report on exim bank’s credit guarantee facility program · · 2017-04-03attached please find...

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

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).

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

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.

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

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

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.

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.

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).

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?

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.

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

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.

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

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.”

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.

…preparingandincludingallrequireddocumentsoranalysesintheloanfile....”AllsixoftherecommendationsmadebyGAOareclosed.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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).

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.

“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.

RECOMMENDATIONS

OIGrecommendsthatEXIMBank:

5. ReviewandupdatethereachbackpolicyfortheCGFprogramtobeconsistentwithactualpracticeandreducetheneedforwaivers.Inreviewingandupdatingthereachbackpolicy,theBankshouldanalyzethecase‐by‐casedeterminationofareachbackrelativetotheaveragepolicydate(i.e.,operativedate);considerestablishinglimitsontheutilizationofthefacilityforreachbacktransactions;setrequirementsforcommunicatinganalysisofreachbackissuestodecisionmakersincludingtheBoard;andestablishproceduresforconsiderationofwaiverstothepolicy.Thiswouldincludedocumentingthesupportingevidenceinthecreditfile.

Management Response:

PleaseseeAppendixA,ManagementResponseandOIGEvaluation.

CONCLUSION

OurevaluationfoundthatEXIMBankgenerallyadministeredtheCGFprograminaccordancewithitspoliciesandprocedures.WhiletheBankstreamlinedtheapprovalprocessfordisbursementsandguaranteeissuancesandthecreditfilesforeachofthefivefacilitiesreviewedwerereasonablycompleteandorderly,theindependentreviewofthefileswasnotfullydocumented.Additionally,ourreviewofdisbursementsidentifiedinstancesofnon‐complianceresultingin$5.1millioninshipmentofgoodsandprogresspaymentsforservicesthatwerenoteligibleforfinancingandguaranteeundertwofacilities.Further,althoughtheBankmodifiedaneligibilitydatethatwasmaterialtocompliancewithIransanctionsrestrictionswithoutconsistentduediligence,wefoundnoevidencethatthiscontrolweaknessresultedinaviolationoftherestrictions.

Finally,wedeterminedthatcertainCGFtransactionsrefinancedexportsthathadalreadyoccurredyearspriortotheoperativedateofthefacility,waivingapolicyputinplacetoensuretheprogramprovidesadditionalsupportfornewU.S.exports.

APPENDIXES

Appendix A: Management Response and OIG Evaluation

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.

TheBank’sCreditReviewandComplianceDivisioniscurrentlyupdatingitspoliciesandproceduresforpost‐disbursementreviewstoproactivelymonitorcompliance,identifynoncompliance,andassistwithreducingnoncompliancewithBankrequirementsinatimelymanner,includingthe$250millionthresholdsetbytheBanktoinitiateareviewofdisbursementsundertheCGFprogram.

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.”

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.

RECOMMENDATION 5

Recommendation 5: ReviewandupdatethereachbackpolicyfortheCGFprogramtobeconsistentwithactualpracticeandreducetheneedforwaivers.Inreviewingandupdatingthereachbackpolicy,theBankshouldanalyzethecase‐by‐casedeterminationofareachbackrelativetotheaveragepolicydate(i.e.,operativedate);considerestablishinglimitsontheutilizationofthefacilityforreachbacktransactions;setrequirementsforcommunicatinganalysisofreachbackissuestodecisionmakersincludingtheBoard;andestablishproceduresforconsiderationofwaiverstothepolicy.Thiswouldincludedocumentingthesupportingevidenceinthecreditfile.

TheBank’sPolicyAnalysisDivisioniscurrentlyreviewingandupdating,whereapplicable,thereachbackpolicyfortheCGFprogramtobeconsistentwithactualpracticeandreducetheneedforwaivers.Inreviewingandupdatingthereachbackpolicy,theBankwillanalyzethecase‐by‐casedeterminationofareachbackrelativetotheaveragepolicydate;considerestablishinglimitsontheutilizationofthefacilityforreachbacktransactions;setrequirementsforcommunicatinganalysisofreachbackissuestodecisionmakersincludingtheBoard;andestablishproceduresforconsiderationofwaiverstothepolicy,toincludedocumentingthesupportingevidenceinthecreditfile.

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

Yes Open

2. EXIMBankisupdatingitspoliciesandproceduresfordisbursementreviewsandthe$250millionthresholdsetbytheBanktoinitiateareviewofCGFprogramdisbursements.

NoTargetCompletion

Yes Open

3. EXIMBankconcurswiththerecommendationinpart.TheBankaddressedthe$1.5millioninprogresspaymentsthatwerenoteligibleforfinancingandguaranteeundertheOCPCGF.TheBankplanstoaddresstheissueassociatedwiththe$3.6millioninshipmentsundertheCFECGFinternally,notwiththeGuaranteedLender.

NoTargetCompletion

No Open

4. EXIMBankplanstoreviewandenhanceitscurrentpoliciesandproceduresforconductingduediligenceandprocessesforamendingthetermsandconditionsofCGFs.TheBankalsoplanstoreviewitsinternalprocessesforassessingthelevelofmaterialityofproposedamendmentsandtheneedtorevertbacktotheBoardforapproval.

NoTargetCompletion

Yes Open

48EXIMBankOIGhasrequestedtargetcompletiondatesforeachoftheoutstandingrecommendations.

49“Resolved”meansthat(1)Managementconcurswiththerecommendation,andtheplanned,ongoing,andcompletedcorrectiveactionisconsistentwiththerecommendation;or(2)Managementdoesnotconcurwiththerecommendation,butalternateactionmeetstheintentoftherecommendation.

50UpondeterminationbytheEXIMBankOIGthattheagreed‐uponcorrectiveactionhasbeencompletedandisresponsivetotherecommendation,therecommendationcanbeclosed.

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

Yes Open

Table 3: Schedule of Questioned Costs

Rec. No. Disallowed51 Unsupported

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.

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

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)

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)

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.

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.

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.

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

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

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.

Table 7: Disbursement Support – Documentation Submission Requirements

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

AP082367XC–Aeromexico ECP

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

Guaranteed Lender/ Facility Agent

Borrower

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).

Table 8: Disbursement Support – Documentation Retention Requirements

Guaranteed Lender/ Facility Agent

Borrower

AP088270XX–OCP ECP

NoretentionrequirementasBorrowerisnotusingmodifieddisbursementdocumentsprocess.

AP082367XC–Aeromexico ECP

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

Appendix F: Summary Results of Disbursements Testing

Table 9: Disbursement Testing Results

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

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)

Appendix H: Reachback Provisions (b) (4)

ACKNOWLEDGEMENTS ThisreportwaspreparedbytheOfficeofInspectionsandEvaluations,OfficeofInspectorGeneralfortheExport‐ImportBankoftheUnitedStates.SeveralindividualscontributedtothisreportincludingLilithSanchez,SeniorInspector,LisaClark,Paralegal,andJenniferFain,DeputyAIGIE.

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

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