowninvestigationsthatPetrobrashadceaseditsmaterialbusinessdealingswithIran—thusmitigatingthispotentialconcern.”Finally,theBoardMemoprovidedthatthefacilitywould“includethestandard‘reach‐back’periodofuptosix(6)monthspriortothedateeligibleforeachdisbursement,withtheinitialeligiblereach‐backdateofsixmonthsfromthedatethattheCGFismadeoperative.”
Accordingtoamemorandumtofile,BankmanagementbaseditsdecisiontoapprovethefirstwaivertoextendtheinitialeligibilitydatetoJuly15,2009onconfirmationreceivedfromPetrobrasthatitscontractwiththeNIOChadexpiredonJuly13,2009.39
InJuly2011,PetrobrassubmittedasecondwaiverrequesttotheBanktoextendtheinitialeligibilitydatetoJanuary1,2009.EarlieremailsinthecreditfilestatedthatPetrobrasclaimedtherewouldbe“operationalimpacts”andthatitwouldloseanestimated$150millioninfinancingwithoutthewaiver.EXIMBankinitiallyrespondedtoPetrobras’requeststhattheJuly15,2009reachbackdatewas“firmandnotnegotiable.”TheBanklatermadethedecisiontograntthewaivertoextendtheinitialeligibilitydatetoJanuary1,2009subjecttoareducedtenor(i.e.,5‐yearrepaymenttermsto3‐and4‐yearterms)andcoverinaccordancewithOrganisationforEconomicCo‐operationandDevelopment(OECD)guidelinesforthestartingpointofcredit.40
However,wefoundthatEXIMBankdidnotobservethesameduediligenceprocesswhenapprovingthesecondwaivertoextendtheinitialeligibilitydatetoJanuary1,2009.ThePetrobrascreditfiledidnotcontaininformationtoexplainwhythechangeintheeligibilitydatewasjustified(i.e.,whytheterminationoftheNIOCcontractwasnolongeramaterialconcern),oranyanalysisoftheimplicationsofthedatechangeoncompliancewithIran
38EXIMBankMemorandumtotheBoardofDirectors,datedJanuary27,2010.
39EXIMBankMemorandumtoFile,datedJuly7,2010,andPetrobrasLetter,datedDecember15,2009.
40TheOECDArrangementonOfficiallySupportedExportCreditsrequiresthattheprincipalandinterestonacreditberepaidnolessthaneverysixmonths,withthefirstpaymentbeingmadenolaterthansixmonthsafterthestartingpointofthecredit.Formoreinformation,seehttp://www.oecd.org/tad/xcred/theexportcreditsarrangementtext.htm.
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restrictions.Moreover,theOfficeofGeneralCounselstatedthatitwasnotconsultedregardingthesecondwaiver.
Absentacompleterecordofthedeliberativeprocess(i.e.,informationconsidered,discussionsheld,decisionsmade)usedtodeterminewhethertoapprovethewaiver,theBankdidnothavereasonableassuranceofcompliancewithIranrestrictionsfortheinvoicesfromthetimeperiodbetweenJanuary1andJuly14,2009,atimeperiodwhichpreviousduediligencehadfoundtheBorrowerhadsomeinvolvementwithIranianbusiness.Further,thelackofacompleterecordmakesitdifficulttodiscernthebasisforthedecisionmadebytheBank.Finally,thematerialnatureofIransanctionscomplianceandtheattendantBoarddiscussiononthisissuewouldsuggesttheneedtoseekBoardapprovalforanysubsequentmaterialwaiverthatchangedthetermsoftheinitialBoardapproval.41
Anestimated$100.0millionofthePetrobrasCGFwasutilizedtofinanceandguaranteesubtransactionswithshipmentsorservicesperformedbetweenJanuary1,2009andJuly14,2009.WeconductedadditionaltestingtoassesswhetheranyoftheU.S.exportsfinancedbyEXIMBankduringthistimeperiodwererelatedtoanyPetrobrasbusinessinIran.Inresponsetoanearlierdraftofthisreport,EXIMBankstatedthatit“followedtherequirementintheConsolidatedAppropriationsAct,2010,toreachtheconclusionthatPetrobrasdidnothavesignificantinvolvementwithIranatthetimeoftransactionauthorization.”TheBankalsoadvisedthatit“wasaware,fromitsduediligenceattimeofauthorization,thatthe‘reachback’wouldcovertimeinwhichPetrobrasstillhadarelationshipwithIran,andthusnofurtherduediligencewasnecessaryatthetimeofthe‘reachback’....ThepurposeoftheConsolidatedAppropriationsActwasnottopenalizepartiesthathadpastrelationshipswithIran.”
TheBankstatedfurtherinitsresponsethat,“EXIMdoesnotbelievethatanyofthegoodsandservicesfundedunderthePetrobrasCGFweredivertedtoIran.AllgoodsandservicesfundedunderthePetrobrasCGFwererepresentedtobeshipped/providedtoPetrobrasinBrazilandwerenottobeusedoutsideofBrazil.”TheBankadvisedthatsection10.03(c)oftheFacilityAgreementcontaineda“negativecovenantthattheBorroweragreesnotto‘use,orpermittheuseof,theGoodsandServices...inacountrywhere,Ex‐ImBankisprohibitedfromoperatingbylaw.’”42
Inaddition,accordingtoEXIMBankstaff,theyreviewedtheselecteddisbursementdocumentationtoconfirm“nogoodsandservicesweredivertedtoIran.”ThereviewbytheBank’sengineersfocusedonthepurchaseofequipment—turbinecompressionandgeneratorparts—underthefacility.Bankstaffadvised,“thistypeofequipmentandserviceswouldnotbeusedintheleaseexplorationagreementbetweenPetrobrasandIran,whichrevolvedaroundseismicanalysisandexploratorydrilling.”TheBankstatedthatit
41InaccordancewithEXIMBank’spolicyforIndividualDelegatedAuthority,theVicePresidentofTradeFinanceauthorizedthefirstandsecondamendmentsandthetransactionwasnotreferredbacktotheBoardforreviewandorapproval.Supranote11.
42PetrobrasFacilityAgreement,datedMay27,2011.
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alsoobtainedconfirmationfromPetrobrasthattheyused“localcontractors,whohavetheirownequipmentandemployees,inconjunctionwiththeirworkinIran.”
InourfollowupwithPetrobras,weobtainedawrittencertificationthatnoEXIMBank‐guaranteedfundswereexpendedinsupportofgoodsandservicesthatwenttoIran.BasedontherepresentationsofEXIMBankandPetrobras,andourownreviewofasamplingofinvoicesfinancedthroughthePetrobrasfacility,wedidnotdevelopevidencethatanyEXIMBankfinancingduringthereachbackperiodfromJanuarythroughJuly2009wasrelatedtobusinessinIranandinviolationoftheBank’srestrictionsonIran‐relatedtransactions.
RECOMMENDATIONS
OIGrecommendsthatEXIMBank:
1. Reviewandupdateitspoliciesforconductingcreditfilereviewstoensurecompletenessandintegrityofthecreditfilesandthatevidenceofthereviewisdocumented.
2. Develop,documentandimplementpoliciesandproceduresforreviewsofdisbursements(e.g.,spot‐checksandscheduledreviews)toproactivelymonitorcompliance,identifynoncompliance,andassistwithreducingnoncompliancewithBankrequirementsinatimelymanner.Thiswouldincludeevaluatingthe$250millionthresholdsetbytheBanktoinitiateareviewofdisbursementsundertheCGFprogram.
3. RequiretheGuaranteedLendersoftheCFECGFandtheOCPCGFtoaddressthe$3.6millioningoodsandthe$1.5millioninprogresspaymentsforservicesthatwerenoteligibleforfinancing,respectively,andwereguaranteedbytheBank(e.g.,identifyingandprovidingeligibleinvoicesasasubstitute).
4. WithrespecttoamendmentstothetermsandconditionsoftransactionspreviouslyapprovedbytheBoard:(i)enhancepoliciesandproceduresforCGFstoensuretheadequacyandconsistencyoftheBank’sduediligence(e.g.,Iransanctionsduediligence)inconsiderationofthoseamendments;and(ii)inaccordancewiththeBank’sIndividualDelegatedAuthoritypolicy,developaninternalprocesstoassessthelevelofmaterialityofproposedamendmentsandtodiscerntheneedtorevertbacktotheBoardforapproval.SuchaprocessshouldinvolveadeliberativebodysuchastheTransactionReviewCommittee.
Management Response:
PleaseseeAppendixA,ManagementResponseandOIGEvaluation.
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PointofInquiry2:IstheuseofareachbackoptionforCGFsconsistentwithEXIMBank’smissiontocreateandsustainU.S.jobsthroughthefinancingofU.S.exports?
Applicable Standards, Terms and Conditions
OIGreviewedvariousApplicableStandards,TermsandConditionsandfocusedonthefollowing:
1. ProceduresforprocessingapplicationsandwaiversforanddocumentingCGFsoutlinedinChapters7and12CreditGuaranteeFacilitiesofEXIMBank’sLoan,GuaranteeandInsuranceManual(LoanManual),datedJanuary2010andApril2015,respectively;
2. PolicyandrationaleforCGFsoutlinedintheCreditGuaranteeFacilitiessectionoftheBank’sGuaranteeProgram:TechnicalHandbook(GuaranteeHandbook),datedOctober1995;
3. PoliciesforAdditionalityandReachbacksoutlinedintheBank’sPolicyHandbook(PolicyHandbook),datedJune2005;
4. TermsandconditionsoftheFacilityAgreementsandFacilityGuaranteeAgreementsforthefivejudgmentallyselectedCGFtransactions;and
5. FederalguidanceoninternalcontrolsandpoliciesforcreditprogramsoutlinedinGAO’sStandardsforInternalControlsfortheFederalGovernment,andOMBCircularsA‐123andA‐129.
EXIM Bank Policies, Procedures and Guidance – CGF Program and Federal Guidance on Internal Controls and Policies for Credit Programs
SeePointofInquiry1aboveforasummaryofthesepolicies,proceduresandguidance.
Finding 2: Certain CGF transactions refinanced exports that had already occurred years prior to the operative date of the facility, waiving a policy put in place to ensure the program provides additional support for new U.S. exports.
AcoreelementofEXIMBank’smissionisthatitsactivitiespromotethedevelopmentormaintenanceofU.S.jobsthroughtheexportofU.S.goodsandservices.Inextendingfinancialsupportforatransaction,theCharterrequirestheBankto“supplementandencourage”privatecapitalasopposedtocompetingwithit.43AccordingtotheBank’sPolicyHandbook,thepolicyoftheBankistosupporttransactionsthatfosteradditionalexports.TheBankdoesthisbyfocusingonfinancingtransactionswheretheprobabilityofatransactioninvolvingU.S.exportsisunlikelytoproceedwithoutBanksupport(i.e.,termed“additionality”).Inaddressingadditionality,EXIMBankconsidersprimarilythe
43Section2(b)(1)(B).
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availabilityofcompetingprivateorotherexportcreditagency(ECA)financingforatransaction.44
ForthefiveCGFswereviewed,theprimaryrationaledocumentedforBanksupportatboardapprovalwasthelackofavailabilityofprivatesectorfinancingand/orcompetingECAfinancing(seeAppendixC).45Likeothermedium‐andlong‐termEXIMBankproducts,theCGFprogramhasastandardreachbackperiod,inwhichtheBankwouldfinanceorrefinancetheshipmentofgoodsand/orservicesperformedthathadoccurred180dayspriortotheoperativedate.46TheBank’spolicyforCGFs,however,canbewaivedtoextendtheinitialeligibilitydatebeyondthestandard180dayperiod,ifrequestedbytheBorrower.
Inresponsetoanearlierdraftofthisreport,BankstaffexplainedthattheunderlyingpolicyrationaleforareachbackperiodistofinancetransactionsthatoccurredbetweenthetimeEXIMBankmadeapreliminaryindicationthatthecasewouldlikelymeetalleligibilitycriteria(e.g.,contentandadditionality)andalldocumentationwascompletedandthefacilitybecomesoperative.Bankstaffstatedthatthe“reachbackpolicyreflectstherealitythatexportersshippriortofinalizingEXIMBankfinancing…[andthereforetheBank]…adaptsitsformalcovertotheactualdynamicsofthetransaction”(i.e.,adaptstothecommercialrequirements).
AccordingtoEXIMBank’sGuaranteeHandbook,thereachbackpolicyfortheCGFprogramwassetforsixmonthspriortotheoperativedatetoprevent“thepossibilitythatEx‐ImBankwouldbeaskedtosupporttransactionsthatmayhavebeenshippedtwotofiveyearspriortoauthorization.”TheHandbookstatesfurther,“thisflexibilitywasnottheintentoftheprogramandcallsintoquestionthe‘need’oftheobligorforECA(ExportCreditAgency)financing.”Consequently,theBank“tightened”itsstandardtimeframeforCGFreachback“toincreasethelikelihoodthatthetransactionisadditional(i.e.,needingECAsupport).”(emphasisinoriginal).EXIMBankstaffexplainedinitsresponsethatthe“...‘flexibility’isnotthestandardappliedtoallCGFs;instead,itisgivenonacase‐by‐casebasisafteradditionalityhasbeendetermined.”TheBankprovidedfurtherclarificationstating:
44EXIMBank’spolicyforadditionalitystated:“TheconceptofadditionalityhasitsrootsinbroadU.S.economicpolicyandisnotlimitedtotrade/Ex‐ImBankpolicy.U.S.economicpolicystatesthatU.S.governmentresourcesarealimitedcommodityandonlyinrarecasesshouldtheselimitedresourcesbeusedonanentitlementbasis.Rather,taxpayersdollarsoughttobechanneledtothoseentitiesthatactuallyneedthesupport.Thus,Ex‐ImBankprogramsreflectboththebroadphilosophicalconceptofadditionalityaswellasspecificcongressionaldirectives.”
45TheApplicationforMedium‐TermInsuranceorGuaranteeusedforCGFsrequiresapplicantstoidentifywhetherBanksupportisneededbecauseofcompetingforeignvendors,foreignproducerswithexportcreditsupport,orlimitedavailablefinancing(EXIMBankformEIB‐03‐02).TherationaleforBanksupportisalsodelineatedintheBoardMemoforatransaction.
46Forexample,formedium‐andlong‐termtransactions,shipmentsthatoccurred12monthspriortothefinalcommitmentapplicationorinsuranceapplicationmaybeeligibleforEXIMBankfinancingandguarantee.
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“ThisreasoningestablishedthestandardCGFreachbackpolicyof6monthsbeforetheoperativedateandEXIMwasconfidentthatallCGFdisbursementswerelikelyadditional.Itshouldbenotedthattransactionsareapprovedforareachbackextensiononacase‐by‐casebasis.ExtensionsoccurwhenaprospectiveapplicantentersintoconversationswithEXIM,signalingtheirintentiontouseEXIManddemonstratingtheadditionalityfortheirtransaction.Theseconversationscanoccurmonthsoryearsbeforetheapplicationissubmitted,makingadeviationfromthestandardreachbackpolicyonlypermissibleonacase‐by‐casebasisafteradditionalityandintentiontouseEXIMfinancinghavebeenshown.”
However,OIGnotesthattheseearlierconversationsbetweenBankstaffandprospectiveapplicantsanddeterminationsofpermissibilitywerenotclearlydocumentedinthecreditfilesreviewed.
FortheCGFprogram,ourreviewfoundthatthereachbackperiodwasfrequentlyextendedwellbeyondthestandard180dayperiod,withtheresultthatsomeCGFfacilitieswereutilizedtorefinancegoodsandservicesalreadyacquiredbytheforeignborrowerandexportedfromtheU.S.Specifically,thePetrobrasfacilityfinanced100percentreachbacktransactionsdatingfrom30monthspriortotheoperativedateandtheEcopetrolfacilityfinanced88percentreachbacktransactionsdatingfrom42monthspriortotheoperativedate.Wedidnotfindevidencethatwhengrantingthesewaiverstothestandard180dayreachbackpolicy,whichwasputinplacetoensurethenecessityandadditionalityofEXIMBankfinancing,theBankconsideredtheeffectofrefinancingpreviousexportsonadditionalityorU.S.jobcreation.AccordingtoBankstaff,theextensionofthereachbackperiodwastomeetthecommercialrequirementsofthetransactions.SeeAppendixGfordetailsonreachbackwaiversandotheramendments.
WhiletheBoardMemosforfouroftheCGFsreviewedcontainedprovisionsforreachbacks(seeAppendixH),thememosdidnotdiscusstheextenttowhichgoodsorservicesacquiredduringthereachbackperiodcouldbecoveredbythefacilities.TheonlyindicationthatweobservedwheretheBankconsideredtheeffectofareachbackonthefurtheranceofexportswasinthecreditfileforPetrobras.InanemailtotheBorrower,BankstaffexpressedconcernsthattheBankwouldbe“re‐financingalargeportion(50%)ofexportsratherthansupportingnewexportsfromUSA.”Initsresponse,EXIMBankstaffexplainedthatthelikelihoodoffollow‐onexportsisnotthesameasadditionality.Thereachbackexceptioninthiscasewaslimitedtothe“firstdrawing(setofdisbursements).”However,thiswastheonlydrawingofthefacilitytotaling$300.1million(100percent)inreachbacksubtransactions.
EXIMBank’sstatedrationaleforthepolicylimitingthereachbackperiodintheCGFprogramisthatalengthyreachbackperiodforCGFscallsintoquestiontheneedforECAfinancingandthatlimitingthereachbackperiodincreasesthelikelihoodthatthetransactionisadditional.Therefore,thefrequentuseofwaiverstoextendthereachbackperiodbeyondthestandard180dayperiodcallsintoquestionwhethertherefinancingofpreviousexportsthroughtheCGFprogramisprovidingadditionalsupportforU.S.exportsandU.S.jobs.
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RECOMMENDATIONS
OIGrecommendsthatEXIMBank:
5. ReviewandupdatethereachbackpolicyfortheCGFprogramtobeconsistentwithactualpracticeandreducetheneedforwaivers.Inreviewingandupdatingthereachbackpolicy,theBankshouldanalyzethecase‐by‐casedeterminationofareachbackrelativetotheaveragepolicydate(i.e.,operativedate);considerestablishinglimitsontheutilizationofthefacilityforreachbacktransactions;setrequirementsforcommunicatinganalysisofreachbackissuestodecisionmakersincludingtheBoard;andestablishproceduresforconsiderationofwaiverstothepolicy.Thiswouldincludedocumentingthesupportingevidenceinthecreditfile.
Management Response:
PleaseseeAppendixA,ManagementResponseandOIGEvaluation.
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CONCLUSION
OurevaluationfoundthatEXIMBankgenerallyadministeredtheCGFprograminaccordancewithitspoliciesandprocedures.WhiletheBankstreamlinedtheapprovalprocessfordisbursementsandguaranteeissuancesandthecreditfilesforeachofthefivefacilitiesreviewedwerereasonablycompleteandorderly,theindependentreviewofthefileswasnotfullydocumented.Additionally,ourreviewofdisbursementsidentifiedinstancesofnon‐complianceresultingin$5.1millioninshipmentofgoodsandprogresspaymentsforservicesthatwerenoteligibleforfinancingandguaranteeundertwofacilities.Further,althoughtheBankmodifiedaneligibilitydatethatwasmaterialtocompliancewithIransanctionsrestrictionswithoutconsistentduediligence,wefoundnoevidencethatthiscontrolweaknessresultedinaviolationoftherestrictions.
Finally,wedeterminedthatcertainCGFtransactionsrefinancedexportsthathadalreadyoccurredyearspriortotheoperativedateofthefacility,waivingapolicyputinplacetoensuretheprogramprovidesadditionalsupportfornewU.S.exports.
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APPENDIXES
Appendix A: Management Response and OIG Evaluation
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OIG Evaluation
OnMarch29,2017,EXIMBankprovideditsmanagementresponsetoadraftofthisreport,agreeingwithfouroftheOIG’srecommendationsandpartiallyagreeingwithoneoftherecommendations.TheresponseidentifiedtheBank’sactionstakenorplannedtoaddresstherecommendations.OIGconsiderstheBank’sactionssufficienttoresolvethereportedrecommendations,whichwillremainopenuntilOIGdeterminesthattheagreeduponcorrectiveactionsarecompletedandresponsivetothereportedrecommendations.TheBank’smanagementresponsetothefiverecommendationsandOIG’sassessmentoftheresponseareasfollows:
RECOMMENDATION 1
Recommendation 1:Reviewandupdateitspoliciesforconductingcreditfilereviewstoensurecompletenessandintegrityofthecreditfilesandthatevidenceofthereviewisdocumented.
Management Response: TheBankconcurswiththisrecommendation.
TheBank’sTradeFinanceDivisioncurrentlyhaspoliciesinplaceforconductingcreditfilereviewsforalltransactions,includingCGFtransactions.Thedivisioncurrentlyusesadocumentchecklistforloanofficersregardingthepreparationandinclusionofallrequireddocumentsinapaper‐basedloanfile,processedviaAPS.(SeeAppendix7‐AoftheLoan,GuaranteeandInsuranceManual.)Atthecompletionoftheunderwritingprocess,thedivision’sVicePresidentreviewscreditfilesandcertifiestothecompletenessandintegrityofthecreditfiles.
Evaluation of Management’s Response: Management’sactionsareresponsive;therefore,therecommendationisresolvedandwillbecloseduponcompletionandverificationthattheactionshavebeenimplemented.
RECOMMENDATION 2
Recommendation 2: Develop,documentandimplementpoliciesandproceduresforreviewsofdisbursements(e.g.,spot‐checksandscheduledreviews)toproactivelymonitorcompliance,identifynoncompliance,andassistwithreducingnoncompliancewithBankrequirementsinatimelymanner.Thiswouldincludeevaluatingthe$250millionthresholdsetbytheBanktoinitiateareviewofdisbursementsundertheCGFprogram.
Management Response: TheBankconcurswiththisrecommendation.
TheBank’sCreditReviewandComplianceDivisioniscurrentlyupdatingitspoliciesandproceduresforpost‐disbursementreviewstoproactivelymonitorcompliance,identifynoncompliance,andassistwithreducingnoncompliancewithBankrequirementsinatimelymanner,includingthe$250millionthresholdsetbytheBanktoinitiateareviewofdisbursementsundertheCGFprogram.
Evaluation of Management’s Response: Management’sactionsareresponsive;therefore,therecommendationisresolvedandwillbecloseduponcompletionandverificationthattheactionshavebeenimplemented.
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RECOMMENDATION 3
Recommendation 3: RequiretheGuaranteedLendersoftheCFECGFandtheOCPCGFtoaddressthe$3.6millioningoodsandthe$1.5millioninprogresspaymentsforservicesthatwerenoteligibleforfinancing,respectively,andwereguaranteedbytheBank(e.g.,identifyingandprovidingeligibleinvoicesasasubstitute).
Management Response: TheBankconcurswiththisrecommendationinpart.
Withrespecttothe$1.5millioninprogresspaymentsforservicesthatoccurredpriortotheapprovedinitialeligibilitydateofMarch1,2013undertheOCPCGF,theBankobtainedreplacementinvoicesanddisbursementdocumentsfromtheLenderandprovideddocumentationtotheOIG,asacknowledgedintheReport.
AsmentionedearlierintheManagementResponse,theBankwillworktoaddresstheissueassociatedwiththe$3.6millioninshipmentsundertheCFECGF,nottheGuaranteedLender.
Evaluation of Management’s Response:EXIMBank’sactionspartiallyaddresstherecommendation.OIGreviewedthereplacementinvoicesanddisbursementsdocumentsobtainedbytheBanktoaddressthe$1.5millioninprogresspaymentsforservicesthatwerenoteligibleforfinancingandguaranteeundertheOCPCGF.However,OIGrespectfullydisagreeswithEXIMBank’sassertionthattheinitialeligibilitydateapprovedfortheCFECGFwasFebruary2012andthatthe$3.6millionintheshipmentofgoodswaseligibleforfinancingandguarantee.
OIG’sevaluationofevidenceconfirmedtheBank’sintentionandsubsequentactionstoextendtheinitialeligibilitydateforthefacilitytoSeptember30,2012.Thatevidenceincludesamendmentsofthefinalcommitment(seeAppendixGofthisreport),disbursementdocumentationandwrittennoticestotheGuaranteedLender.
AlthoughtheBoardMemorandumdatedDecember6,2012forthefacilityincludedthestatementthat“thelenderisrequestingreachbackforthistransactionstartingFebruary2012,”thereisnorecommendationorsupportingrationalefromstafftoacceptthelender’srequest.Further,thetranscriptfortheBoard’sapprovalofthefacilitydidnotdiscusstheearlierdate.Inaddition,thetermsofthefacilityoutlinedontheAPScoverpageofthememorandumdonotreflectthisrequest.Rather,itsstatestheinitialeligibilitydateas“TBD.”47ThecoverpageisalsosignedoffonbytheLoanOfficer,OfficeofGeneralCounselandtheVicePresidentforTradeFinance.Finally,OIGreceivedwrittenconfirmationfromBankstaffthattheinitialeligibilitydateforthefacilitywasSeptember30,2012.Bankstaffattributedtheinclusionofthe$3.6millioningoodsthatwereshippedpriortothereachbackdatetoa“misunderstandingorerror”onpartoftheGuaranteedLender.
47AsstatedinChapter12oftheBank’sLoanManual,“BecausemanyfeaturesofaCGF’screditstructure,suchasinitialeligibilitydates,finaldisbursementdates,andrepaymentdatescannotbedeterminedatthetimeofauthorization,manyAPSentrieswhicharenormallyrequiredforatransactionareleftblankor‘TBD’,asindicatedintheAPSglossary.”
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OIGacknowledgesEXIMBank’sintentiontoaddressthe$3.6millioninshipmentsundertheCFECGFinternally.However,inconsiderationoftheabovefactors,weconsiderthisrecommendationasopenor“non‐concurrence.”
RECOMMENDATION 4
Recommendation 4: WithrespecttoamendmentstothetermsandconditionsoftransactionspreviouslyapprovedbytheBoard:(i)enhancepoliciesandproceduresforCGFstoensuretheadequacyandconsistencyoftheBank’sduediligence(e.g.,Iransanctionsduediligence)inconsiderationofthoseamendments;and(ii)inaccordancewiththeBank’sIndividualDelegatedAuthoritypolicy,developaninternalprocesstoassessthelevelofmaterialityofproposedamendmentsandtodiscerntheneedtorevertbacktotheBoardforapproval.SuchaprocessshouldinvolveadeliberativebodysuchastheTransactionReviewCommittee.
Management Response: TheBankconcurswiththisrecommendationinpart.
TheBank’sOfficeofGeneralCounselwillreviewtheBank’scurrentpoliciesandprocedurestoensuretheadequacyandconsistencyoftheBank’sduediligenceinconsiderationofthoseamendments;andinaccordancewiththeBank’sIndividualDelegatedAuthoritypolicy,reviewtheinternalprocesstoassessthelevelofmaterialityofproposedamendmentsandtodiscerntheneedtorevertbacktotheBoardforapproval.PoliciesandprocedureswillbeenhancedandimplementedasdeemednecessarybytheBank’sreview.
Evaluation of Management’s Response: Management’sactionsareresponsive;therefore,therecommendationisresolvedandwillbecloseduponcompletionandverificationthattheactionshavebeenimplemented.
RECOMMENDATION 5
Recommendation 5: ReviewandupdatethereachbackpolicyfortheCGFprogramtobeconsistentwithactualpracticeandreducetheneedforwaivers.Inreviewingandupdatingthereachbackpolicy,theBankshouldanalyzethecase‐by‐casedeterminationofareachbackrelativetotheaveragepolicydate(i.e.,operativedate);considerestablishinglimitsontheutilizationofthefacilityforreachbacktransactions;setrequirementsforcommunicatinganalysisofreachbackissuestodecisionmakersincludingtheBoard;andestablishproceduresforconsiderationofwaiverstothepolicy.Thiswouldincludedocumentingthesupportingevidenceinthecreditfile.
Management Response: TheBankconcurswiththisrecommendation.
TheBank’sPolicyAnalysisDivisioniscurrentlyreviewingandupdating,whereapplicable,thereachbackpolicyfortheCGFprogramtobeconsistentwithactualpracticeandreducetheneedforwaivers.Inreviewingandupdatingthereachbackpolicy,theBankwillanalyzethecase‐by‐casedeterminationofareachbackrelativetotheaveragepolicydate;considerestablishinglimitsontheutilizationofthefacilityforreachbacktransactions;setrequirementsforcommunicatinganalysisofreachbackissuestodecisionmakersincludingtheBoard;andestablishproceduresforconsiderationofwaiverstothepolicy,toincludedocumentingthesupportingevidenceinthecreditfile.
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Evaluation of Management’s Response: Management’sactionsareresponsive;therefore,therecommendationisresolvedandwillbecloseduponcompletionandverificationthattheactionshavebeenimplemented.
Table 2: Summary of Management’s Comments on the Recommendations
Rec. No.
Corrective Action: Taken or Planned
Expected Completion
Date48
Resolved:
Yes or No49
Open or
Closed50
1. EXIMBankcurrentlyhaspoliciesandproceduresinplaceforconductingcreditfilereviews.Bankstaffutilizeadocumentchecklisttoensurerequireddocumentationisinthecreditfile.Thedivision’sVicePresidentreviewsthecreditfileandcertifiestoitscompletenessandintegrity.
NoTargetCompletion
Date
Yes Open
2. EXIMBankisupdatingitspoliciesandproceduresfordisbursementreviewsandthe$250millionthresholdsetbytheBanktoinitiateareviewofCGFprogramdisbursements.
NoTargetCompletion
Date
Yes Open
3. EXIMBankconcurswiththerecommendationinpart.TheBankaddressedthe$1.5millioninprogresspaymentsthatwerenoteligibleforfinancingandguaranteeundertheOCPCGF.TheBankplanstoaddresstheissueassociatedwiththe$3.6millioninshipmentsundertheCFECGFinternally,notwiththeGuaranteedLender.
NoTargetCompletion
Date
No Open
4. EXIMBankplanstoreviewandenhanceitscurrentpoliciesandproceduresforconductingduediligenceandprocessesforamendingthetermsandconditionsofCGFs.TheBankalsoplanstoreviewitsinternalprocessesforassessingthelevelofmaterialityofproposedamendmentsandtheneedtorevertbacktotheBoardforapproval.
NoTargetCompletion
Date
Yes Open
48EXIMBankOIGhasrequestedtargetcompletiondatesforeachoftheoutstandingrecommendations.
49“Resolved”meansthat(1)Managementconcurswiththerecommendation,andtheplanned,ongoing,andcompletedcorrectiveactionisconsistentwiththerecommendation;or(2)Managementdoesnotconcurwiththerecommendation,butalternateactionmeetstheintentoftherecommendation.
50UpondeterminationbytheEXIMBankOIGthattheagreed‐uponcorrectiveactionhasbeencompletedandisresponsivetotherecommendation,therecommendationcanbeclosed.
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Table 2: Summary of Management’s Comments on the Recommendations
Rec. No.
Corrective Action: Taken or Planned
Expected Completion
Date48
Resolved:
Yes or No49
Open or
Closed50
5. EXIMBankiscurrentlyreviewingandupdatingitsreachbackpolicyforCGFstobeconsistentwithactualpracticeandtoreducetheneedforwaivers.Onacase‐by‐casebasis,theBankplanstoanalyzeitsreachbackdeterminationsandwillconsiderestablishinglimitsontheutilizationofafacilityforreachbacktransactions.Further,EXIMBankwillestablishrequirementsforreportingtheresultsofitsanalysistodecisionmakersandproceduresforwaiverconsiderations.Supportingevidenceistobedocumentedinthecreditfile.
NoTargetCompletion
Date
Yes Open
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Table 3: Schedule of Questioned Costs
Rec. No. Disallowed51 Unsupported
52
Funds to Be Put
to Better Use53
3. $3,614,330.02 ‐ ‐
4. $1,514,914.51 ‐ ‐Total $5,129,244.53 ‐ ‐
51DisallowedcostsarecostschargedtoanEXIMBank‐financedloanorBank‐guarantee,programoractivitythattheOIGbelievesarenotallowable(i.e.,ineligible)bylaw;contract;orFederalpolicyorregulation.
52UnsupportedcostsarethosecostschargedtoanEXIMBank‐financedloanorBank‐guarantee,programoractivitywhentheOIGcannotdetermineeligibilityatthetimeoftheinspectionorevaluation.
53RecommendationsforfundstobeputtobetteruseareestimatesofamountsthatcouldbeusedmoreefficientlyifanOIGrecommendationisimplemented.
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Appendix B: CGF Transactions and Disbursements Reviewed
Table 4: Transactions Reviewed
Deal No. & Borrower
Board Approval & Operative
No. of Days to
Operative
Total Amount (in millions)
Authorized Disbursed Exposure Reachback Funded and %
AP084193XX–Petrobras
02/04/2010;08/01/2011 543 $308.2 $300.1 $0.0
$300.1(100%)
AP084891XX–Ecopetrol
12/16/2010;07/09/2013 936 $420.4 $151.3 $64.1
$132.8(88%)
AP087483XX‐CFE
12/20/2012;09/30/2013
284 $89.2 $89.2 $40.5 $32.9(37%)
AP088270XX‐OCP
09/04/2014;04/08/2016
582 $92.2 $15.9 $92.2 $15.9(100%)
AP082367XC–Aeromexico
12/18/2014;03/13/2015
85 $50.9 $50.9 $42.5 $0.0(0%)
Grand Total $960.9 $607.4 $239.3 $481.7Source: EXIM Bank Data as of September 30, 2016
Table 5: Disbursements ReviewedGuarantee Certificate
No. Selected54
Financed & Guaranteed
Exposure Fee55 Contents
AP084193XX – Petrobras – 40 Disbursements
1 First $7,127,196.13 7MasterInvoices(MI)– 57Invoices,MultipleExporters
8 Random $7,122,985.71 23MIs– 174Invoices,Multiple
Exporters
14 Random $7,128,741.96 8MIs– 72Invoices,Multiple
Exporters
24 Random $7,758,810.34 36MIs– 88Invoices,Multiple
Exporters40 Last $382,377.34 2MIs– 2Invoices,1Exporter
AP084891XX – Ecopetrol – 37 Disbursements
1 First $4,844,811.34 72Invoices,MultipleExporters7 Largest $9,950,546.87 95Invoices,MultipleExporters37 Last $1,702,983.92 33 Invoices,MultipleExporters
54Generally,weattemptedtoselectatleastthreedisbursementsforreview—thefirst,largestandlastdisbursementforeachofthefivefacilities.However,insomeinstanceswehadtoselectanadditionaldisbursement(s)(e.g.,adisbursementwasthefirstandlargest).Todate,onlytwodisbursementshavebeenmadeundertheOCPCGF.
55TheexposurefeesfortheEcopetroldisbursementswerenotfinanced.
(b) (4)
(b) (4)
(b) (4)
(b) (4)
(b) (4)
(b) (4)(b) (4)
(b) (4)
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Table 5: Disbursements ReviewedGuarantee Certificate
No. Selected54
Financed & Guaranteed
Exposure Fee55 Contents
AP087483XX – CFE – 52 Disbursements
GC14013580First&Largest $9,678,368.65 2Invoices,1Exporter
GC14043855 Random $7,215,832.86 31 Invoices,1ExporterGC14074140 Last $508,131.77 2 Invoices,1ExporterAP088270XX – OCP – 2 Disbursements
GC400731 First $7,941,844.29 9Invoices,1ExporterGC400818 Second $7,982,888.46 13Invoices,MultipleExporters
AP082367XC – Aeromexico ‐ 9 DisbursementsGC400254 First $7,818,265.11 8 Invoices,MultipleExportersGC400304 Largest $9,816,635.04 11Invoices,MultipleExportersGC400446 Latest $648,114.32 47 Invoices,MultipleExporters
Grand Total $97,628,534.11 Source: EXIM Bank Credit Files and Facility Agent and/or Purchasing Agent Disbursement Files
(b) (4)
(b) (4)(b) (4)
(b) (4)(b) (4)
(b) (4)(b) (4)
(b) (4)
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Appendix C: CGF Transactions Reviewed – Narratives
Petrobras Brasilia, S.A. and Petrobras Netherlands, BV (collectively, Petrobras) ‐ AP084193XX
Petrobras,thenationaloilcompanyofBrazilandoneofthelargestoilproducersintheworld,wasfoundedin1953.Fromexplorationtorefininganddistribution,Petrobrasisinvolvedinallfacetsofoilproduction.EXIMBank’sworkingrelationshipwithPetrobrasbeganinthe1970s.TheBoardapprovedaPreliminaryCommitment(PC)toPetrobrasfor$2billiononApril14,2009.AportionofthePetrobrasPC,$308.2million,wasconvertedtoaCGFandapprovedbytheBoardonFebruary4,2010,andbecameoperativeonAugust1,2011.56WhenthePetrobrasCGFwasapproved,Petrobras’financialperformanceandmanagementteamswereperceivedastransactionstrengths,whilepreviousbusinessdealingswithIranwereperceivedastransactionweaknesses.ThePetrobrasPCandCGFwereapprovedbytheBoardtosupportU.S.exports,toaddressforeigncompetition,specificallyfromtheChinaDevelopmentBank,andtoprovideopportunitiesforfollow‐onbusinessbetweenPetrobrasandU.S.exporters.PetrobrasrequestedEXIMBanksupporttoaddressthelackofcomparablemedium‐termprivatefinancingunderPetrobras’capitalexpansionplan.Afterboardapproval,tworeachbackwaiverswereapprovedthatextendedthereachbackperiodto30monthspriortotheoperativedatewithrepaymenttermstruncatedinaccordancewithOECDrequirements(i.e.,5‐yearrepaymenttermsreducedto3‐and4‐yearsterms).57Thetotalamountdisbursedunderthefacilitywas$300.1million.AllinvoicesfinancedunderthefacilitywereforsubtransactionswithshipmentsorservicesperformedthatoccurredbetweenJanuary2009andDecember2012,withatotalof$300.1million(100percent)inreachbackdisbursements.OnFebruary16,2016,Petrobrasmadeitsfinalpaymentonthefacility.
Ecopetrol S.A. (Ecopetrol) ‐ AP084891XX
Ecopetrol,thenationaloilcompanyofColombiaandthefourthlargestSouthAmericanoilproducer,wasfoundedin1921.Fromexplorationtorefining,anddistribution,Ecopetrolisaverticallyintegratedcompany.TheBoardapprovedaPCtoEcopetrolfor$1billiononJanuary15,2010.AportionoftheEcopetrolPC,$420.4million,wasconvertedtoaCGFandapprovedbytheBoardonDecember16,2010,andbecameoperativeonJuly9,2013.Atthetimeofapproval,Ecopetroldidnothavedebtfacilitieswithanyexportcreditagency(ECA).Additionally,atthetimeofboardapproval,Ecopetrol’srecentS&Pupgrade,improvedcountryriskrating,andstrategicmarketstatuswereperceivedastransactionstrengths,whilecommoditypricefluctuationandpotentialgovernmentinterferencewereperceivedastransactionweaknesses.TheEcopetrolPCandCGFwereapprovedbytheBoardtoaddressthelackofavailableprivatefinancing,toencouragetheexportofU.S.goodstoEcopetrol,andtocompetewithEuropeanandAsianexporters.Afterthefacilitywasapproved,itwasamendedtoreflectachangeinguaranteedlender,disbursement
56APreliminaryCommitment(PC)isanofferofEXIMBankfinancingsubjecttotheawardoftheexportcontractandtheBank’sreviewofaFinalCommitmentapplication,whichisvalidforsixmonthsandrenewableinsix‐monthincrementsforuptotwoyearsfromtheexpirydatelastapprovedbytheBoard.
57Supranote40.
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procedures,andfinancedamount.Additionally,afterboardapproval,threereachbackwaiverswereapprovedtoextendthereachbackperiodfromthestandardsixmonthstonineto42monthspriortotheoperativedatewithrepaymenttermstruncatedinaccordancewithOECDrequirements(i.e.,5‐yearrepaymenttermsreducedto2.5‐,3‐,3.5‐,4‐,and4.5‐yearterms).Thetotalamountdisbursedunderthefacilitywas$151.3million.AllinvoicesfinancedunderthefacilitywereforsubtransactionswithshipmentsorservicesperformedthatoccurredbetweenJanuary2010andFebruary2014,withatotalof$132.8million(88percent)inreachbackdisbursements.AsofSeptember30,2016,EXIMBank’sexposurewas$61.4million.
Comission Federal De Electricidad (CFE) ‐ AP087483XX
CFEisMexico’swhollyownedelectricityutilitypowercompany.Atthetimeofboardapproval,CFEprovidedpowerto97.61percentoftheMexicanpopulationandhadaproductioncapacityof52.854megawattsfromdiverseenergysources.TheCFECGFwasapprovedonDecember20,2012,for$89.2million,andbecameoperativeonSeptember30,2013.Atthetimeofboardapproval,CFE’smonopolyposition,salesgrowth,andfavorablemarketratingswereperceivedastransactionstrengths,whileahighleverageratioandincreasedoperatingcostswereperceivedastransactionsweaknesses.TheCFECGFwasapprovedbytheBoardtoaddressthelackofavailableprivatefinancingandtocompetewithECA‐backedEuropeanexporters.Afterboardapproval,areachbackwaiverwasapproved,extendingthereachbackperiodfromsixto11monthspriortotheoperativedatewithrepaymenttermstruncatedinaccordancewithOECDrequirements(i.e.,5‐yearrepaymenttermsreducedto4‐yearterms).Thetotalamountdisbursedunderthefacilitywas$89.2million.AllinvoicesfinancedunderthefacilitywereforsubtransactionswithshipmentsorservicesperformedthatoccurredbetweenSeptember2012andJanuary2014,withatotalof$32.9million(37percent)inreachbackdisbursements.AsofSeptember30,2016,EXIMBank’sexposurewas$40.5million.
OCP S.A. (OCP) ‐ (AP088270XX)
OCP,aMoroccan,stateowned,phosphateminingandproductioncompany,isoneoftheworld’slargestphosphateexporters.Fromextractionandprocessingtosales,OCPisinvolvedinallfacetsofthephosphatemarket.TheOCPCGFwasapprovedbytheBoardonSeptember4,2014,for$92.2millionandbecameoperativeonApril8,2016.Atthetimeofapproval,OCP’smonopolyposition,financialflexibility,andlowleverageratiowereperceivedastransactionstrengths,whilephosphatemarketuncertaintiesandalargecapitalexpenditurewereperceivedasatransactionweakness.TheOCPCGFwasapprovedtoaddressthelackofavailableprivatefinancing,todevelopfurthertheBank’srelationshipwithOCP,andtocompetewithotherECAs.Atboardapproval,theinitialeligibilitydateforshipmentstobeconsideredforfinancingwas“noearlierthanMarch2013.”Thus,extendingthereachbackperiodfromsixto37monthspriortotheoperativedatewithrepaymenttermstruncatedinaccordancewithOECDrequirements(i.e.,5‐yearrepaymenttermsreducedto1.75‐yearterms).TheinvoicesfinancedtodateunderthefacilitywereforsubtransactionswithshipmentsorservicesperformedthatoccurredbetweenMarch2013andAugust2015,withatotalof$15.9million(100percent)inreachbackdisbursements.AsofSeptember30,2016,EXIMBank’sexposurewas$92.2million.
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Aerovias de Mexico, SA de CV (Aeromexico) ‐ AP082367XC
Aeromexico,oneofLatinAmerica’slargestairlines,wasfoundedin1934.AeromexicoisMexico’sflagshipairline,wasprivatizedinthelate1980sandin2007,andhasbeenaDeltaAirlinespartnersince1994.TheAeromexicoCGFwasarenewalofapreviousCGF.ThefacilitywasapprovedbytheBoardonDecember18,2014for$40.7million,andbecameoperativeonMarch13,2015.TheAeromexicoCGFwasreviewedandapprovedbytheBoardinconjunctionwithasecondAeromexicotransaction(long‐termguarantee).Atthetimeofboardapproval,Aeromexico’smarketpresenceandairportslotadvantagewereperceivedastransactionstrengths,whilefluctuatingjetfuelpricesandacompetitivedomesticmarketwereperceivedastransactionweaknesses.TheAeromexicoCGFwasapprovedbytheBoardtoaddressthelackofavailableprivatefinancing,toleveltheplayingfield,specificallyagainstcompetitionfromEuropeanECAs,andtoprovidereliablefinancingduringaperiodofcommercialfinancinguncertainty.AftertheBoard’sinitialapproval,theauthorizedamountforthefacilitywasincreasedto$50.9millionthroughanamendment(datedFebruary23,2016).58Thetotalamountdisbursedunderthefacilitywas$50.9million.AllinvoicesfinancedunderthefacilitywereforsubtransactionswithshipmentsorservicesperformedthatoccurredbetweenJuly2014andAugust2015.AsofSeptember30,2016,EXIMBank’sexposurewas$42.5million.
58UndertheBank’spolicyforIndividualDelegatedAuthority,Boardapprovalwasnotrequiredfortheamendmentastheincreaseintheauthorizedamount(excludingtheexposurefee)waslessthanorequalto$10millionabovetheprincipalliabilityapprovedbytheBoard.Supranote11.
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Appendix D: CGF Lender Eligibility Criteria
Table 6: Lender Eligibility Criteria 1 LenderhasknowledgeandexperiencewithEXIMBankprogramsforaminimumofthreeyears
andhasfundedatleastthreemedium‐termloans.2 LendermustdemonstrateamaterialtrackrecordandknowledgeofEXIMBankandother
exportagencyprograms,aswellas,portfolioexperiencemakingandcollectingcross‐borderloans.
3 Lendermustpossessadequateresources,lendingproceduresandabilitytoconductduediligenceonallparticipants.
4 Lenderpossessesadequateresources,lendingproceduresandabilitytoconductduediligenceonallparticipants.
5 LendermayhaveanexistingcreditorcapitalmarketsrelationshipwiththeBorrower.6 Lender’scapitalbaseshouldbeproportionatelyscaledtotheloansize.7 Lender’sEXIMBankclaimsratioshallbeacceptableusingaguidelineoflessthan10percentof
theircurrentportfolio.8 Lendershouldpossessadministrativesystemsandproceduresforhandlingthevolumeof
documentationincludingtheabilitytowarehousepaperdocumentsforatleast7years.(NotethatelectronicfilewarehousingwasrecommendedtoEXIMBankOfficeofGeneralCounselin2010.)
9 LendermustagreetosubmittoregularreviewsbyEXIMBankbycrossdivisionalteams.(NewrequirementasofOctober2011.)
Source: EXIM Bank’s Loan, Guarantee and Insurance Manual, Chapter 12. Credit Guarantee Facilities (April 2015);
and EXIM Bank Notice of Intent, dated December 23, 2015
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Appendix E: CGF Program – Disbursement Support Submission and Retention Requirements
FortheCGFprogram,thestandarddocumentsrequiredassupportfordisbursementsare:
1. U.S.invoice2. Evidenceofpayment3. Evidenceofexport:
a. U.S.goods–BillofLading(e.g.,onboardoceanbilloflading,air/railwaybill,truckbilloflading)i. ShipmentdatemustbeonoraftertheBankapprovedeligibilitydate(i.e.,earliestis180dayspriortotheoperativedatewithoutareachbackwaiver)
b. U.S.services–i. ServicesperformedmustbeonoraftertheBankapprovedeligibilitydate(i.e.,earliestis180dayspriortotheoperativedatewithoutareachbackwaiver)
4. Exporter’sCertificate
Table 7: Disbursement Support – Documentation Submission Requirements
Deal No. and Borrower
Disbursement Approval Process
Borrower to Guaranteed Lender/
Facility Agent
Guaranteed Lender/ Facility Agent to
EXIM Bank
AP084193XX–Petrobras
Manual(Modified
DisbursementDocumentsProcess)59
• ReimbursementRequest• ItemizedStatementofPayment(ISP)
• Exporter’sCertificate(EC)• MasterInvoice(MI)• RecordsofGoodsandServices(RGS)
• EvidenceofPayment
• GuaranteeRequest• ReimbursementRequest• ISP,EC,MIandRGS• EvidenceofPayment
AP084891XX–Ecopetrol
Manual
• ReimbursementRequest• ISPandEC• InvoicesandBillofLading(B/L)
• EvidenceofPayment
• GuaranteeRequest• ReimbursementRequest• ISPandEC• InvoiceandB/L• EvidenceofPayment
59Underthe“ModifiedDisbursementDocuments”process,theBorrowersubmitsaMasterInvoiceandRecordsofGoodsandServicesinlieuofInvoicesandBillsofLadingtotheguaranteedlender(facilityagent.Byoptingforthisalternativeprocess,theBorrower/PurchasingAgentisrequiredtoretainthosedocumentsforaperiodestablishedintheFacilityAgreement.ForthePetrobrasCGF,theretentionperiodforunderlyinginvoicesandbillsofladingis10yearsfromRequestforReimbursement.OnFebruary16,2016,Petrobrasmadeitsfinalpaymentonthefacility.
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Table 7: Disbursement Support – Documentation Submission Requirements
Deal No. and Borrower
Disbursement Approval Process
Borrower to Guaranteed Lender/
Facility Agent
Guaranteed Lender/ Facility Agent to
EXIM Bank
AP087483XX–CFE
ElectronicComplianceProgram(ECP)60
• ReimbursementRequest• ISPandEC• InvoiceandB/L• EvidenceofPayment
• ECPRequestforDisbursementApproval
AP088270XX–OCP ECP
• ReimbursementRequest• ISPandEC• InvoiceandB/L• EvidenceofPayment
• ECPRequestforDisbursementApproval
AP082367XC–Aeromexico ECP
• ReimbursementRequest• ISPandEC• InvoiceandB/L• EvidenceofPayment
• ECPRequestforDisbursementApproval
Source: Respective Facility Agreement, EXIM Bank’s OMR Disbursement Manual; Disbursement Documents Maintained by EXIM Bank, the Guaranteed Lender and/or Borrower/Purchasing Agent;
and EXIM Bank Staff Interviews
Table 8: Disbursement Support – Documentation Retention Requirements
Deal No. and Borrower
Disbursement Approval Process
Guaranteed Lender/ Facility Agent
Borrower
AP084193XX–Petrobras
Manual(Modified
DisbursementDocumentsProcess)
NoretentionrequirementasGuaranteedLendersubmittedalldocumentstoEXIMBank
10YearsfromRequestforReimbursement(Borrower/PurchasingAgent):• Invoices• B/Ls
AP084891XX–Ecopetrol Manual
NoretentionrequirementasFacilityAgentsubmittedalldocumentstoEXIMBank
NoretentionrequirementasBorrowerdidnotusemodifieddisbursementdocumentsprocess
AP087483XX–CFE ECP
7YearsfromRepaymentofFinancing:• ReimbursementRequest• ISPandEC• InvoiceandB/L• EvidenceofPayment
NoretentionrequirementasBorrowerdidnothavemodifieddisbursementdocumentsprocessoption
60EffectiveDecember23,2015,EXIMBankissuedaNoticeofIntentthatwasapplicabletoitsguaranteeprograms(includesCGF)thatchangedthetermsoftheretentionrequirementsfortransactiondocumentsasfollows:“Lenders,LessorsandFacilityAgentsasapplicable,shallretainallTransactionDocumentsforaperiodequaltosevenyearsafterfinalrepaymentinfulloftheCredit.”AccordingtoBankstaff,theretentionrequirementisretroactive,andisapplicabletotheECPCGFtransactions.TheBank’sDisbursementManualreflectedthechangeintheretentionrequirementfortransactiondocumentsbytheguaranteedlender(OMRDisbursementManual,Issued2005,UpdatedthroughJanuary2016).
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Table 8: Disbursement Support – Documentation Retention Requirements
Deal No. and Borrower
Disbursement Approval Process
Guaranteed Lender/ Facility Agent
Borrower
AP088270XX–OCP ECP
7YearsfromRepaymentofFinancing:• ReimbursementRequest• ISPandEC• InvoiceandB/L• EvidenceofPayment
NoretentionrequirementasBorrowerisnotusingmodifieddisbursementdocumentsprocess.
AP082367XC–Aeromexico ECP
7YearsfromRepaymentofFinancing:• ReimbursementRequest• ISPandEC• InvoiceandB/L• EvidenceofPayment
NoretentionrequirementasBorrowerdidnothavemodifieddisbursementdocumentsprocessoption.
Source: Respective Facility Agreement, EXIM Bank’s OMR Disbursement Manual; Disbursement Documents Maintained by EXIM Bank, the Guaranteed Lender and/or Borrower/Purchasing Agent;
and EXIM Bank Staff Interviews
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Appendix F: Summary Results of Disbursements Testing
Table 9: Disbursement Testing Results
Deal No. and Borrower
Disbursements Reviewed
Ineligible Goods/ Service
Missing B/Ls
Missing Invoices
Comments
AP084193XX–Petrobras 5 ‐ X X
SomeunsignedB/Lsandinvoicemissingpages;incorrectdatesonMIandRGS.
AP084891XX–Ecopetrol 3 ‐ ‐ ‐
TransposednumbersandincorrectdatesonISPs.
AP087483XX–CFE 3 X ‐ ‐
Ineligibleshipmentofgoodsincludedinonedisbursement.
AP088270XX–OCP
2 X X ‐ IneligibleservicesperformedincludedinonedisbursementandincorrectdatesonISP.
AP082367XC–Aeromexico 3 ‐ ‐ ‐ ‐
Source: Respective Disbursement Documents Maintained by EXIM Bank, the Guaranteed Lender and/or Borrower/Purchasing Agent
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Appendix G: Reachback Waivers and Other Amendments
Table 10: Reachback Waivers and Other Amendments
Event AP084193XX – Petrobras
AP084891XX – Ecopetrol
AP087483XX – CFE
AP088270XX – OCP
AP082367XC – Aeromexico
Board Approval Date 02/04/2010 12/16/2010 12/20/2012 09/04/2014 12/18/2014
Operative Date 08/01/2011 07/09/2013 09/30/2013 04/08/2016 03/13/2015
Per Policy (180 Days Prior to Operative Date)
02/02/2011 01/10/2013 04/03/2013 10/11/2015 09/14/2014
Per Board Memo (initial eligibility) 07/15/2009
01/15/2010(ifrequested)
TBDTBD
(Noearlierthan03/01/2013)
12/05/2013
(b) (4)
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(b) (4)
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Appendix H: Reachback Provisions (b) (4)
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ACKNOWLEDGEMENTS ThisreportwaspreparedbytheOfficeofInspectionsandEvaluations,OfficeofInspectorGeneralfortheExport‐ImportBankoftheUnitedStates.SeveralindividualscontributedtothisreportincludingLilithSanchez,SeniorInspector,LisaClark,Paralegal,andJenniferFain,DeputyAIGIE.
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Office of Inspector General Export-Import Bank of the United States 811 Vermont Avenue, NW Washington, DC 20571 202-565-3908 http://www.exim.gov/about/oig