Illicit Finance Risks with Exporting

Understanding Illicit Finance Risks with Exporting

Bribery – Money-laundering – Fraud ^[1] - Sanctions Violations

As a business considers whether or not to export its products and services, it also needs to consider the U.S. and foreign laws and regulations regarding international sales.

In all EXIM supported transactions, EXIM expects applicants, exporters, lenders, obligors, and buyers to conduct their business responsibly. EXIM applications, exporter certificates, and program documents contain certifications, representations and covenants, as applicable, regarding responsible business conduct.

Generally speaking, international financial transactions (including those facilitating trade) are higher risk for certain financial crimes. “Financial crimes” may include bribery, involvement with corrupt individuals, money-laundering, fraud, and sanctions violations.

In addition to the various laws prohibiting fraudulent conduct, U.S. firms involved in EXIM Bank transactions must be aware of and comply with U.S. laws prohibiting:

• bribery of foreign public officials (see the Foreign Corrupt Practices Act – 15 U.S.C. 78dd-1, et seq.);
• bribery of domestic (U.S.-based) public officials (see 18 U.S.C. 201);
• interstate unlawful activity, including in some cases bribery of private sector individuals and companies (see the Travel Act, 18 U.S.C. 1952);
• money-laundering (see 18 U.S.C. 1956-1957);
• conducting business with persons or companies that have been suspended or debarred from participating in transactions with the U.S. Federal government (see generally the nonprocurement suspension and debarment regulations, (see 12 C.F.R. Part 180)); and
• conducting business with sanctioned parties (see generally the regulations issued by the U.S. Department of the Treasury Office of Foreign Assets Control at 31 C.F.R. Chapter V).

In addition, U.S. firms conducting business with companies in foreign countries may be subject to the laws of those countries, including laws prohibiting bribery of both public officials and private sector persons and companies.

Violations of any of these laws can be the subject of both criminal and civil enforcement and violators can be subjected to fines, prison time, and suspension and debarment from participation in Federal government transactions. All U.S. firms, to the extent they may not have done so already, should consider implementing compliance systems that develop, apply and document appropriate policies, procedures and management controls to prevent and detect bribery of all kinds, money-laundering, fraud and sanctions violations.

A few of the laws, regulations and other sources that focus on anti-corruption efforts are discussed in more detail below. This is by no means an exhaustive list and all parties should seek legal counsel and other guidance as to the various export and import laws and regulations that may affect any specific export transaction. In connection with EXIM supported transactions, it is imperative to be acquainted with the laws, guidelines and debarment lists discussed below.

Foreign Corrupt Practices Act (FCPA)

U.S. firms and individuals seeking to do business in foreign markets must be familiar with the Foreign Corrupt Practices Act of 1977 (FCPA), 15 U.S.C. §§ 78dd-1, et seq., which, in general, prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business. The anti-bribery provisions of the FCPA make it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person. They also apply to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States.

Congress enacted the FCPA to bring a halt to the bribery of foreign officials and to restore public confidence in the integrity of the American business system. Several firms that paid bribes to foreign officials have been the subject of criminal and civil enforcement actions, resulting in large fines and suspension and debarment from federal procurement contracting, and their employees and officers have gone to prison. To avoid such consequences, many firms have implemented detailed compliance programs intended to prevent and to detect any improper payments by employees and by third-party agents. EXIM reserves the right to require that exporters, lenders and, where appropriate, other participants, disclose, upon demand: (i) the identity of persons, including agents, acting on their behalf in connection with the transaction, (ii) the amount and purpose of commissions and fees paid, or agreed to be paid, to such persons; and (iii) the details of such payments, including the location. EXIM also reserves the right to reject or cancel any transaction where there is a reasonable basis to believe that bribery has occurred.

More information about the FCPA , is available from the U.S. Department of Justice website.

Additionally, businesses seeking to learn more about FCPA risks or seeking to learn more about internal controls may wish to see the Department of Justice’s “FCPA Resource Guide.”

OECD Anti-bribery Recommendations

Consistent with the FCPA, the Organization for Economic Cooperation and Development (OECD) has promulgated antibribery recommendations to combat bribery in international business transactions, which the U.S. Government has agreed to follow in its export credit practices. EXIM Bank adheres to these recommendations, including the recommendation to conduct enhanced due diligence regarding EXIM transaction parties that have been convicted of violation of laws against bribery, or subject to equivalent measures such as deferred prosecution agreements, or have been found to have engaged in bribery as part of an arbitral award. The enhanced due diligence includes verification that the party has taken appropriate internal corrective and preventative measures.

Before applying for EXIM products and services, businesses may wish to review the OECD’s “Good Practice Guidance on Internal Controls, Ethics, and Compliance.”

Domestic Bribery and the Travel Act

U.S. law also prohibits the bribery of domestic (i.e., U.S.) public officials (see 18 U.S.C. 201). Additionally, the Travel Act, 18 U.S.C. 1952, broadly targets unlawful activity that is conducted in interstate or foreign commerce. Unlawful activity can include violations of the laws of any of the U.S. states, some of which have laws prohibiting bribery to private sector individuals or companies. This is often called either “private sector bribery” or “commercial bribery”. The Department of Justice uses the Travel Act, among other legal avenues, to prosecute private sector bribery. Violations of the Travel Act or the law against bribery of domestic public officials can result in fines and jail time, as well as lead to debarment from participation in U.S. Government transactions.

Money Laundering

Money laundering is conducting a financial transaction knowing that the proceeds of unlawful activity are involved in the transaction, or conducting the transaction in a manner designed to conceal the unlawful origin of the proceeds. See 18 U.S.C. 1956 and 1957. Money laundering is inherent in many financial crimes. Participants in EXIM transactions should be vigilant with regard to the activities of counterparties in the transactions, and endeavor to be aware of the sources of the proceeds used in their transactions.

Sanctions - The Office of Foreign Assets Control

The Office of Foreign Assets Control (OFAC) is a bureau in the U.S. Department of the Treasury, and it oversees U.S. Government sanctions against countries and individuals. General information about OFAC and U.S. sanctions can be found here: https://sanctionssearch.ofac.treas.gov/. OFAC maintains various lists, which can all be searched simultaneously through OFAC’s Consolidated Lists Search found here: https://sanctionssearch.ofac.treas.gov/. U.S. citizens, among others, are generally prohibited from doing any business with persons or entities listed by OFAC, or with any company directly or indirectly owned by a listed party. There may also be other OFAC regulations that prohibit certain activity. Participants in EXIM transactions should check the OFAC Consolidated list search to make sure that no participants in the transaction – or the principals of participants – are listed on any of OFAC’s lists. Additionally, sanctions laws and regulations can be complicated, and participants in EXIM transactions are encouraged to consult with counsel regarding any questions regarding sanctions and other export restrictions.

EXIM Bank Transaction Due Diligence Best Practices

EXIM has issued guidelines for Transaction Due Diligence Best Practices. These are intended to improve the transparency and effectiveness of EXIM's due diligence policies. These "know-your-customer" guidelines help EXIM’s partners more easily identify the key risk issues EXIM considers in evaluating applications.

The guidelines also benefit taxpayers by balancing the efficient and timely execution of EXIM’s mission – supporting American jobs by facilitating U.S. exports – with ensuring that EXIM supports creditworthy and legitimate transactions that are not in conflict with other provisions of law.

Systems for Award Management - SAM.gov Exclusions List (The Debarment List)

The U.S. Government Systems for Award Management (SAM) maintains an exclusion list that is publicly available for searching at SAM.gov. (The exclusion list was formerly known as the Excluded Parties List System, or the EPLS.) People and companies listed on the exclusion list are excluded (i.e., debarred) from doing business with the U.S. Government, except under narrow limited circumstances. Participants in EXIM transactions should check SAM.gov to make sure that no participants in the transaction – or the principals of participants – are listed on the exclusion list.

Other Debarment Lists

Many multilateral and other institutions also have debarment lists. Participants in EXIM Bank transactions should make a practice of checking other debarment lists as a step in conducting due diligence with regard to the various participants in a transaction. The EXIM Exporter's Certificate and the various applications for EXIM transactions require certifications that the entity signing (and, in some cases, the principals of such entity) are not on either the SAM.gov exclusion list, or any of the multilateral bank debarment lists set forth below, as well as the African Development Bank, (which does not maintain a published list).