Tuesday, January 15, 2008

New Ex-Im Bank guidelines won't prevent US loans to drug cartels

Reacting to an investigative report from WFAA-TV in Dallas that the Ex-Im Bank has been giving multi-million dollar loans to drug cartel members who never paid them back, the agency has issued a new set of non-binding due diligence guidelines aimed at addressing the problem, but to me they seem to leave open many loopholes that could let this happen again.

You can read the new guidelines for yourself here (pdf). Called the "Know Your Customer" initiative, the guidelines sound positive on their face but contain a loophole that corrupt bureaucrats could drive a dope-laden truck through, declaring:
The guidelines do not constitute a checklist. Nor do they create any specific legal obligation. Rather, Ex-Im Bank’s partners are encouraged to consider these best practices in conducting due diligence.
In other words, these are completely voluntary, and nothing happens to loan officers who don't comply with them. E.g., they suggest that loanmakers check whether "any transaction participant or principal appear on a U.S. Government prohibited parties list (for example, Office of Foreign Assets Control or Excluded Parties List System)?" But since this due diligence document is only a suggestion, not a requirement, nothing happens to loan officers who fail to take that important step.

In addition, the due diligence non-checklist itself doesn't go far enough: Suppliers and key financiers for loan applicants should also be checked in those databases before making loans to be sure that Ex-Im Bank money isn't falling into the hands of organized crime. It's pretty easy to form a company whose top officers come up clean, but who do business with much shadier characters if the "due diligence" delved just a little deeper.

I'm glad officials at the Ex-Im Bank have recognized they need to address this problem, but they're going to have to do more to actually fix what ails the agency.


1 comment:

JT Barrie said...

You have to wonder about any company that loses money utilizing questionable business methods [like the grandiose "bonus" for executives of companies that show losses]. When those bad decisions include shady characters and known criminals it smacks of money laundering. How else can you afford to lose money with bad loans if the original money isn't dirty to begin with. Actually they did a piece on Numbers utilizing the same principle - only they used unemployed people [who were later killed]instead of known criminals.