[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


 
                     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



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     JASON CHAFFETZ, Utah, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, Jr., Tennessee       CAROLYN B. MALONEY, New York
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
TIM WALBERG, Michigan                    Columbia
JUSTIN AMASH, Michigan               WM. LACY CLAY, Missouri
PAUL A. GOSAR, Arizona               STEPHEN F. LYNCH, Massachusetts
SCOTT DesJARLAIS, Tennessee          JIM COOPER, Tennessee
TREY GOWDY, South Carolina           GERALD E. CONNOLLY, Virginia
BLAKE FARENTHOLD, Texas              MATT CARTWRIGHT, Pennsylvania
CYNTHIA M. LUMMIS, Wyoming           TAMMY DUCKWORTH, Illinois
THOMAS MASSIE, Kentucky              ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina         BRENDA L. LAWRENCE, Michigan
RON DeSANTIS, Florida                TED LIEU, California
MICK MULVANEY, South Carolina        BONNIE WATSON COLEMAN, New Jersey
KEN BUCK, Colorado                   STACEY E. PLASKETT, Virgin Islands
MARK WALKER, North Carolina          MARK DeSAULNIER, California
ROD BLUM, Iowa                       BRENDAN F. BOYLE, Pennsylvania
JODY B. HICE, Georgia                PETER WELCH, Vermont
STEVE RUSSELL, Oklahoma              MICHELLE LUJAN GRISHAM, New Mexico
EARL L. ``BUDDY'' CARTER, Georgia
GLENN GROTHMAN, Wisconsin
WILL HURD, Texas
GARY J. PALMER, Alabama

                    Sean McLaughlin, Staff Director
                 David Rapallo, Minority Staff Director
                           Sarah Vance, Clerk
     Subcommittee on Health Care, Benefits and Administrative Rules

                    JIM JORDAN, Jr., Ohio, Chairman
TIM WALBERG, Michigan,               MATT CARTWRIGHT, Pennsylvania, 
SCOTT DesJARLAIS, Tennessee              Ranking Member
TREY GOWDY, South Carolina           ELEANOR HOLMES NORTON, Distict of 
CYNTHIA M. LUMMIS, Wyoming               Columbia
MARK MEADOWS, North Carolina         BONNIE WATSON COLEMAN, New Jersey
RON DeSANTIS, Florida                MARK DeSAULNIER, California
MICK MULVANEY, South Carolina Vice   BRENDAN F. BOYLE, Pennsylvania
    Chair                            JIM COOPER, Tennessee
MARK WALKER, North Carolina          MICHELLE LUJAN GRISHAM, New Mexico
JODY B, HICE, Georgia                Vacancy
EARL L. ``BUDDY'' CARTER, Georgia
                            
                           
                            
                            
                            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

 
      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.
    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 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.
    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.
    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:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    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?
    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 American-made 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 Ex-Im 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?
    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?
    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.
    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?
    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.
    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 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 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.
    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.''
    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.
    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 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.
    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 types of issues.
    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?
    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.
    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?
    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 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----
    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 Ex-Im 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 Ex-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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