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97–334 PDF 2015

EXAMINING FRAUD, WASTE, AND ABUSE AT THE 

EXPORT–IMPORT BANK 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE, 

BENEFITS AND ADMINISTRATIVE RULES 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

JUNE 11, 2015 

Serial No. 114–46 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 


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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

JASON CHAFFETZ, Utah, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

JIM JORDAN, Ohio 

TIM WALBERG, Michigan 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

CYNTHIA M. LUMMIS, Wyoming 

THOMAS MASSIE, Kentucky 

MARK MEADOWS, North Carolina 

RON DESANTIS, Florida 

MICK MULVANEY, South Carolina 

KEN BUCK, Colorado 

MARK WALKER, North Carolina 

ROD BLUM, Iowa 

JODY B. HICE, Georgia 

STEVE RUSSELL, Oklahoma 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

GLENN GROTHMAN, Wisconsin 

WILL HURD, Texas 

GARY J. PALMER, Alabama 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MATT CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

BRENDA L. LAWRENCE, Michigan 

TED LIEU, California 

BONNIE WATSON COLEMAN, New Jersey 

STACEY E. PLASKETT, Virgin Islands 

MARK DeSAULNIER, California 

BRENDAN F. BOYLE, Pennsylvania 

PETER WELCH, Vermont 

MICHELLE LUJAN GRISHAM, New Mexico 

SEAN MCLAUGHLIN, Staff Director 

DAVID RAPALLO, Minority Staff Director 

SARAH VANCE, Clerk 


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SUBCOMMITTEE ON HEALTH CARE, BENEFITS AND ADMINISTRATIVE RULES

JIM JORDAN, JR., Ohio, Chairman 

TIM WALBERG, Michigan, 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

CYNTHIA M. LUMMIS, Wyoming 

MARK MEADOWS, North Carolina 

RON DESANTIS, Florida 

MICK MULVANEY, South Carolina Vice 

Chair 

MARK WALKER, North Carolina 

JODY B, HICE, Georgia 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

MATT CARTWRIGHT, Pennsylvania, 

Ranking Member 

ELEANOR HOLMES NORTON, Distict of 

Columbia 

BONNIE WATSON COLEMAN, New Jersey 

MARK DESAULNIER, California 

BRENDAN F. BOYLE, Pennsylvania 

JIM COOPER, Tennessee 

MICHELLE LUJAN GRISHAM, New Mexico 

Vacancy 


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C O N T E N T S 

Page 

Hearing held on June 11, 2015 ............................................................................... 1 

WITNESSES 

Mr. Michael T. McCarthy, Deputy Inspector General, Export-Import Bank 

of the U.S 

Oral Statement ................................................................................................. 4 

Written Statement ............................................................................................ 6 

APPENDIX 

Email from Brendan Rudd on June 27, 2014 Regarding Allegations ................. 38 

Letter from Michael T. McCarthy to Chairman Jim Jordan ............................... 43 


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EXAMINING FRAUD, WASTE, AND ABUSE AT 

THE EXPORT–IMPORT BANK 

Thursday, June 11, 2015 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH CARE, BENEFITS AND

ADMINISTRATIVE RULES

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, D.C. 

The subcommittee met, pursuant to call, at 1:00 p.m., in Room 

2154, Rayburn House Office Building, Hon. Jim Jordan [chairman 

of the subcommittee] presiding. 

Present: Representatives Jordan, Walberg, DesJarlais, Meadows, 

Mulvaney, Walker, Hice, Carter, Chaffetz, Cartwright, Norton, and 

DeSaulnier. 

Mr. JORDAN. The committee will come to order. 

We will start with opening statements like we do, swear the witness in, and then get right to testimony and questions. 

Today’s hearing continues the committee’s important work examining the Export-Import Bank. In just 19 days, the Bank’s charter 

is set to expire. When this happens, the sky will not fall; seas will 

not rise. In fact, in my view and the view of many economists, 

quite the opposite will happen. The expiration of the Bank’s charter 

will mean that companies doing business overseas will reorient 

themselves away from Washington and toward market signals. The 

Bank’s absence will make our economy stronger. 

Besides the economic rationale, there are also serious problems 

with the manner in which the Bank has operated that make its 

continued existence untenable. 

In just the past couple months, one former Export-Import Bank loan officer was indicted and pled guilty for accepting over $78,000 

in bribes, and we learned that the Inspector General’s Office, who 

we have with us today, has dozens of other investigations open that 

may yield more indictments. 

Over its history, the Bank has been plagued by scandal and systemic corruption. Many people forgot—excuse me—forget that the 

$90,000 in cash found in former Representative William Jefferson’s 

freezer related directly to a bribe taken to help a company secure 

financing from the Export-Import Bank. 

Recently another scandal has emerged. NewSat, an Australian 

satellite company that received over $300 million in direct loans 

from Ex-Im, defaulted on its payments and declared bankruptcy. It 

is now clear that there were significant problems at NewSat. Had 

the Bank done proper due diligence, it almost certainly would have 

been aware of these issues before putting taxpayer dollars at risk. 


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Even more troubling is that NewSat’s disgraced CEO appears to 

have had a cozy relationship with Ex-Im Chairman Hochberg. 

These kinds of revelations have become all too common at the 

Export-Import Bank, and it is another reason that I am glad it appears my colleagues will finally let the Bank expire. 

This is a no-brainer for Congress. Like ending earmarks after the 

bridge to nowhere, the problems at the Bank are so awful that they 

should be a wake-up call not just about Ex-Im but about the problems with corporate welfare across the Federal Government. 

At the end of June, the Bank will not fire all of its employees. 

It will not lock its doors. Won’t board up its windows. The Bank 

will be allowed to continue servicing existing loans and go through 

an orderly wind-down. The stories of calamity are overstated, and 

no one outside of the few major corporations benefiting from its finance will even notice. Many will make a push to revive the Bank 

after its charter lapses, but much like Dr. Frankenstein and his 

monster, the world would be much better off letting the Bank remain dead after it expires at the end of the month. 

It’s now time to show the Bank the door. The chairmen of all the 

relevant committees, Chairman Ryan of Ways and Means, Chairman Chaffetz at Oversight, Chairman Price with Budget, and 

Chairman Hensarling at Financial Services, support ending the 

Bank. Majority Leader McCarthy, Majority Whip Scalise have both 

expressed opposition publicly. And as I mentioned at our last hearing, the best part about this is that all we need to do is nothing. 

Something the American people think Congress is pretty darn good 

at. 

And, with that, I’d yield to the ranking member, gentleman from 

Pennsylvania. 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. 

And welcome to our witness this afternoon. I look forward to 

your testimony. 

Here we are again for another hearing on the Export-Import 

Bank, this time to examine the Bank’s efforts in dealing with 

waste, fraud, and abuse. There are, as the chairman mentioned, 

nine legislative days left until the Bank’s charter expires. This is 

nine legislative days before the country stands to start to lose the 

billions of dollars of exports that Ex-Im Bank is responsible for; 

nine legislative days before we start to jeopardize the hundreds of 

thousands of American jobs that the work of this Bank supports; 

nine legislative days before the shutdown crowd gets their way and 

closes an institution with a default rate of only 0.0167 percent as 

of this March, an institution that returns money to the United 

States Treasury, so something taxpayers ought to cheer and applaud and be proud of, not shut down. 

When I look at the Bank, I see a patriotic institution. An institution that supports American-made products and American jobs. 

The kind of things that we ought to be proud of. 

You know, earlier this week, I had the pleasure of speaking with 

Mr. Bill Weller. Bill Weller is the vice president of marketing and 

sales of Space Systems/Loral, also known as SSL. SSL is a world 

leader in commercial GEO satellites, and they have more communications capacity in orbit than any other manufacturer in the 

world. We ought to be proud of SSL. They employ approximately 


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2,800 people domestically building satellites for companies such as 

Dish Network and DirecTV. SSL has customers in 15 countries, 

and their exports account for 60 percent of their sales. 

But SSL faces stiff competition from manufacturers in France, 

China, Israel, and Japan. Companies in those countries compete 

with SSL using attractive government financing terms. And to simply help level the playing field, SSL works with the Ex-Im Bank 

to obtain crucial financing and guaranties. Without the Bank’s financing, SSL would lose contracts to our foreign competitors and 

be forced to cut their work force. It’s not just SSL, remember, that 

benefits. It’s the over 1,600 U.S. suppliers in 47 States that benefit 

from it. 

Given all of this, I ask: When are we going to start to be proud 

of the efforts and the work of the Ex-Im Bank. 

Many of my friends on the other side of the aisle contend that 

the Bank is rife with fraud and corruption, and in his semiannual 

report to Congress, Deputy Inspector General Mike McCarthy identified 31 cases of fraud, waste, or abuse that his office was investigating. And, Mr. McCarthy, I think you’ll reaffirm that only three 

of those involve allegations of employee misconduct. 

To quote Fred Hochberg, chairman and president of the Bank, 

who testified repeatedly before this committee and testified before 

the Financial Services Committee on June 3, ‘‘There will always be 

outsiders who attempt to defraud the government.’’ How agencies 

respond to those attempts is what we should be focusing on. The 

Bank has responded quite well. 

In addition, it’s clear from the deputy IG’s report that the Bank 

has fully cooperated with the IG’s Office in rooting out cases of employee and outside misconduct and is dealing with these individuals appropriately. The report also cites a number of instances of 

investigative successes. Moreover, there has been only one indictment of a Bank employee. The other incidents were dealt with by 

administrative action or found to be groundless. Exactly how the 

system ought to work. 

Now, there are always instances of waste, fraud, and abuse in 

government. In fact, the United States Army is rife with waste, 

fraud, and abuse. So are all of our armed services, and they always 

have been. But that’s not a reason to shut them down. We’re proud 

of our Army. We’re proud of our Navy. And we’ll continue to combat waste, fraud, and abuse that will always be there. But they’re 

not reasons to shut down the operation. 

We have nine legislative days to renew the Bank’s charter. And 

we shouldn’t be wasting this time playing political and ideological 

games. I hope today’s hearing will highlight the good work the 

Bank does in assisting businesses, will resolve any questions concerning the IG’s report, and provide additional support for this 

Bank’s continuing reauthorization. 

It’s time at long last, Mr. Chairman, that we are proud of American exports and the help that the Ex-Im Bank assists in those exports. 

Thank you, Mr. Chairman, and I yield back. 

Mr. JORDAN. I thank the gentleman. 

We’ll hold the record open for 5 legislative days for any member 

or members who would like to submit a written statement. 


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Without objection, the chair is authorized to declare a recess at 

any time. 

We now turn to our witness. Again, Mr. McCarthy, thank you. 

This is the second time I think in front of the Oversight Committee 

on this issue you have been here. We appreciate you coming back. 

So I’m pleased to welcome Mr. Michael McCarthy, who is currently acting inspector general of the Export-Import Bank of the 

United States. 

And you know how this works, Mr. McCarthy. You have 5 minutes for your testimony, and we look forward to that, and then we’ll 

get right to questions. Gentleman is recognized. 

Oh, we got to swear you in. Yeah. Forgot. We always do that. 

Please stand and raise your right hand. Thank you. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth, so help you God? 

Let the record reflect that the gentleman answered in the affirmative. 

You got 5 minutes, Mr. McCarthy, and you’re recognized, 

WITNESS STATEMENT 

STATEMENT OF MICHAEL T. MCCARTHY 

Mr. MCCARTHY. Well, thank you, Chairman Jordan, Ranking 

Member Cartwright, and members of the subcommittee. I’m 

pleased to be back here to discuss the work of the Ex-Im Bank Office of Inspector General. 

The committee already has my written testimony, which highlights the work that our professional auditors, inspectors, and special agents have done to promote efficiency and detect and deter 

fraud at Ex-Im Bank. 

The committee has asked me to discuss instances of fraud, waste, 

and abuse at the Bank, and steps taken to address deficiencies in 

management and internal controls. 

So let me briefly cover a few highlights. 

Since 2009, OIG investigations into fraud schemes that target 

Ex-Im Bank have yielded 84 criminal indictments and informations, 50 convictions, and $255 million in judgments and repayments. The most common fraud schemes that we have encountered 

involve outside parties obtaining loans or guarantees through false 

representations and submissions of false documents. 

We work closely with the Bank’s Asset Management Division, 

which makes referrals of transactions or claims with indicators of 

fraud. We currently have 29 open investigations, and nearly all of 

them address persons committing fraud against the Bank and have 

no indication of Ex-Im employee involvement. 

However, as the chairman and ranking member noted, one of 

those fraud cases involves former Ex-Im loan officer Johnny Gutierrez, who pleaded guilty to one count of bribery of a public official. 

Mr. Gutierrez admitted accepting more than $78,000 in bribes in 

return for recommending the approval of unqualified loan applications to the Bank, among other misconduct. This case remains an 

active fraud investigation as to other parties. 


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We have closed other employee integrity cases in the past year 

that led to findings of misconduct and personnel being separated 

from employment at the Bank but no criminal charges. 

As I have previously testified, our open investigations are at various stages, and working with the Department of Justice, some of 

those cases may result in more prosecutions for bank fraud and 

money laundering. At this time, I would not expect charges against 

any Ex-Im Bank employees from our current caseload. 

As to our recommendations from audits and inspections, we have 

48 open and unresolved recommendations; 24 from the current fiscal year and 24 from prior fiscal years. 

The written testimony summarizes recent audit work on internal 

controls. Our independent audit of the Bank’s financial statements 

found that they were fairly presented in all material respects and 

had no material weaknesses. Our audits also found substantial 

compliance with the cybersecurity requirements of FISMA and that 

internal controls for the short-term multibuyer insurance program 

provided reasonable assurance of compliance. 

A recent annual audit found noncompliance with the Improper 

Payments Act, and we recommended changes to the risk-assessment process which the Bank is implementing. And the required 

risk assessment of the purchase card and travel card programs at 

the Bank found them to be low risk. 

Every year, we review our work and identify the top management challenges facing the Bank. Last fall, the OIG reported that 

the top challenge was managing risk, specifically managing the 

Bank’s core business activities to reduce the risk of loss to the 

Treasury and, by extension, the taxpayer. To manage that risk, we 

have recommended the Bank design an agencywide risk management framework so that in addition to rating the risk of any individual transaction, the Bank is also evaluating and mitigating the 

risks generated by the overall composition of the portfolio and any 

outsized exposures the Bank has in certain regions, industry sectors, or single companies. To accomplish this, we have recommended a chief risk officer which the Bank has established. The 

Bank has also conducted stress testing and monitoring of exposure 

levels. 

We hope the Bank will build on these steps by developing and 

implementing key risk policies covering both credit and noncredit 

risks. 

We have also recommended improvements to due diligence and 

know-your-customer policies, and the Bank has deployed improvements in those areas. 

Finally, we have previously reported that internal policies providing clear guidance to staff had not been prevalent at Ex-Im 

Bank. So we recommended that the Bank rely more on clear policies, controls, and documentation and less on institutional knowledge. Many of our recommendations have been for specific internal 

control policies, which the Bank is working on implementing. 

Mr. Chairman, this concludes my statement. I’m happy to answer the members’ questions. 

[Prepared statement of Mr. McCarthy follows:] 


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Mr. JORDAN. I thank the gentleman. 

We now recognize the gentleman from South Carolina, Mr. 

Mulvaney. 

Mr. MULVANEY. Thank you, Mr. Chairman. 

Thank you, Mr. McCarthy, for coming back again. 

I want to focus on—move away a little bit from the waste, fraud, 

and abuse part of the hearing and more on the deficiencies in management, if any, for the internal controls that—you’ve been here a 

couple times before, and I think you’ve either been on panels or 

were here when we had discussions regarding the 2012 reauthorization bill. And I want to focus for a few minutes on one part of 

the 2012 reauthorization bill, which was a—which required the 

Bank to start taking steps to get out of the long-haul aircraft business. 

Are you familiar with those reforms, sir, from the 2012 act? 

Mr. MCCARTHY. I’m familiar with those provisions, yes. 

Mr. MULVANEY. And let me just ask you, have you had a chance 

to investigate whether or not steps are being taken in order to 

bring the Bank into compliance with the 2012 law? 

Mr. MCCARTHY. So that portion of the 2012 reauthorization, that 

was a responsibility to assign to the Secretary of the Treasury. So 

we—our office within Ex-Im Bank wouldn’t necessarily have jurisdiction. So I—we haven’t done specific work in that area. 

Mr. MULVANEY. Does it ever come up? 

Mr. MCCARTHY. Not in the work that we’ve been doing. 

Mr. MULVANEY. Okay. So you’ve not had a chance to talk to Mr. 

Hochberg about it. 

Mr. MCCARTHY. Just to the extent that—the same information 

you’ve received. 

Mr. MULVANEY. The 2012 reform is essentially—are you familiar, 

Mr. McCarthy, with the home market rule? 

Mr. MCCARTHY. No. I’m not. 

Mr. MULVANEY. It’s a gentlemen’s agreement between the American Export-Import Bank and the European export credit facilities—— 

Mr. MCCARTHY. Regarding aircraft. 

Mr. MULVANEY. Sorry? 

Mr. MCCARTHY. Regarding aircraft. 

Mr. MULVANEY. Regarding aircraft. You are familiar it, then, a 

little bit? 

Mr. MCCARTHY. Yes. 

Mr. MULVANEY. It strikes me that the 2012 reforms are very 

similar to that, or at least not similar, an extension of that. Right 

now, there’s an agreement, for folks who aren’t familiar with it, 

there’s an agreement, a gentlemen’s agreement, ladies’ agreement, 

between Ex-Im and the European export credit facilities that we 

won’t offer export/import financing to British, French and German 

air carriers for airplanes, and the European facilities won’t offer it 

to American carriers. 

Is that your basic understanding, Mr. McCarthy, of the—— 

Mr. MCCARTHY. That’s my understanding. Yes. 

Mr. MULVANEY. Okay. So I guess my question to you is this: In 

your work, have you seen any erosion of that home market rule in 

the last couple of years? 


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Mr. MCCARTHY. I don’t believe that we’ve looked into that or 

seen that in the aircraft sector. 

Mr. MULVANEY. What other sector would there be? 

Mr. MCCARTHY. Well, so is the question, is that being expanded 

to other sectors? 

Mr. MULVANEY. No. My question is, is it still in place? Are you 

still seeing it respected? I guess what I’m getting at is have you 

seen any circumstances where we’ve used Export-Import financing 

to allow British, French, or German air carriers to buy Americanmade airplanes? 

Mr. MCCARTHY. Well, I don’t think we’ve looked at that specifically, but I’m not aware of any. 

Mr. MULVANEY. Okay. And I guess you would be aware of it if 

it happened. Right? 

Mr. MCCARTHY. I would hope so. 

Mr. MULVANEY. Yeah. Any examples, Mr. McCarthy, of British, 

French, or German airlines—excuse me—of American airlines receiving European export credit facility assistance in buying Airbus 

airplanes? 

Mr. MCCARTHY. Not that I’m aware of. 

Mr. MULVANEY. Okay. So, to the best of your knowledge, there’s 

been no erosion in that home market rule in the last couple years? 

Mr. MCCARTHY. To the best of my knowledge. 

Mr. MULVANEY. Okay. 

I’ve got some more questions, Mr. Chairman, but I won’t be able 

to get to them in 2 minutes. I hope maybe we’ll stick around. 

Thank you very much, Mr. McCarthy. 

Mr. JORDAN. With that, I recognize the ranking member. 

Mr. CARTWRIGHT. Well, thank you, Mr. Chairman. 

Mr. McCarthy, according to your most recent semiannual report, 

in addition to trainings and briefings with the Ex-Im Bank, your 

office also conducted briefings on fraud scenarios and money-laundering patterns for private sector banks ranging from the Royal 

Bank of Scotland right on down to JPMorgan Chase. Am I correct 

in that? 

Mr. MCCARTHY. That’s correct. 

Mr. CARTWRIGHT. So would you agree with me that fraud is an 

industrywide problem in banking, not just one that is unique to the 

Export-Import Bank of the United States. Right? 

Mr. MCCARTHY. I would agree with that. The frauds that we see 

are often when we have transactions that involve the private sector 

and the Ex-Im Bank. Both are being defrauded at the same time. 

Mr. CARTWRIGHT. Okay. In fact, isn’t it true that in a number of 

your fraud investigations, it’s not just Ex-Im Bank that’s defrauded, but it’s also commercial banks that are defrauded hand in 

hand? 

Mr. MCCARTHY. Yes. That’s correct. Especially in these guaranty 

programs where there is a commercial bank making a loan and ExIm guaranteeing, both will be the targets of the fraud. 

Mr. CARTWRIGHT. Okay. So it would seem, then, that the only 

sure-fire way for any bank, not just the Export-Import Bank, to obtain a zero-percent fraud rate on any loan would be to stop lending 

money. Is that it? 


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Mr. MCCARTHY. Well, the goal is always to minimize fraud. Getting it all the way to zero is a challenge for everybody. 

Mr. CARTWRIGHT. Okay. Well, since I really can’t imagine members of our committee wanting to end the banking industry as we 

know it, I would like briefly to examine with you how successful 

this Bank has been at detecting and decreasing fraud. 

First, are you familiar with the Bank’s medium-term program? 

Mr. MCCARTHY. Yes. 

Mr. CARTWRIGHT. And could you briefly describe what that is? 

Mr. MCCARTHY. Well, in 2009, when the OIG started its law enforcement operations, one of the key areas we focused on was the 

medium-term program, which had a much higher fraud rate and a 

much higher loss rate than the Bank’s other programs. So when we 

started looking into that, we found a fairly high fraud rate in there, 

and a lot of our investigations stemmed from that program. And at 

that point in time in 2009, I think that program was experiencing 

somewhat close to $100 million in claims filed every year. We had 

an audit report that we issued that found deficiencies in internal 

controls, and we also investigated the fraud cases that resulted 

from those deficiencies. 

Mr. CARTWRIGHT. Okay. Now, in fiscal year 2009, this program paid out $100 million in fraudulent claims. Is that correct? 

Mr. MCCARTHY. It paid $100 million in claims. Not all of them 

were due to fraud. 

Mr. CARTWRIGHT. Okay. And now, as a result of that number, 

your offices became very involved in attempting to address the high 

fraud rates in the medium-term program. Am I correct in that? 

Mr. MCCARTHY. Yes. That’s correct. 

Mr. CARTWRIGHT. Now, fast forward to fiscal year 2012. The 

number of fraudulent claims in the medium-term program had declined to approximately $15 million. Am I correct in that? 

Mr. MCCARTHY. I believe that’s the number we reported. The 

number of claims, not all of them. Again, not all of them were due 

to fraud. 

Mr. CARTWRIGHT. And that number dropped again in fiscal year 2013 down to $9 million. Am I correct in that? 

Mr. MCCARTHY. Yes. I believe that’s correct. 

Mr. CARTWRIGHT. All right. And for fiscal year 2014, the number dropped yet again to $6 million. Am I correct in that? 

Mr. MCCARTHY. Yes. That’s correct. 

Mr. CARTWRIGHT. So please feel free to correct my arithmetic, but 

I believe that with respect to the medium-term program, that’s a 

decrease in the fraud rate of 94 percent in the past 5 years. Am 

I correct in that? 

Mr. MCCARTHY. It’s a decrease in the claims, right, in that program. 

Mr. CARTWRIGHT. So, based on these numbers, it would seem 

that anybody who characterizes this Bank as one that does not 

take fraud seriously is simply not paying attention. 

I also want to address with you individual failings—instances of 

failures of Bank customers to repay their loans. All of those, no 

matter where they are or no matter how much money they failed 

to pay back, all of those are included in the default rate. Am I correct in that? 


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Mr. MCCARTHY. Yes. That’s correct. 

Mr. CARTWRIGHT. So that any company that defaults, you can 

talk about how much they defaulted on. That’s all already built in 

and included in the Bank’s default rate. Right? 

Mr. MCCARTHY. That’s right. In the loss rate that the Bank reports. 

Mr. CARTWRIGHT. And am I correct when I say, as of March this 

year, that default rate was 0.0167 percent? 

Mr. MCCARTHY. Yes. That’s the default rate that’s reported 

under the methodology the Congress put in place in the 2012 reauthorization. 

Mr. CARTWRIGHT. Thank you, Mr. McCarthy. 

I yield back. 

Mr. JORDAN. I thank the gentleman. 

We have got votes on the floor. So we’re going to do one more 

round with the gentleman from Michigan. We’ll do 5 minutes. 

And then, Mr. McCarthy, we’ll have to take a recess, and we’ll 

be back. But it should be a fairly long vote series. It may be 45 

minutes to an hour, and I apologize, but nothing we can do about 

it. 

Mr. Walberg’s recognized. 

Mr. WALBERG. Thank you, Mr. Chairman. 

And thank you, Mr. McCarthy, for being here. 

Mr. McCarthy, according to your latest semiannual report, of the 

139 recommendations issued by your office in the past few years, 

48—over one-third—remain open or unresolved, if my records are 

accurate. Some of those open items go back to 2010. Can you tell 

us why the Bank still has not closed these recommendations that 

you’ve given? 

Mr. MCCARTHY. I can’t specifically speak to why the Bank hasn’t 

closed all the recommendations. We’ve been working with them to 

try to close out more recommendations, and we’ve made some 

progress in the past. 

In my opening statement, I divided that 48 into recommendations that were issued in the current fiscal year, which are half of 

them, and recommendations that were issued in prior fiscal years. 

For the current fiscal year, things take time, policies need to be 

put in place, et cetera. So there’s going to be some lag time. 

The ones that you identified, ones from 2010, 2010 to 2014, we 

would like to see more progress made on those recommendations. 

Mr. WALBERG. So it’s not good enough, at least with those items, 

for them to still be working? 

Mr. MCCARTHY. Well, on those, we have back and forth on the 

recommendations at some times. On some of them, they’ve given us 

interim steps that they’ve taken, and we requested more information. Some of them we think we’re closer on resolving, that they’ve 

actually taken action on. Others that we’re not satisfied that 

they’ve implemented those recommendations that they’ve agreed to 

implement. 

Mr. WALBERG. Have any of those open recommendations at least 

given rise to potential increased fraud or abuse? 

Mr. MCCARTHY. I think in general our recommendations are designed to improve the internal control environment so that when 

they’re put in place, there’ll be less risk at the Bank. 


AKING-6430 with DISTILLER
19 

Mr. WALBERG. In the first of our series of hearings with the 

Bank, Mr. Hochberg told the committee that he was completely unaware of reports that nearly $2 million of Export-Import loans intended to bring electricity to 1,200 communities in Ghana was instead used to buy luxury automobiles, foreign government officials. 

Are you aware of that transaction? 

Mr. MCCARTHY. I’m aware of some of the press reports on that 

transaction. We did do some work in Ghana that was published in 

the report. We did not cover that specific transaction in that report, 

but it’s something that we’re aware of. 

Mr. WALBERG. Have you—are you planning on following up and 

reviewing that transaction? 

Mr. MCCARTHY. We’re looking into it. We’re looking into it, but 

I don’t have additional information at this time. It’s something that 

caught our attention as well, those reports. 

Mr. WALBERG. So, at this point, you can’t explain as to why taxpayer funds were used to purchase 38 luxury vehicles, including 

Lexus SUVs and Chrysler 300s, one of which my wife would enjoy 

having because she’s told me. 

I guess the question would be, does this type of abuse warrant 

aggressive oversight from your office? 

Mr. MCCARTHY. It’s something that we’re aware of and something that we’re looking into. 

Generally, one of the recommendations that we’ve made across a 

number of our reports is that the Bank should improve monitoring 

of how funds are being disbursed, and once the transactions are approved and originated and underwritten, that’s one step in the 

process. But then there’s another step in the process. And once 

things are in the approval pipeline, there needs to be monitoring 

of what exactly the funds are being used for. 

Mr. WALBERG. So it is difficult to monitor the disbursement of 

the moneys and where they go once they are disbursed? 

Mr. MCCARTHY. Well, once the funds are disbursed, the Bank 

needs to continue monitoring to make sure that the items that are 

purchased are appropriate, that it’s supporting U.S. exports. 

Mr. WALBERG. But you’ve given them recommendations on how 

they can upgrade their ability to monitor? 

Mr. MCCARTHY. Yes. We’ve made some specific recommendations 

on monitoring, and we’ve also recommended they increase the resources—the human resources that are assigned to that function, 

and they have done so. They’re adding personnel in that area. 

Mr. WALBERG. How do they work it now? What tools do they use 

in monitoring and following up, especially with foreign countries? 

Mr. MCCARTHY. Well, there’s a number of different tools. There 

are generally reporting requirements in these transactions. So 

making sure that those reports are coming in when they’re due. 

Reading them, reviewing them, looking for discrepancies, asking for 

additional documentation. There are—also site visits are an important part of monitoring. Sometimes you need to go someplace and 

look at what’s actually going on on the ground and talk to people 

who are there to determine whether the funds are being used—— 

Mr. WALBERG. Any penalties that are available to them with 

these foreign countries if they’re not following the rules and the 

plans of reporting? 


AKING-6430 with DISTILLER
20 

Mr. MCCARTHY. Well, if there are—generally these are covenants 

in the loan transactions for this type of reporting, and if they’re not 

being met, the Bank would have options of either calling the loan 

in or cutting off further financing, considering that in additional 

applications. 

Mr. WALBERG. My time is expired. Thank you. 

Mr. JORDAN. Thank the gentleman. 

We will reconvene upon the conclusion of the last vote. 

The subcommittee stands in recess. 

[Recess.] 

Mr. JORDAN. The committee is back in order. 

Gentlelady from the District is recognized, Ms. Norton. 

Ms. NORTON. Thank you, Mr. Chairman. 

It would be pretty reckless to leave the United States the only 

advanced nation without an Export-Import Bank, and I don’t think 

the entire majority is with this subcommittee on that score. 

But the determination to shut down the Bank I suppose is exemplified by the fact that we’re into the fourth hearing aimed to do 

precisely that, even though the IG has previously reported that 

there’s no evidence of widespread employee misconduct or systemic 

involvement in the Bank in fraud. So I’m not sure what more the 

IG has to tell us. 

But I do want to ask about the only thing I could think to ask 

about that would assure members who had anything approaching 

an open mind on this issue would be to ask about internal controls 

as they exist now. So I’m interested in your findings on internal 

controls, assuming that the Bank can be reauthorized and we won’t 

be left an orphan in the advanced world. 

Let me ask you if there are any aspects of the Bank’s internal 

controls where you still believe improvement is needed, and what 

those areas might be. 

Mr. MCCARTHY. We’ve made several recommendations as far as 

internal controls go, starting from some of our original work back 

in 2009, 2010, looking at the medium-term program, and we did 

find deficiencies at that time. A lot of those deficiencies have been 

corrected. 

What we’ve reported back to the committee on the outstanding 

recommendations that we believe are most important and which I 

touched on in my opening statement is that we believe that the 

senior management and the Board of Directors of the Bank should 

play more of a role in the overall enterprise risk management. So 

with the board of directors—— 

Ms. NORTON. As opposed to who plays that role now? 

Mr. MCCARTHY. Well, right now, it’s really just a function of the 

employees of the Bank. And the Board of Directors, who are the 

Presidential appointees, Senate-confirmed, five people, who are 

supposed to be in charge of the Bank, their role is really to serve 

as more of a credit committee and approve individual transaction. 

We believe if they had more of a role in looking at enterprise risk, 

that that would be a better governance structure for the Bank. 

Ms. NORTON. Have they agreed to do so? 

Mr. MCCARTHY. No, they have not agreed. That’s one of our unresolved recommendations. Some of the legislation does contemplate that. 


AKING-6430 with DISTILLER
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Ms. NORTON. Does that need to be—do they believe that needs 

to be in legislation? And it is often that—there is often a line on 

who can do what in such an enterprise. 

Mr. MCCARTHY. Right. I think that there’s a difference in terms 

of policy and in terms of how it’s accomplished. 

Ms. NORTON. Have you seen the bill? You say it is in the bill. 

Mr. MCCARTHY. Yes, I believe it’s in all of the form proposals. 

Ms. NORTON. Overall, have you seen improvements in the Bank’s 

internal controls when they have been brought to their attention 

by the IG? 

Mr. MCCARTHY. Yes, we have seen improvements. There were 

problems that we’ve identified in the past years. They’ve improved 

many of them, put a lot more internal controls in place, updated 

their policy manual to put things in writing and have clear policies 

that employees can follow. So we’ve seen significant improvement 

in that area. 

We do have outstanding recommendations that we believe that 

there are further improvements that would help reduce risk at the 

Bank. 

Ms. NORTON. And you’ve testified it takes time to implement 

those recommendations? 

Mr. MCCARTHY. With recommendations, it will generally take 

some period of time to fully implement them. 

Ms. NORTON. Thank you very much. I appreciate your testimony, 

Mr. McCarthy. 

Mr. JORDAN. I thank the gentlelady. 

Is the gentleman from Georgia prepared to ask questions, or does 

he want the chair to go? 

Are you comfortable, Mr. Hice? Are you ready to go? 

Mr. HICE. I can be. 

Mr. JORDAN. I yield to the—or the gentleman from Georgia is 

recognized. 

Mr. HICE. Thank you. Thank you, Mr. Chairman. 

Thank you for joining us today, Mr. McCarthy. I appreciate your 

willingness to come back. A couple of questions that come to my 

mind on the green type things. Are you aware that when Ex-Im 

made a $32-plus million loan to LM Wind Power that that company, at the time the loan was made, was about to make some 

huge layoffs here in the United States? 

Mr. MCCARTHY. I’m not familiar with that particular transaction. 

We did look at a wind project that had similar issues, whereas 

a wind project in India and the exporter of the—or excuse me, this 

wasn’t wind. It was solar, but in the green energy space—that 

there were issues with the exporter going bankrupt at the time 

that it was shipping the products overseas that were being supported by Ex-Im. 

Mr. HICE. Right. I’m familiar with that one too. You know, 

there’s cases like this particular one, LM Wind Power had branches 

in both Arkansas and North Dakota, as I—as I—if I’m correct. And 

they laid off hundreds after a loan was made, $32 million. And is 

that a normal practice to you? Does Ex-Im check in to those type 

of things before making a loan? Do you inspect the company in 

their, as you mentioned, if they’re on the verge of bankruptcy or 


AKING-6430 with DISTILLER
22 

if they’re on the verge of making a decision that’s going to impact 

U.S. jobs? Do you all look into that? 

Mr. MCCARTHY. Well, that’s an issue, that we encountered in the 

solar project in India that we looked at and did an inspection on. 

The Bank makes a loan to the foreign company that’s purchasing 

the equipment from the U.S. company. And so as the—as part of 

the due diligence process, they’re doing due diligence and looking 

at the credit profile of the company that’s buying the product. 

We suggested that the due diligence needs to be expanded to include all of the parties in the transaction because, for example, if 

the U.S. exporter is shipping equipment to a specific project, if that 

U.S. exporter isn’t going to be able to fulfill the terms of the contract or isn’t going to be able to fulfill the warranties, that’s a risk 

in making a loan to the company that’s making the purchase. 

So we did identify that issue and recommended that the Bank 

expand its due diligence into the U.S. exporter, and their financial 

state and—— 

Mr. HICE. Okay. I’m not talking about financial state. I’m talking 

about U.S. jobs. I mean, that’s part of the goal of the Bank as well, 

to secure U.S. jobs. When something like that happens, are there 

any consequences for companies that you give huge loans to and 

then they lay off U.S. workers? Are there any consequences, or are 

loans ever revoked or anything along those lines? 

Mr. MCCARTHY. Well, because the loans are generally to the foreigner purchasers of those products, I don’t believe that they would 

be reversed because of problems at the U.S. company. 

Mr. HICE. Okay. Well, there was a similar one in Canada, a project, First Solar, $455 million loan to them. And that particular 

company and ended up with their solar panels or whatever, they 

bought them from themselves. Are you familiar with that scenario? 

Mr. MCCARTHY. I don’t believe I’m familiar with that particular 

case. 

Mr. HICE. Okay. Well, they received Ex-Im financing to export to themselves, $455 million. You’re not familiar with that? 

Mr. MCCARTHY. Not with that transaction. 

Mr. HICE. Does that type of thing happen very often? Are you 

aware of companies that take loans from Ex-Im and then just use 

it themselves rather than for what it was intended to be used? 

Mr. MCCARTHY. Well, I think the issue is that the loans have to 

have U.S. products going overseas. If there are related-party transactions, if they’re a U.S. company and a foreign subsidiary, there 

may be related-party transactions, but the goods still have to leave 

the United States to be qualified for export support. 

Mr. HICE. All right. Well, you mentioned the one in India. That’s 

a similar type deal. Ex-Im awarded that particular loan some $400 

million, and their credit rating was not very good. Was that just 

a fluke? Or, I mean, you were referring to that a little bit a while 

ago. 

Mr. MCCARTHY. Right. What we identified with that particular 

project, we did review that transaction. Their transaction at this 

time is performing and is in repayment. The main issue that we 

identified is that because the U.S. exporter had gone bankrupt, 

that there were issues that the warranty of the solar panels that 

were shipped was no longer valid, and so it could create potential 


AKING-6430 with DISTILLER
23 

problems in the future. If that project isn’t able to generate enough 

energy to repay the loans that have been given to the project, that 

puts Ex-Im in a vulnerable position. 

Mr. HICE. Do you know how many jobs were lost when they went 

bankrupt? 

Mr. MCCARTHY. I do not. 

Mr. HICE. Okay. 

Thank you, Mr. Chairman. 

Mr. JORDAN. I thank the gentleman from Georgia. 

Mr. McCarthy, about a year ago, former Ex-Im employee Johnny 

Gutierrez sat at that table and took the Fifth Amendment when we 

were attempting to question him about some of his activities at the 

Ex-Im Bank. About 6 weeks ago, you sat right where you’re sitting 

today and told us that Mr. Gutierrez had been indicted by the Justice Department just 2 days before that particular hearing, and 

then about a week later Mr. Gutierrez pled guilty to bribery and 

fraud charges. 

You also indicated that day that there may be more indictments 

coming in the Gutierrez case. And you said there are 31 open fraud 

investigations, and there may be indictments in some of those. Has 

any of that changed? Is that still the number, 31? Or is it a bigger 

number today? Or is it a smaller number? Has there been more indictments? Where are we at? 

Mr. MCCARTHY. Our current number, I think, is 29 open investigations. 

Mr. JORDAN. Twenty-nine, okay. 

Mr. MCCARTHY. Right. As of today. 

Mr. JORDAN. What about the indictment issue? 

Mr. MCCARTHY. The indictments, I believe that we’ve had—we 

have had some new cases that we’ve reported and it’s still the 

same. When we have cases that we investigate, the fact that we’re 

investigating that matter means that there is a possibility the 

charges will—— 

Mr. JORDAN. When you say new cases you’ve reported, does that 

mean there are new referrals for indictment? Because you told me 

last time you work closely with Justice Department. These fraud 

investigations are both the inspector general and the Justice Department working together. So have there been indictments—additional indictments to the—in addition to Mr. Gutierrez? 

Mr. MCCARTHY. Not in the Gutierrez matter. 

Mr. JORDAN. And the other 31? Other 29? 

Mr. MCCARTHY. I would need to check as to the timing as to 

when I last testified. I believe we’ve had other indictments, guilty 

pleas that I’ve reported to you. 

Mr. JORDAN. Do you have an idea how many? 

Mr. MCCARTHY. A handful. 

Mr. JORDAN. A handful in just the past 6 weeks? More indictments? More guilty pleas? 

Mr. MCCARTHY. I need to check on the records for that. For example, we are with someone—— 

Mr. JORDAN. Are they in the Gutierrez case you said or other 

cases? 

Mr. MCCARTHY. They are other cases. 


AKING-6430 with DISTILLER
24 

Mr. JORDAN. So we have Mr. Gutierrez who has been indicted 

and pled guilty, and in the last 6 weeks, you’ve had other indictments and guilty pleas with employees in those 29 open fraud investigations? 

Mr. MCCARTHY. Not with employees. 

Mr. JORDAN. Not with employees? 

Mr. MCCARTHY. Not with employees. These are—we have cases 

that are at various stages. 

Mr. JORDAN. I understand. 

Mr. MCCARTHY. So there are people who have been indicted who 

have pled guilty recently. There are people who have previously 

been arrested who have pled guilty. There are people who have 

previously pled guilty who have been sentenced. 

Mr. JORDAN. And so these aren’t employees, but they’re people 

from the public sector or the private sector trying to get the financing from the Ex-Im Bank? 

Mr. MCCARTHY. That’s correct. 

Mr. JORDAN. Okay. And have they received financing, or was it 

while they were trying to get financing? 

Mr. MCCARTHY. In these particular matters, it was they had already received financing. 

Mr. JORDAN. They had already gotten the taxpayer money? 

Mr. MCCARTHY. Yes. 

Mr. JORDAN. Okay. So now, are you familiar with the company 

NewSat? 

Mr. MCCARTHY. Yes. 

Mr. JORDAN. And did Ex-Im loan them some money? 

Mr. MCCARTHY. Yes, they did. 

Mr. JORDAN. Was it a direct loan? 

Mr. MCCARTHY. I believe so. 

Mr. JORDAN. Yeah. Do you know how many millions of dollars? 

Mr. MCCARTHY. I believe it was north of a $200 million commitment, although it hasn’t been all disbursed at this point. 

Mr. JORDAN. North of $200 million? 

And were you the largest financier of NewSat when they were 

seeking financing for the business? 

Mr. MCCARTHY. I believe the U.S. Ex-Im Bank is the lead financier on that transaction. 

Mr. JORDAN. You were the lead financier. And isn’t it true that 

NewSat now went bankrupt? 

Mr. MCCARTHY. That’s correct. 

Mr. JORDAN. And how much are the taxpayers on the hook for? 

Mr. MCCARTHY. I believe at this point it’s around $150 million, 

but there’s potential for recoveries in that matter that could reduce 

that amount. 

Mr. JORDAN. Potentially $150 million of north of $200 million 

debt the Ex-Im loaned to this company. 

A review commissioned by independent NewSat directors reported: ‘‘Appalling corporate behavior, complete lack of control at 

NewSat, including opulent $10,000 dinners, extensive overseas 

travel, millions in executive bonuses and raises, tax evasion, and 

$400,000 in undisclosed payments to a yacht company owned by 

NewSat’s former CEO.’’ 


AKING-6430 with DISTILLER
25 

Pretty bad stuff going on. How did this all fly under the Bank’s 

radar? 

Mr. MCCARTHY. We’ve announced—this transaction has been on 

our radar screen for some time, since last summer. We’ve announced that we’re going to conduct an inspection of this transaction. We’re currently in the process of gathering documents, so 

we’re going to be speaking with people. And I know that—— 

Mr. JORDAN. Since last summer, my understanding is they were 

still getting money as late as last summer. So—— 

Mr. MCCARTHY. I believe that there were issues that were raised 

by an independent auditor in the Australian securities regulators 

last summer. At that point, I believe, Ex-Im stopped disbursing on 

that commitment. 

Mr. JORDAN. I would ask—like to place in the record a copy of 

a report which includes some limited redactions by the Financial 

Services Committee based on concerns over certain business and 

personal information those redactions are. But this is the Rudd Report. Are you familiar with this, Mr. McCarthy, the Rudd Report? 

Mr. MCCARTHY. I’m familiar with it, yes. It was requested by the 

Financial Services Committee. 

Mr. JORDAN. Without objection, so entered. 

Mr. JORDAN. So you’re familiar with this, Mr. McCarthy? 

Mr. MCCARTHY. I’m familiar with the existence of the report. I’m 

not familiar with its contents, personally. 

Mr. JORDAN. Let me read a little bit to you. This is from Mr. 

Rudd himself. Again, these are part of the independent directors 

here at NewSat who commissioned this report: ‘‘Within 2 hours of 

commencing’’—let me back up. 

‘‘I’ve been at NewSat for 6 weeks now.’’ In the report. One of the 

confidential documents—documents. Not confidential. It has been 

redacted. ‘‘Within 2 hours of commencing, I realized the company 

had some serious performance issues and that there was a total 

disconnect between what the lenders were expecting in terms of financial outcomes and what was actually happening. Of course, this 

often resulted in the earnings downgrade announcement into the 

market but has also led me to look into past activities.’’ Much of 

this information was fed in to directors. 

So, within 2 hours, this guy comes in—this is clear back in early 

summer last year—within 2 hours of being there, he says, there 

are big problems. So what we want to know is, how in the world 

did the Bank miss this? 

Mr. MCCARTHY. As part of our inspection, we’re going to be looking into the due diligence that the Bank conducted or did not conduct into that transaction, but I don’t have that information at this 

time. 

Mr. JORDAN. So you mentioned 29 ongoing, open fraud investigations. Is this one of the 29? 

Mr. MCCARTHY. Right now what we’ve announced is that we’re 

going to conduct an inspection, which is different than an investigation. It’s more in the nature of an audit where we go in and 

try to figure out what happened in the transaction. Depending on 

what evidence develops, it could be converted or referred into an 

investigation, but it’s not an investigation at this time. 


AKING-6430 with DISTILLER
26 

Mr. JORDAN. And what kicks it to the investigation level? I 

mean, if the fact that the taxpayers are on the hook for $150 million, you’ve got this guy figuring it out within 2 hours, you were 

the lead financier in this deal, what kicks it up to a real investigation? 

Mr. MCCARTHY. It would be evidence of fraud or misrepresentations that were made to the Ex-Im Bank as opposed to bad business practices. 

Mr. JORDAN. Wow, this sure seems—sure looks like fraud to me. 

I think it would look like fraud to the American taxpayer, and 

something, obviously, we need to get to the bottom of. 

My time is over. I apologize. I will give an extra few minutes on 

the second—we’ll do a quick second round, and then I know we 

have all got pressing things. 

Well, wait a minute. The gentleman from North Carolina is still 

first round, so the gentleman from North Carolina is recognized, 

and then we’ll go to Mr. Cartwright. 

Mr. MEADOWS. I’ll be very brief. 

Thank you, Mr. Chairman, for leading the way. 

Mr. McCarthy, you are not new to the inspector general’s role, 

just new at this particular role, having dealt in a number of other 

areas. I guess the troubling thing is, the chairman was just talking 

about, with regards to an inspection versus an investigation. Have 

we not seen enough of a pattern here of perhaps corruption that 

we could go ahead and go to that investigative mode? 

Because what I’ve found with inspector generals is they do their 

inspection and then there’s a long period of time and then they do 

the investigation after it. Why are you making that choice here? 

Mr. MCCARTHY. I don’t anticipate that there would be a long period of time, but what we need to do is that some of these—there 

are a lot of press reports on this. There are—there’s information 

from people in Australia. When we need to do an analysis of the 

documentation and speak to some people to discover—to learn more 

information about whether there’s evidence that there are crimes 

committed or frauds that are committed against Ex-Im Bank. 

There are certainly irregularities in this transaction, but as far 

as our jurisdiction goes, that’s what we’re looking for. If we develop 

that evidence, we’ll convert it into an investigation. 

The issue is that, I know Congress always wants a lot of information. When we’re doing inspections and audits, that’s one thing. If 

something is converted into an investigation, then information will 

not be as accessible. 

Mr. MEADOWS. All right. So we have a number—Mr. Hice, from 

Georgia, mentioned a couple of issues. The chairman has mentioned a couple of issues. As we start to look at this, I mean, we’re 

talking about real dollars, taxpayer dollars in terms of the amount 

of money that has been fraudulently, in many cases, obtained, or 

at least disposed of. How would you characterize the reforms that 

the Ex-Im Bank has embarked on? 

Because here’s my concern is, is we reauthorized this just a few 

years ago, and with that came a series of reforms to try to make 

sure that the accountability is not there. And now we’re being 

asked again to reauthorize it. And would you say that there is a 


AKING-6430 with DISTILLER
27 

culture of corruption in and around much of the Import-Export 

transactions? 

Mr. MCCARTHY. I wouldn’t characterize it that way. As far as the 

internal controls and the improvements that need to be made at 

the Bank, there have been significant improvements that have 

been made in the past—over the past several years. But as our reports show and as our open recommendations show and as our continuing fraud cases show that there are more things that need to 

be done to try to detect and deter these frauds to prevent them 

from happening in the first place. 

But I do see some progress. So one of the questions that the 

chairman had was, were these people caught after they stole the 

money or before? I mean, we do have, just last week, we got a referral on the Bank on something that was stopped before it happened. And then we’re looking into that now to see what further 

action that we might take on that. 

So we are seeing progress in some of these areas. But as you recognize, these are large dollar amounts, and no amount of fraud is 

acceptable against the United States. 

Mr. MEADOWS. So what you’re saying is that you’re characterizing this that import-export is just like every other Federal program? Because that’s not what I’m seeing. I mean, so are you saying it’s no worse than some of the other loan programs that we 

have? 

Mr. MCCARTHY. Well, I don’t have specific data that I can make 

those comparisons, but—— 

Mr. MEADOWS. Well, but you’ve been around the IRS and a number of other agencies throughout your career with the Federal Government. So you have some institutional knowledge. So are you 

saying that this is better or worse? 

Mr. MCCARTHY. I don’t think that the problems with fraud that 

Ex-Im is encountering are unique to Ex-Im. I think their problems 

are—— 

Mr. MEADOWS. I’m looking for you to give me a qualitative, not 

necessarily, you know, how you responded. But is it better or worse 

than some of the other institutions that you’re familiar with or 

have worked with? 

Mr. MCCARTHY. I think that it’s—on the fraud question? 

Mr. MEADOWS. Yes. 

Mr. MCCARTHY. I think that it’s comparable. I don’t think that 

it’s worse than other agencies. So, for example, like the SBA, 

they’ve had 30 convictions in their last 6-month period for similar 

types of fraud schemes. 

Mr. MEADOWS. Yeah, the difference is the dollar amount with 

SBA. 

Mr. MCCARTHY. In some instances. But most of the frauds that 

we’re seeing are generally in the, you know, $1 million to $5 million space, which is where SBA is operating as well. 

Mr. MEADOWS. Right. Okay. 

Mr. Chairman, I yield back. 

Mr. JORDAN. I thank the gentleman. 

Gentleman from Pennsylvania is recognized, and then we’ll go to 

Mr. Hice. 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. 


AKING-6430 with DISTILLER
28 

Well, Mr. McCarthy, my dear friend Mr. Meadows just asked you 

flat out whether there was a culture of corruption at the Ex-Im 

Bank. And that’s a fair question. And you said you would not characterize it that way, didn’t you? 

Mr. MCCARTHY. That’s what I said. And I think that—what you 

made reference to, what I discussed last summer, is that there are 

cases of serious employee misconduct that we’ve discovered at the 

Bank. There are four employees who have committed either criminal or fireable offenses within the past few years. On the other 

hand, there are more than 400 employees who work at this Bank. 

I know that the chairman of this committee and others have generally said 99 percent of Federal employees are doing a good job 

and that those numbers, those types of statistics, would indicate 

that the Ex-Im Bank was more common in that area. I certainly 

don’t mean to minimize the very serious issues of Mr. Gutierrez 

and the other employees, but we’re talking about a small number 

of employees at this point. We are concerned—— 

Mr. CARTWRIGHT. I don’t mean to cut you off, but here’s the— 

suppose somebody just walked into this hearing room or maybe 

just clicked on the television if it’s on TV someplace, they might 

think you’re kind of sticking up for the Ex-Im Bank, that you’re 

kind of in with it. Maybe you’re an employee of the Ex-Im Bank, 

and I think maybe one thing you and I ought to make clear to everybody is what your role is. You are the acting inspector general. 

Does that mean you’re an employee of the Ex-Im Bank? 

Mr. MCCARTHY. It means that I’m an employee of the Bank, but 

we are independent from the Bank’s management. 

Mr. CARTWRIGHT. And does that mean you need to be sticking up 

for the Ex-Im Bank no matter what? 

Mr. MCCARTHY. The goal of my—my goal and the goal of my office, and I’ve conveyed this to everyone on our staff is that Congress is having a policy dispute about how to handle the Ex-Im 

Bank. Our goal is to provide facts. So I can give you information 

and tell you, these are the number of employees, this is what we 

know about the cases that we have. 

Mr. CARTWRIGHT. Are you independent, Mr. McCarthy? 

Mr. MCCARTHY. Yes, we are an independent office. 

Mr. CARTWRIGHT. That’s the point I’m trying to establish. 

Mr. MCCARTHY. We have our own budget. We don’t—— 

Mr. CARTWRIGHT. You’re not here to stick up for the Ex-Im Bank 

no matter what. You’re an independent voice, and that’s why you’re 

kind of the auditor, aren’t you? 

Mr. MCCARTHY. We have an arm’s length relationship from the 

Bank so that we can be independent in conducting audits and investigations. 

Mr. CARTWRIGHT. So when you disagree that there was a culture 

of corruption at the Ex-Im Bank, you don’t do so as somebody that 

is going to stick up for the Ex-Im Bank no matter what. You do 

so as an independent observer. Is that correct? 

Mr. MCCARTHY. Well, I’m trying to not—rather than doing characterizations, I’m trying to present Congress with all the facts and 

let you make your own determinations about culture and those 

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Mr. CARTWRIGHT. All right. Now, we talked about the Johnny 

Gutierrez case, brazen bribery scheme at the Bank. At the time 

that you—last summer, when members of this committee asked 

you when you testified about the case involving Mr. Gutierrez, you 

indicated you could not discuss it because it was an ongoing investigation. That makes sense. Your written testimony today indicates 

you are now in a position to discuss the matter in light of recent 

proceedings concerning Mr. Gutierrez in court. 

According to your testimony, on April 22 this year, Mr. Gutierrez pled guilty to bribery for accepting over $78,000 in bribes from 

June 2006 to December 2013 in exchange for recommending the approval of loans to applicants who were basically unqualified during 

the course of his employment. Is that correct? 

Mr. MCCARTHY. That’s all correct. 

Mr. CARTWRIGHT. All right. 

Now, even before Mr. Gutierrez had pleaded guilty to the bribery, can you tell us what action, if any, the Bank took against Mr. 

Gutierrez? 

Mr. MCCARTHY. So Mr. Gutierrez’ involvement in the scheme 

was discovered in the course of a fraud investigation. When we developed the evidence that Mr. Gutierrez was involved, we developed documentary evidence. And, at one point, we consulted with 

the Bank and we—our agents confronted Mr. Gutierrez and interviewed him about that, about his involvement. At that point, he 

was placed on administrative leave, and termination proceedings 

were begun against him, and eventually he was removed from his 

position at the Bank while the investigation was pending. 

Mr. CARTWRIGHT. I only have so much time. 

Were any other employees implicated in the Gutierrez case? 

Mr. MCCARTHY. Yes, there is another employee who was also removed from his position. 

Mr. CARTWRIGHT. He was removed from his position. 

Now, beyond that, what other employee—has your office uncovered any evidence that the bribery scheme involving Mr. Gutierrez 

and this other employee was widespread among other employees at 

the Bank? 

Mr. MCCARTHY. We have not developed evidence of that. 

Mr. CARTWRIGHT. No evidence of other employees involved in this 

scheme. I’m pleased to hear it. I also want to know how the matter 

involving Mr. Gutierrez was first brought to the attention of the 

OIG. How did your office first find out about it? 

Mr. MCCARTHY. We received a referral about suspicious claims 

activity in the transactions, and then in the course of looking into 

fraud in those transactions, we discovered evidence pointing us to 

Mr. Gutierrez. 

Mr. CARTWRIGHT. Was it the Bank’s own employees that reported 

it to you? 

Mr. MCCARTHY. Yes. 

Mr. CARTWRIGHT. All right. So, in the course of your investigation, did you uncover any evidence that anyone in the Bank’s senior management was involved in that misconduct? 

Mr. MCCARTHY. We did not. 

Mr. CARTWRIGHT. What about with respect to any political appointees at the Ex-Im Bank? 


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Mr. MCCARTHY. No. 

Mr. CARTWRIGHT. Okay. No evidence of any involvement in that 

scheme? 

Mr. MCCARTHY. No evidence. 

Mr. CARTWRIGHT. All right. Well, now, in your assessment, did 

the Gutierrez bribery scheme go undetected for a long time due to 

deficiencies in the Bank’s internal controls at the time? 

Mr. MCCARTHY. Yes. The fact that he was able to perpetrate the 

scheme for a period of time suggests deficiencies in the internal 

controls. 

Mr. CARTWRIGHT. And that’s one of your jobs, to make recommendations about internal controls, right? 

Mr. MCCARTHY. That’s correct. 

Mr. CARTWRIGHT. Did you make recommendations? 

Mr. MCCARTHY. Following the Gutierrez scheme, we made some 

additional recommendations about internal controls. 

Mr. CARTWRIGHT. What were they? 

Mr. MCCARTHY. Well, one of the things that the Bank has done 

in response, one of the ways that Mr. Gutierrez was able to thwart 

the system and to circumvent controls was that he concealed information about previous credit histories of people applying for new 

applications. So now the Bank requires documentation of the previous experience of those companies be attached to the documents 

that go up to the decisionmakers. 

Mr. CARTWRIGHT. So that’s a control that you recommended and 

the Bank accepted. Is that correct? 

Mr. MCCARTHY. I don’t know that we recommended that control 

specifically. I know that they put that control into place, and we’ve 

recommended more checks and balances generally for things like 

individual delegated authority program. Some of our recommendations have been that you need to have cross checking and more 

than one employee looking at these transactions and doing cross 

checks so that you can’t have one employee exploiting the system. 

Mr. CARTWRIGHT. All right. Last question. 

Mr. McCarthy, as acting IG, do you continue to keep an eye on 

the Ex-Im Bank? Do you continue to serve as the watchdog for that 

organization? 

Mr. MCCARTHY. That’s the role of our office. 

Mr. CARTWRIGHT. Thank you, sir. Thanks for your testimony. 

I yield back. 

Mr. JORDAN. I thank the gentleman. 

Mr. McCarthy, I want to go back to a question I asked earlier. 

So employees and folks at NewSat smell trouble. They hire an outside consultant to come in and look at it. Within 2 hours, he says, 

Whoa, this thing’s mess. This is Mr. Rudd. He issues this report. 

Have you seen the report? 

Mr. MCCARTHY. I personally haven’t read the report. 

Mr. JORDAN. And is there a reason you haven’t read the report? 

Mr. MCCARTHY. We generally have our inspectors who are working on that project. 

Mr. JORDAN. So is anyone at the inspector general in your office 

read the report? 

Mr. MCCARTHY. I don’t know. 


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Mr. JORDAN. Have you asked—do you have the report in your 

possession? 

Mr. MCCARTHY. I don’t know. 

Mr. JORDAN. Have you asked Mr. Hochberg for the report? 

Mr. MCCARTHY. We’ve made document requests surrounding the 

transaction. I would assume that it was included, that that report 

would have been included in that. 

Mr. JORDAN. Wait. Wait. You’ve got to tell me exactly. Have you 

asked for the Rudd Report or haven’t you? 

Mr. MCCARTHY. We’ve asked for a number of different documents 

in a number of different categories. I believe the Rudd Report 

would be included in that standard request that we have, but I 

can’t confirm that we’ve asked for that specifically. 

Mr. JORDAN. Well, okay. So you believe you’ve asked for it. Have 

they given it to you? 

Mr. MCCARTHY. I don’t know what the current document production status is on that at this time. 

Mr. JORDAN. Well, it’s pretty important. I mean, within 2 hours, 

they know there’s a mess there. The Financial Services Committee 

gets it. We want to know if you’ve got it. You think—well, you tell 

me you don’t have it. You think you’ve asked for it. What I want 

to know is, why hasn’t the Export-Import Bank given it to you? 

Mr. MCCARTHY. We will get from the Export-Import Bank all of 

the documents. That’s our goal. That will be one of the key documents that we’ll look at. But we want to get all of the documents 

that are relevant to the—— 

Mr. JORDAN. Do you think—Mr. McCarthy, do you think you 

have it in your possession now, you being the Inspector General’s 

Office at the Export-Import Bank, do you think you have this in 

your possession right now? 

Mr. MCCARTHY. I don’t know. 

Mr. JORDAN. You do not know? 

Mr. MCCARTHY. I don’t know. 

Mr. JORDAN. And you didn’t think to check on this before you 

came here, knowing how important this was, how, you know, 

damning this information was and this report was of what went on 

with the NewSat deal? 

Mr. MCCARTHY. We have a number of different transactions that 

we’re looking at at any given time. 

Mr. JORDAN. Yeah, but you don’t have anywhere—you know 

you’re on the hook—the taxpayers are on the hook for $150 million, 

right? That’s pretty big. And based on what you’re telling me is you 

believe you’ve asked for it, but they haven’t given it to you. And 

I want to know why. Why won’t Mr. Hochberg and the Bank give 

you this information? 

Mr. MCCARTHY. I don’t know that we’ve received it yet. 

Mr. JORDAN. You said you—when did you start your audit, which 

we hope gets pumped up and jumped up to an investigation—when 

did you start the audit of the NewSat deal? 

Mr. MCCARTHY. I believe we announced the audit within the past 

month. 

Mr. JORDAN. I mean, 20 days ago? 30 days ago? 

Mr. MCCARTHY. I don’t know. I can get you the exact date. 

Mr. JORDAN. Sometime in May? 


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Mr. MCCARTHY. I don’t know. 

Mr. JORDAN. And you believe you’ve asked for it, and they 

haven’t given it to you? 

Mr. MCCARTHY. I don’t know if they’ve given it to us or not. I 

don’t keep tabs on every individual document that we—— 

Mr. JORDAN. Okay. So here’s what we want you to do. Here’s 

what we want you to do. We want to go back and we want you to 

confirm you’ve actually asked for it. 

Mr. MCCARTHY. Yes. 

Mr. JORDAN. And then we want you to let us know if they’ve 

given it to you. 

Mr. MCCARTHY. Okay. 

Mr. JORDAN. If they’ve already given it to you. 

Mr. MCCARTHY. Okay. 

Mr. JORDAN. If they haven’t given it to you and they give it to 

you tomorrow, that doesn’t count. 

Mr. MCCARTHY. Okay. 

Mr. JORDAN. Understand? 

Mr. MCCARTHY. Understood. 

Mr. JORDAN. All right. One last question. Where is Mr. 

McCarthy’s testimony? So we have four folks who have got some 

problems in the Gutierrez case. And your testimony when you’re 

getting near the end, you mention: Another Ex-Im employee was 

separated from employment due to substantiated misconduct in 

this case. 

This is in the Gutierrez case. So what’s that mean? ‘‘Separated 

from employment due to substantiated misconduct.’’ I mean, that 

seems like government speak for ‘‘this person was fired.’’ Is that 

what happened? 

Mr. MCCARTHY. This person no longer works for the Bank. 

Mr. JORDAN. Okay. Can you tell me something about this person? 

Are they going to be indicted and plead guilty and then when we 

bring them here take the fifth, or other order, but is that all going 

to happen with this person too? 

Mr. MCCARTHY. As I’ve indicated, this still remains an open matter. This is an open investigation. This individual is a potential 

witness against other subjects, and therefore, I can’t provide a lot 

of information about this employee at this time. 

Mr. JORDAN. Have the other two—there were four in this case. 

Have the other two been separated from employment due to substantiated misconduct? Has that happened with the other two? 

Mr. MCCARTHY. There were four last summer overall in separate 

cases. Yes, the other two cases, which have been reported on, both 

of those employees have left the Bank. 

Mr. JORDAN. Okay. It’s real important we get that information on 

the Rudd Report as soon as possible. That should be easy to check, 

Mr. McCarthy. You should be able to get that to us hopefully even 

as early as tomorrow. 

Mr. MCCARTHY. I’ll get back to you promptly. 

Mr. JORDAN. I appreciate it. 

The gentleman from Georgia is recognized. 

Mr. HICE. Thank you, Mr. Chairman. 

Mr. McCarthy, does the Bank have any kind of policy regarding 

sending funds to countries that we here in the United States have 


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imposed sanctions upon, countries that are known to be violating 

human rights and other abuses? 

Mr. MCCARTHY. I believe there are charter requirements that 

specifically limit countries that can’t or are ineligible to receive 

funds. And, yes, the Bank, as a matter of policy, consults with the 

State Department and has countries that it won’t do business with 

for those reasons. 

Mr. HICE. Were you aware that the Bank does provide assistance 

to some of those countries? 

Mr. MCCARTHY. Specifically? 

Mr. HICE. Yeah. According to the Bank’s annual report, 2014, for 

example, the Bank has hundreds of billions of dollars, of U.S. tax 

dollar exposures in countries like the Democratic Republic of 

Congo, Sudan, Venezuela, Iraq. $4.5 billion in China. $1.5 billion 

in Russia. Are you not aware of this? This is your annual report 

or the Bank’s annual report. 

Mr. MCCARTHY. I believe it’s the Bank’s annual report. 

Mr. HICE. Yeah, the Bank’s. 

Mr. MCCARTHY. There are—we’ve looked at some of the programs like Iran sanctions and have concluded that the Bank is 

complying with that and haven’t found any issues. As far as outstanding loans to some of these other countries, I don’t know the 

timing of when those loans were issued. It’s possible that there 

may have been loans issued previously that are still on the books, 

and subsequent to that, they aren’t doing new business because of 

new developments. I just—but I don’t know the details on that. 

Mr. HICE. Well, do you have any idea how long the Bank has had 

a policy not to do business with countries that we have imposed 

sanctions on for their human rights violations? 

Mr. MCCARTHY. I don’t know the specifics of each one. 

Mr. HICE. Do you have any idea, say, the countries that I mentioned, Sudan, Venezuela, any of these countries, are you aware of 

the average labor rates, the wages in those countries? 

Mr. MCCARTHY. I’m not personally familiar with all that information. 

Mr. HICE. Is that something that your office monitors? 

Mr. MCCARTHY. What we look at is that in some of our inspections the Bank has social and environmental policies that are conditions of the transactions, and some of our inspections we look at 

compliance with those policies. 

Mr. HICE. So is that a yes or no? Do you all monitor the wages 

in some of these countries? 

Mr. MCCARTHY. I don’t know whether wage—the specifics of the 

wages. There are—whatever the Bank’s social and environmental 

policies are, if there are policies that specifically address wages, we 

would look at that. 

Mr. HICE. Do you think that’s something that ought to be monitored? 

Mr. MCCARTHY. To the extent that it affects the charter requirements and the policies of the United States, it should be monitored. 

Mr. HICE. So it should be. Is that correct? Is that what your answer is? 

Mr. MCCARTHY. I’m saying that—— 


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Mr. HICE. This is your opinion. Is that something that should be 

monitored? I mean, we’re talking about countries that we have 

sanctions upon because there are human rights violations. I mean, 

these countries are paying extremely low wages. That seems to me 

it would be a reasonable thing for us to monitor if these countries 

are indeed involved in human rights violations. 

Mr. MCCARTHY. The Bank has policies on those issues, and we 

monitor compliance with those policies. 

Mr. HICE. So you do monitor? 

Mr. MCCARTHY. We monitor whether the Bank is complying with 

its policies. I don’t know the details on that particular policy. 

Mr. HICE. All right. Let’s look at the Congo, for example. As a 

country that is under U.S. sanctions, a country that was recently 

identified as the third worst human rights offender in the world, 

should that country be benefiting from U.S. tax dollars? 

Mr. MCCARTHY. I believe, if the policy is that countries that are 

under sanctions, that’s a determination that’s made by the Ex-Im 

Bank and the State Department not to do business with that country. If that’s the determination that has been made, then the ExIm Bank should not be doing business with that country. 

Mr. HICE. Okay. But you said there is a policy, and here we are 

doing business with hundreds of millions of dollars to the third 

worst country in the world. Why would that be? How in the world 

could something like that just slip through the cracks? 

Mr. MCCARTHY. I don’t know the timing of those transactions 

versus—— 

Mr. HICE. Does it matter? 

Mr. MCCARTHY. Well, if they are previous commitments that 

have been made and longstanding and long-term commitments and 

then sanctions are imposed at a later date, there’s a certain 

amount of time that needs—there has to be an unwinding of those 

transactions. 

Mr. HICE. All right. Well, let’s go beyond. I feel like you’re just 

beating around the bush, quite frankly, on these. We’re talking 

about some U.S. sanctions. These are not things that are hidden 

in a closet somewhere. We, as a country, have sanctions against 

these countries that the Ex-Im Bank is doing business with. And 

you don’t know what the wages are. You don’t know anything. You 

know, it’s rather stunning to me. 

Are you aware that we have many deals with sub-Saharan African countries in the portfolio where there is tremendously low 

index, if you will, for corruption? 

Mr. MCCARTHY. Yes, I’m aware of that. 

Mr. HICE. You’re aware of that. And you’re aware of the fact that 

we’re doing business with a lot of these countries. Is it concerning 

that the Bank is involved in facilitating businesses in countries 

where there is great corruption? 

Mr. MCCARTHY. When the Bank is doing business in countries 

that have corruption problems, there need to be appropriate safeguards in place—there’s the Foreign Corrupt Practices Act—and 

the due diligence done to ensure that that money isn’t being diverted to corruption. 

Mr. HICE. So you’re saying that you can assure us and guarantee 

us that those countries that money is being loaned to through ExVerDate Sep 11 2014 15:28 Nov 09, 2015 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 F:\97334.TXT APRIL

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Im Bank where there is great corruption, you can assure us that 

none of that money is being involved in corruptive activity? 

Mr. MCCARTHY. If the Bank is sending money over there, they 

need to take appropriate steps to ensure compliance with the sanctions that the U.S. has in place. 

Mr. HICE. I’m sure they need to, but can you assure us that that 

money is not being used for corruption? 

Mr. MCCARTHY. We haven’t done work specifically in that area. 

I can say the only thing we’ve looked specifically at is compliance 

with Iran sanctions, and we found the Bank was compliant with 

that. 

Mr. HICE. Thank you, Mr. Chairman. My time is up. 

Mr. MEADOWS. [presiding.] I thank the gentleman from Georgia. 

Mr. McCarthy, thank you for your time, your service to our country. Obviously, these are not fun times when you get to come and 

testify. I do appreciate though your expeditious way that you’ve 

agreed to supply some of those documents to the committee. That’s 

duly noted. 

And if there is no further business before the committee, without 

objection, the subcommittee stands adjourned. 

[Whereupon, at 3:53 p.m., the subcommittee was adjourned.] 


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