REQUIREMENTS AND DUE DILIGENCE STANDARDS
EXIM Bank has established due diligence standards for its guaranteed and insured lender partners and participants, and requires EXIM Bank's guaranteed and insured lenders to implement "know your customer" practices.
EXIM Bank reserves the right to review compliance by EXIM Bank Participants (defined below) with EXIM Bank programs, including your due diligence and know-your-customer practices. These reviews will serve as the basis for a dialogue with our participants about the application of these know-your-customer requirements and due diligence standards.
These standards and requirements do not change the terms of any EXIM Bank insurance policy or guarantee and does not add any new condition to making a claim under any EXIM Bank insurance policy or guarantee. These standards and requirements do not affect your rights or obligations under law. These standards and requirements also do not limit the information that EXIM Bank may request or require in connection with any EXIM Bank application.
A. "KNOW-YOUR-CUSTOMER" REQUIREMENTS
If you are an insured lender or guaranteed lender under any EXIM Bank program ("EXIM Bank Lender"), then you must comply with all applicable laws, rules and regulations, including but not limited to those that are generally called "know your customer" rules.
In addition, in connection with all EXIM Bank transactions in which you are an EXIM Bank Lender, you must have in place written "know your customer" practices substantially similar to the "Customer Identification Program" described at 31 C.F.R. §1020.220 and the due diligence program described at 31 CFR §1010.620, as amended, even if you are not otherwise subject to these regulations.
An EXIM Bank Lender's "know your customer" practices should include the following:
- Verify the identity of all customers requesting your services in connection with any EXIM Bank transaction.
- Identify the ownership of all accounts in your institution used in connection with any EXIM Bank transaction.
- Obtain identification from all of your customers that are party to an EXIM Bank transaction, with which you have a contract relationship, and to which you make disbursements.
- Obtain sufficient information regarding your customers related to any EXIM Bank transaction to determine if the transaction is unusual or disproportionate to the customer's business.
- Maintain records of your compliance with these "know your customer" requirements.
B. DUE DILIGENCE STANDARDS
Due Diligence Standards: An EXIM Bank Participant in an EXIM Bank transaction should use reasonable commercial judgment in collecting information and conducting due diligence appropriate for the transaction and the EXIM Bank Participant's role in the transaction.
Who is an "EXIM Bank Participant"? An EXIM Bank Participant is any person or entity that is, or is seeking to be, an insured or guaranteed party under any EXIM Bank program, and any applicant for EXIM support under any EXIM Bank program, any person (including an arranger or advisor) that assists an applicant in seeking EXIM Bank support for any transaction, and any party acting as an agent or trustee for EXIM Bank. Note that the Due Diligence Standards are not intended to provide guidance on the diligence appropriate to an entity that purchases an EXIM Bank guaranteed obligation from another party or on the secondary market.
What is "due diligence"? Due diligence is conducted on transaction participants and on the transaction itself. Due diligence on transaction participants includes the review of credit and financial history, character, professional experience and reputation. Due diligence on the transaction includes the review of all matters that may affect the likelihood of timely repayment, such as information about the goods and services being financed and related contracts, and may include review of financial projections. The level or amount of due diligence that is necessary for any of these areas is whatever is necessary to reasonably conclude that: i) the facts represented in the documents collected for the transaction appear to be true; and ii) the entities and people participating in the transaction are who they claim to be. In addition, such due diligence should be sufficient allow you to assess whether the transaction parties can adequately perform their assigned roles in the transaction, and to assess whether they have a sound reputation.
Your responsibility to conduct due diligence on various issues may vary depending upon the type of EXIM Bank transaction and the role you are playing in the transaction. Your due diligence with respect to a party or transaction should include obtaining and evaluating at least the Basic Information listed below and, if additional risk factors are present, the applicable Additional Information. Larger transactions, more complex transactions, and transactions in higher risk countries generally require more due diligence. In applying the standards, you are expected to use commercially reasonable judgment about what information is necessary to obtain, and the extent of the due diligence necessary to obtain such information. Due diligence should continue throughout the life of a transaction.
See below for a description of due diligence activities for transaction participants and transactions.
You should maintain records of the due diligence you have conducted. For any information you do not request or fail to receive, you should keep a record of the reason why you determined that the information was not within the scope of reasonable due diligence for the transaction.
Cooperation Requirements and Reservation of Rights – Please see EXIM Bank's "Cooperation Requirements and Reservation of Rights" posted on EXIM Bank's website. [hotLink] Pursuant to that document, ALL EXIM BANK LENDERS, BORROWERS, GUARANTORS, EXPORTERS, EXIM BANK BROKERS AND ASSIGNEES IN OR OF EXIM BANK TRANSACTIONS ARE EXPECTED TO COOPERATE WITH EXIM BANK IN INVESTIGATIONS OR REVIEWS OF SPECIFIC TRANSACTIONS.
Information provided to EXIM Bank. All information provided to EXIM Bank is subject to the provisions of 18 U.S.C. §1001, which provides for civil and criminal penalties for a person that knowingly and willfully (1) falsifies or conceals a material fact; (2) makes any materially false or fraudulent statement or representation; or (3) makes or uses any false writing or document to EXIM Bank, whether in connection with an application or otherwise.
Due Diligence Standards
Due Diligence Standards: An EXIM Bank Participant in an EXIM Bank transaction should use reasonable commercial judgment in collecting information and conducting due diligence appropriate for the transaction and the EXIM Bank Participant's role in the transaction.
Guidance on due diligence information and sources
1. Due Diligence Basic Information
a. Transaction Parties:
i. Identity of company – proper name; physical address; nature of business.
ii. Identity of key personnel and key principals, if any.
iii. General history .
iv. Financial/credit history; credit agency report - any recent financial distress?
v. Negative information check: OFAC; SAM (Federal Government Debarment List - formerly EPLS); other sanctions.
b. Transactions
i. Credit of the borrower, guarantor or other obligors.
ii. Information about matters affecting the likelihood of timely repayment. This may include, to the extent available and appropriate to the transaction: financial projections; equipment, services or project costs; construction/delivery schedule; purchase, sales or construction contracts; and engineering and environmental and other issues.
iii. Review contract/purchase order of export.
iv. Intended use of goods or services being exported/financed.
v. Source of transaction – how did the transaction come about? Was an agent or broker involved?
vi. Is the exporter the original equipment manufacturer (OEM) or an aggregator or other intermediary?
vii. If exporter is not an OEM, obtain "back to back" invoices or contracts/purchase orders for transaction from suppliers to exporter.
viii. Does the exporter have experience with sales of similar items?
ix. Are the major participants in the transaction of good reputation and able to perform?
x. Local costs: Relationship of local cost provider to buyer; local cost contract terms and amount; method of verifying that work is completed properly by local cost provider; local cost provider's reputation in its field.
c. Documents and other sources that provide due diligence information:
i. Corporate documents: organizational documents; powers of attorney; corporate resolutions.
ii. Copies of official identification cards of individuals signing any documents.
iii. Copy of contract or purchase order.
iv. Bank references.
v. Trade creditor references.
vi. Financial statements.
vii. State corporate/business records.
viii. Independent credit report.
ix. OFAC SDN List.
x. SAM (Federal Government Debarment List – formerly EPLS).
xi. Visit to business or project site.
xii. Public database search.
d. How to verify the documentation collected:
i. For third-party documentation, request that the documents be sent directly by the third-party.
ii. Contact an independent party to verify the information, such as the auditor of financial statements.
iii. Contact references directly to verify references.
iv. Contact suppliers directly to verify sales or prospective sales to exporter.
2. Due Diligence Additional Information
a. Additional information may be necessary in various circumstances. Some examples include: (i) the borrower's country does not have a well-established commercial or credit system; (ii) the borrower is relatively new; is entering into a new line of business; or is embarking on a significantly large capital improvement; (iii) politically exposed persons are connected to the transaction; and (iv) suggestions that the borrower may not have a reputation for good character. There could be many other reasons to look for additional information regarding a party or a transaction.
b. Other sources of information:
i. International company profiles from the U.S. Embassy.
ii. Private reports issued by private investigation companies.
iii. Conduct a "company search" (i.e., hire a company or counsel to search court, real estate and lien records).
iv. Search debarment lists of multilateral groups such as the United Nations, World Bank Group, African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development and the Inter-American Development Bank.
v. Search contractual world-wide databases available by subscription.
vi. Conduct a news database search.
vii. Obtain and review bank records.
viii. Obtain and review tax records.
ix. Obtain evidence of buyer's payment of 15% cash down-payment or evidence of alternate financing for 15% - usually a copy of the wire advice.
x. If the transaction is a "reimbursement" transaction (i.e., where the buyer has purportedly paid the exporter), obtain evidence of buyer's payment to exporter – usually a wire advice.
Guidance on How the Due Diligence Standards Apply to Different EXIM Bank Participant Roles
EXIM Bank Participant's Role in Transaction | Expected due diligence |
| Insured Party under Multibuyer and Single Buyer Insurance Policies. Insured Party under Medium-Term Insurance Policies. | Transaction Parties: Due diligence on the buyer/borrower/end-user (generally the same entity); and its general business. If an agent/broker/deal finder was involved in the transaction, due diligence on that party. Transaction: Due diligence on the intended use of the goods and services being purchased. |
| Insured Party under Financial Institution Buyer Credit Insurance Policies. | Transaction Parties: Due diligence on the buyer/borrower/end-user (generally the same entity). Transaction: Due diligence on the transaction. The EXIM Bank Participant is expected to conduct the same level of due diligence that you would conduct in a transaction held for your own account, without EXIM Bank involvement. |
| Insured Party under Letter of Credit Insurance Policies. | Transaction Parties: Due diligence on the foreign bank issuer of the letter of credit. |
| Guaranteed Lender under Working Capital Guarantee. | Transaction Parties: Due diligence with respect to the borrower/exporter and any major buyer. Transaction: Due diligence on the financing and the underlying commercial transaction. For transactions approved under the lender's delegated authority, the lender has an obligation under the Working Capital Master Guarantee Agreement to act with the standard of care that the lender would exercise on its own behalf, for its own account, and to act as a commercially reasonable lender. |
| Guaranteed Lender under Master Guarantee Agreement. | Transaction Parties: Due diligence on the borrower, guarantor and other obligors, buyer and end-user. Transaction: Due diligence with respect to the financing and the underlying commercial transaction. |
| Applicant for Medium-Term or Long-Term EXIM Bank Loan or Loan Guarantee. Person assisting in preparing application for Medium-Term or Long-Term EXIM Bank Loan or Loan Guarantee (such as an arranger or financial advisor to the applicant). | Transaction Parties: Due diligence on the borrower, guarantor and other obligors, buyer, end-user, sponsors, major exporters, major contractors, major offtaker and any other major transaction parties. Transaction: Due diligence with respect to the financing and the underlying commercial transaction. |
| Agent for or trustee on the behalf of EXIM Bank (such as a facility agent, documentation agent, disbursing agent, indenture trustee, collateral agent or trustee, or security agent or trustee). | Transaction Parties: Due diligence on the borrower, guarantor and other obligors, and any other parties with which you have a contractual relationship. |
Cooperation Requirements and Reservation of Rights
Cooperation requirements: All participants in EXIM Bank transactions, as defined below, are expected to cooperate with all requests of EXIM Bank for documents and information related to any transaction involving EXIM Bank which, in EXIM Bank's sole discretion, are necessary to review any participant's due diligence process, underwriting, know your customer practices, documentation, funding and operation of any and all EXIM Bank transactions, both before and after approval and consummation of a transaction.
For purposes of the foregoing cooperation requirements, a "participant" is deemed to be a lender in direct privity with EXIM Bank, a borrower, a guarantor, a buyer, an exporter, an EXIM Bank approved broker, an assignee or Enhanced assignee (in EXIM Bank's short-term program), or an agent, broker, finder or representative for any of the foregoing.
Reservation of Rights: For purposes of the reservation of rights set forth below, a participant is any entity that directly or indirectly participates, has participated, or may participate in an EXIM Bank transaction.
In connection with all EXIM Bank transactions, EXIM Bank reserves the rights set forth below, and by participating in an EXIM Bank transaction, all participants agree to these reservation of rights by EXIM Bank:
1) To take any steps that EXIM Bank deems appropriate if EXIM Bank determines, in its sole discretion, that the participant's due diligence, underwriting, know your customer practices, documentation, or funding and operation on one or more transactions is inadequate.
2) To determine who may participate in any EXIM Bank transaction, directly or indirectly. EXIM Bank specifically reserves the right to refuse to allow any person or entity to participate in an EXIM Bank transaction if: i) EXIM Bank determines that such participant's due diligence, underwriting, know your customer practices, documentation, or funding and operation of a loan, or any other acts or omissions of the participant, undermine the ability of EXIM Bank to arrive at a reliable conclusion that the transaction presents a reasonable assurance of repayment; or, ii) EXIM Bank concludes, in its sole determination, that a participant has not adequately cooperated in an EXIM Bank review of any transaction such that EXIM Bank cannot arrive at a reliable conclusion that transactions in which that participant participates present a reasonable assurance of repayment.
The Cooperation Requirements and the Reservation of Rights above do not change the terms of any EXIM Bank insurance policy or guarantee and does not add any new condition to making a claim under any EXIM Bank insurance policy or guarantee. These standards and requirements do not affect your rights or obligations under law.
FAQs
What is EXIM Bank's new KYC/Due Diligence Standards policy?
As part of EXIM Bank's 2012 reauthorization, Congress directed the Bank to set due diligence standards for partners, participants and policyholders, and to require lenders to implement KYC practices. The new standards and requirements implement Congress's mandate.
Why is there a new policy?
Congress directed this action be taken, as part of EXIM Bank's 2012 reauthorization.
When does the new policy take effect?
The new policy takes effect for all applications received on or after May 30, 2014.
Who does the KYC/Due Diligence Standards policy apply to?
The policy applies to all partners, participants and policyholders that conduct business with EXIM Bank.
How is the new policy different from what EXIM Bank already requires?
In the past, EXIM Bank utilized guidelines with respect to the KYC/due diligence practices of its partners, participants and policyholders.The policy sets due diligence standards for partners, participants and policyholders, and requireslenders to implement KYC practices.
How did EXIM Bank develop this policy?
EXIM Bank worked closely its partners to develop the policy.You or one of your colleagues may have seen or heard about a draft version of this policy as it evolved over the past two years.
What does the new policy require?
In essence, the policy requires that partners, participants and policyholders memorialize and maintain records of their due diligence practices.
Does my institution have to sign a new agreement or fill out a new application with EXIM Bank?
We will not ask you to sign any new forms.We will not ask you to fill out any new applications. The new policy is not intended to require you to do more than what your organization is likely already doing with respect to its KYC/due diligence practices.
What does EXIM Bank want my organization to do?
Please be aware of the policy and ensure the policy is followed by each relevant participant.Share it with your colleagues—particularly your compliance staff.Please ensure that it is being followed at your institution, and that records are kept.
Will EXIM Bank monitor my organization's KYC/due diligence practices?
EXIM Bank's compliance team plans to verify partners', participants' and policyholders' due diligence efforts.
What if my organization's KYC/due diligence practices are not compliant with EXIM Bank's policy?
To the extent EXIM Bank finds that due diligence steps were not memorialized, our ability to conduct business with you may be impacted, and EXIM Bank may take additional, appropriate action.
Who can I contact with questions about the policy?
EXIM Bank's export finance staff members have been informed of the new policy and are prepared to respond to questions from partners, participants and policyholders.Please feel free to reach out to your loan officer.