December 20, 2000 **Conditional Approval #436**

#### January 2001

David H. Baris, Esq.

Kennedy, Baris & Lundy, L.L.P.

Suite P-15

4701 Sangamore Road

Bethesda, Maryland 20816

Dear Mr. Baris:

This is in response to the non-controlling investment proposal
("Proposal") submitted by Hemisphere National Bank, Miami, Florida (the
"Bank") pursuant to 12 CFR § 5.36. The Bank proposes to directly own a
30% minority interest in a Florida corporation, ImportCard.com (the
"Company").[^1] For the reasons discussed below, the Proposal is
approved, subject to the conditions set forth herein.

## *A. Background*

The primary activity of the Company will be to facilitate trade
financing between U.S. exporters and Latin American importers. To that
end, the Company will arrange for, but not fund, financing of Latin
American importers' purchase of goods from the U.S.[^2] The financing
will be arranged without recourse to the exporters through the Bank and
other funding banks.[^3]

The Company will do this by establishing a web site[^4] that will serve
as a means by which it can communicate with exporters, importers, and
others.[^5] To support referred potential credits, the Company will
provide, through its Internet site, a prescreening process for the
credits including an analysis of the creditworthiness of the borrower.
This prescreening analysis will be supplemented by physical delivery of
documents relating to the creditworthiness of the borrower. The Company
will also obtain credit insurance for the import financings.[^6]
Finally, the Company will act as escrow and paying agent when the
exporter and importer request the service.

When fully operational, the Company will have its own staff independent
of the Bank; no bank employees will be involved in the daily operations
of the Company. Initially, Daniel Schwartz (currently serving as the CEO
of the Bank) will be the Chairman and CEO of the Company and Tony Alonso
(currently President and Chairman of the Board of the Bank) will be
President. Following the hiring of management for the Company, Mr.
Schwartz will serve as Outside Chairman of the Board and a member of the
Executive Committee, and Mr. Alonso will serve as Director. Accordingly,
operation and management of the Company should not unduly distract bank
officers or disrupt the operation and management of the Bank.

The Bank has not yet negotiated the operating agreement that will govern
the operation of the Company[^7], but it has represented that the
operating agreement will include a provision limiting the activities of
the Company to those that are part of, or incidental to the business of
banking. Further, the Bank has represented that it will have an
effective veto over any activities of the Company that are not
permissible for a national bank.

## *B. Analysis*

The OCC has traditionally recognized the authority of national banks to
organize and perform any of their lawful activities in a reasonable and
convenient manner not prohibited by law. In interpretive letters, the
OCC has concluded that national banks are legally permitted to make a
non-controlling investment in an enterprise provided four criteria or
standards are met. These standards, which have been distilled from our
previous decisions in the area of permissible non-controlling
investments for national banks and their subsidiaries, are:[^8]

> \(1\) the activities of the enterprise in which the investment is made
> must be limited to activities that are part of or incidental to the
> business of banking (or otherwise authorized for a national bank);

\(2\) the bank must be able to prevent the enterprise or entity from
engaging in activities that do not meet the foregoing standard or be
able to withdraw its investment;

\(3\) the bank's loss exposure must be limited, as a legal and
accounting matter, and the bank must not have open-ended liability for
the obligations of the enterprise; and

> \(4\) the investment must be convenient or useful to the bank in
> carrying out its business and not a mere passive investment unrelated
> to that bank's banking business.

Based upon the facts presented, the proposed acquisition satisfies these
four standards.

1\. The activities of the enterprise in which the investment is made
must be limited to activities that are part of or incidental to the
business of banking (or otherwise authorized for a national bank).

Our precedents on non-controlling ownership have recognized that the
enterprise in which the bank holds an interest must confine its
activities to those that are part of, or incidental to, the business of
banking.[^9] Each of the proposed activities of the Company is part of
the business of banking and, therefore, permissible for national banks
under 12 U.S.C. § 24(Seventh). National banks may, as part of their
banking business, assist customers with obtaining financing.[^10]
National banks may also obtain credit insurance.[^11] As part of its
financial advice and counseling function, a national bank may provide a
prescreening process that includes an analysis of the creditworthiness
of borrowers and delivery of underlying documents.[^12] National banks
may provide escrow services[^13] and act as a paying agent.[^14]
Finally, the Bank may establish a web site to communicate with and
provide these services to exporters and importers. It is well
established that a national bank may use electronic means to perform
services expressly or incidentally authorized to national banks.[^15]

2\. The bank must be able to prevent the enterprise or entity from
engaging in activities that do not meet the foregoing standard or be
able to withdraw its investment.

This is an obvious corollary of the first standard. It is not sufficient
that the entity's activities are permissible at the time a bank
initially acquires its interest; they must also remain permissible for
as long as the bank retains an ownership interest. The Bank represents
that, and the OCC expects that, the Operating Agreement will include
limitations on the Company's activities, limiting its activities to
those that are part of, or incidental to, the business of banking.
Moreover, the Bank represents and the OCC expects that, under the
Operating Agreement, the Bank will have the authority to prevent the
Company from engaging in any activities that are not permissible for a
national bank. Therefore the second standard is satisfied.

3\. The bank's loss exposure must be limited, as a legal and accounting
matter, and the bank must not have open-ended liability for the
obligations of the enterprise.

*a. Loss exposure from a legal standpoint*

A primary concern of the OCC is that national banks should not be
subjected to undue risk. Where an investing bank will not control the
operations of the entity in which the bank holds an interest, it is
important that the national bank's investment not expose it to unlimited
liability. Normally, this is not a concern when a national bank invests
in a corporation, for it is generally accepted that a corporation is an
entity distinct from its shareholders, with its own separate rights and
liabilities, provided proper corporate separateness is maintained.[^16]
This is the case here. The corporate veil of the Company will protect
the Bank from liability or loss associated with its ownership interest
in the Company.[^17]

*b. Loss exposure from an accounting standpoint*

In assessing a national bank's loss exposure as an accounting matter,
the OCC has previously noted that the appropriate accounting treatment
for a bank's 20- to 50-percent ownership share or investment in a
corporate entity is to report it as an unconsolidated entity under the
equity or cost method of accounting. Under the equity method of
accounting, unless the investor has extended a loan to the entity,
guarantee any of its liabilities, or has other financial obligations,
the investor's losses are generally limited to the amount of the
investment shown on the investor's books.[^18] The Bank represents that
it will account for its ownership interests in the Company under the
equity method of accounting.

Therefore, for both legal and accounting purposes, the Bank's potential
loss exposure arising from its investment in the Company should be
limited to the amount of the investment. Since that exposure will be
quantifiable and controllable, the third standard is satisfied.

> *4. The investment must be convenient or useful to the bank in
> carrying out its business and not a mere passive investment unrelated
> to that bank's banking business.*

A national bank's investment in an enterprise or entity that is not a
subsidiary of the bank must also satisfy the requirement that the
investment have a beneficial connection to the bank's business, *i.e.*,
be convenient or useful to the investing bank's business activities, and
not constitute a mere passive investment unrelated to that bank's
banking business. Twelve U.S.C.

§ 24(Seventh) gives national banks incidental powers that are
"necessary" to carry on the business of banking. "Necessary" has been
judicially construed to mean "convenient or useful."[^19] Our precedents
on bank non-controlling investments have indicated that the investment
must be convenient or useful to the bank in conducting *that bank's*
business. The investment must benefit or facilitate that business and
cannot be a mere passive or speculative investment.[^20]

The Bank's investment meets this requirement. The Bank's investment in
the Company is an integral part of the Bank's export financing business
plan. The Bank has successfully booked over \$60 million of short-term
loans to finance the export of goods to Latin America over the past two
years. By investing in the Company, the Bank will be extending the
breadth and extent of its export financing product by allowing it to
reach a broader customer base and offering through the Company other
services related to the financing of export transactions. Because the
investment is useful to the further development of the Bank's export
financing business, the fourth standard is satisfied.

### C. Conclusion

Based upon the information and representations provided, and for the
reasons discussed above, we conclude that the Bank may acquire and hold
a non-controlling equity interest in the Company, in the manner and as
described herein, subject to the following conditions:

\(1\) the Company will engage only in activities that are permissible
for a national bank;

\(2\) the Bank will have veto power over any activities and major
decisions of the Company that are inconsistent with condition (1) above,
or will dispose of its interest in the Company in the event that it
engages in an activity that is inconsistent with condition (1);

\(3\) the Bank will account for its investment in the Company under the
equity method of accounting; and,

\(4\) the Company will be subject to OCC supervision and examination,
subject to the limitations and requirements of 12 U.S.C. § 1831v.

Please be advised that the conditions of this approval are deemed to be
"condition(s) imposed in writing by the agency in connection with the
granting of any application or other request" within the meaning of 12
U.S.C. § 1818, and, as such, may be enforced in proceedings under
applicable law.

If you have any questions, please contact Steven Key, Senior Attorney,
Bank Activities and Structure at 202-874-5300, or Robert Sihler, Senior
Licensing Analyst, Licensing Department at 202-874-5060.

Sincerely,

**-signed-**

Julie L. Williams

First Senior Deputy Comptroller

and Chief Counsel

Application Control Number: 2000-SE-08-0036

[^1]: The Company will be a Florida corporation. It is contemplated that
    IFX, an Internet service provider listed on NASDAQ with significant
    presence in Latin America, or some of its shareholders will hold a
    30 percent interest in the Company. Accredited investors in the Bank
    will hold an additional 30 percent. Finally, Daniel Schwartz, CEO of
    the Bank and an accredited investor, will own 10 percent of the
    Company.

[^2]: Initially, the Company will focus on importing businesses based in
    Latin America. However, later in the development of the Company's
    business, the Company may focus on import businesses in other parts
    of the world. Since the Company will engage in business with
    entities located outside the United States, OCC expects that the
    Company will review compliance issues regarding host country laws
    and will comply with host country laws and regulations.

[^3]: The Bank will engage in an independent evaluation of whether to
    fund potential credits referred to the Bank by the Company. This
    evaluation will be based upon the Bank's credit standards,
    procedures, and policies. During the first year, the Bank expects to
    finance loans not in excess of \$50 million in trade financing
    guaranteed by Export-Import Bank, including financing extended as a
    result of referrals from the Company. During the second year, the
    Bank anticipates that it will fund not in excess of \$70 million in
    such trade financing.

[^4]: The Company will enter into a service agreement with Eras JV under
    which Eras JV will provide the Company software and advisory
    services for the Company\'s web site. The Company's contract with
    Eras JV should stipulate that these services are subject to OCC
    supervision and examination. The Bank will provide OCC with a copy
    of the service agreement to review before it is signed. The Bank
    represented that it has retained a consultant to develop its
    Internet banking policies and procedures, to be consistent with the
    OCC's guidance on Internet banking, and will do the same for the
    Company. The consultant will also review the Bank's and the
    Company's vendor service agreements to ensure that the agreements
    conform with the FFIEC's guidance on "Risk Management of Outsourced
    Technology Services" and OCC's related Advisory Letter 2000-12. In
    the future, if services will be provided to the Company, directly or
    indirectly, by another vendor, domestic or foreign, the Bank will
    notify the OCC in advance of the service contract being signed.

[^5]: The Company also expects that it will facilitate the availability
    of the financing product through third party B2B (business to
    business) Internet portals and that it will market its services
    through a variety of vehicles with the assistance of IFX. Bank
    commits that such activities will be in compliance with existing and
    future OCC guidance with respect to these activities.

[^6]: The Bank expects that most of this insurance will be provided by
    the Export-Import Bank.

[^7]: The Bank will provide OCC with a copy of the operating agreement
    to review before it is signed.

[^8]: *See* Interpretive Letter No. 890, *reprinted in* \[Current
    Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 81-409 (May 15,
    2000); Interpretive Letter No. 697, *reprinted in* \[1995 - 1996
    Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 81,012 (Nov. 15,
    1995); Interpretive Letter No. 694, *reprinted in* \[1995 - 1996
    Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 81,009 (Dec. 13,
    1995); Interpretive Letter No. 692, *reprinted in* \[1995 - 1996
    Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 81,007 (Nov. 1,
    1995).

[^9]: *See, e.g.*, Interpretive Letter No. 380, *reprinted in*
    \[1988-1989 Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 85,604
    n.8 (Dec. 29, 1986) (since a national bank can provide options
    clearing services to customers it can purchase stock in a
    corporation providing options clearing services); Letter from Robert
    B. Serino, Deputy Chief Counsel (Nov. 9, 1992) (unpublished) (since
    the operation of an ATM network is "a fundamental part of the basic
    business of banking," an equity investment in a corporation
    operating such a network is permissible).

[^10]: *See, e.g.*, Interpretive Letter No. 463, *reprinted in*
    \[1988-1989 Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 85,687
    (December 27, 1988) (subsidiary may assist bank customers in
    obtaining financing); Interpretive Letter No. 271, *reprinted in*
    \[1983-84 Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 85,435
    (September 21, 1983) (national banks have traditionally arranged
    financing transactions); Letter from Gail W. Pohn, Director, Bank
    Organization and Structure Division (November 3, 1975) (unpublished)
    (usual and recognized function of a bank to finance a credit as a
    lender or arrange for the entire credit to be extended by another
    financial institution).

[^11]: *See, e.g.*, Interpretive Letter No. 38, *reprinted in*
    \[1978-1978 Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 85,113
    (April 25, 1978).

[^12]: *See, e.g.*, Letter from David Barris, Regional Counsel (April 7,
    1982) (unpublished) (financial counseling includes provision of
    credit analysis); Letter from Richard V. Fitzgerald, Director, Legal
    Advisory Services Division (April 5, 1978) (unpublished) (supplying
    financial information and analysis is part of a bank's financial
    advice and counseling role).

[^13]: *See, e.g.*, Conditional Approval No. 267 (January 12, 1998)
    (electronic encryption key escrow services are part of the business
    of banking); Letter from Thomas G. DeShazo, Deputy Comptroller of
    the Currency (May 6, 1968) (unpublished) (national banks may provide
    escrow services).

[^14]: *See, e.g.*, Interpretive Letter No. 752, *reprinted in*
    \[1996-1997 Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 81-117
    (September 26, 1996) (acting as paying agent is traditional banking
    activity); Letter from James J. Saxon, Comptroller of the Currency
    (July 22, 1965) (unpublished) (same).

[^15]: "A national bank may perform, provide, or deliver through
    electronic means and facilities any activity, function, product, or
    service that it is otherwise authorized to perform, provide or
    deliver." 61 Fed. Reg. 4849 (1996) codified at 12 C.F.R. § 7.1019.
    *See also* Interpretive Letter No. 742, *reprinted in* \[1996-1997
    Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 81-106 (June 28,
    1995); Interpretive Letter No. 449, *reprinted in* \[1988-1989
    Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 85,673 (Aug. 23,
    1988).

[^16]: 1 W. Fletcher, Cyclopedia of the Law of Private Corporations § 25
    (rev. perm. ed. 1990).

[^17]: Fla. Stat. Ann. § 607.0622 (West 1999).

[^18]: *See generally* Accounting Principles Board, Op. 18 ¶ 19 (1971).

[^19]: *See Arnold Tours, Inc. v. Camp*, 472 F.2d 427, 432 (1st Cir.
    1972).

[^20]: *See, e.g.*, Interpretive Letter No. 875, *supra*; Interpretive
    Letter No. 543, *reprinted in* \[1990-1991 Transfer Binder\] Fed.
    Banking L. Rep. (CCH) ¶ 83,255 (Feb. 13, 1991); Interpretive Letter
    No. 427, *reprinted in* \[1988-1989 Transfer Binder\] Fed. Banking
    L. Rep. (CCH) ¶ 85,651 (May 9, 1988); Interpretive Letter No. 421,
    *reprinted in* \[1988-1989 Transfer Binder\] Fed. Banking L. Rep.
    (CCH) ¶ 85,645 (Mar. 14, 1988); Interpretive Letter No. 380,
    *supra.*