[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EXAMINING ALLEGATIONS OF CORRUPTION AT THE EXPORT-IMPORT BANK
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH,
JOB CREATION AND REGULATORY AFFAIRS
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 29, 2014
__________
Serial No. 113-144
__________
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
DARRELL E. ISSA, California, 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
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee MATTHEW A. CARTWRIGHT,
TREY GOWDY, South Carolina Pennsylvania
BLAKE FARENTHOLD, Texas TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia PETER WELCH, Vermont
THOMAS MASSIE, Kentucky TONY CARDENAS, California
DOUG COLLINS, Georgia STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan Vacancy
RON DeSANTIS, Florida
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Stephen Castor, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Economic Growth, Job Creation and Regulatory Affairs
JIM JORDAN, Ohio, Chairman
JOHN J. DUNCAN Jr., Tennessee MATTHEW A. CARTWRIGHT,
PATRICK T. McHENRY, North Carolina Pennsylvania, Ranking Minority
PAUL GOSAR, Arizona Member
PATRICK MEEHAN, Pennsylvania TAMMY DUCKWORTH, Illinois
SCOTT DesJARLAIS, Tennessee GERALD E. CONNOLLY, Virginia
DOC HASTINGS, Washington MARK POCAN, Wisconsin
CYNTHIA LUMMIS, Wyoming DANNY K. DAVIS, Illinois
DOUG COLLINS, Georgia STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina
KERRY BENTIVOLIO, Michigan
RON DeSANTIS Florida
C O N T E N T S
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Page
Hearing held on July 29, 2014.................................... 1
WITNESSES
Mr. Johnny Gutierrez, Former Employee, Short Term Trade Finance
Division, Export-Import Bank
Oral Statement............................................... 6
The Hon. Fred P. Hochberg, Chairman and President, Export-Import
Bank of the United States
Oral Statement............................................... 7
Written Statement............................................ 9
Ms. Diane Katz, Research Fellow in Regulatory Policy, The
Heritage Foundation
Oral Statement............................................... 14
Written Statement............................................ 16
APPENDIX
July 28, 2014, letter to Rep. Cartwright from the Export-Import
Bank, Submitted by Rep. Cartwright............................. 66
July 28, Op-Ed by William Broch, submitted by Rep. Cartwright.... 68
May 2014 CBO study, submitted by Rep. Jordan..................... 72
July 25, 2014, Bloomberg article, submitted by Rep. Cummings..... 82
Opening Statement from the Rep. Matt Cartwright.................. 85
Federal employee viewpoint survey results........................ 87
EXAMINING ALLEGATIONS OF CORRUPTION AT THE EXPORT-IMPORT BANK
----------
Tuesday, July 29, 2014
House of Representatives,
Subcommittee on Economic Growth, Job Creation, and
Regulatory Affairs,
Committee on Oversight and Government Reform,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:05 a.m., in
Room 2154, Rayburn House Office Building, Hon. Jim Jordan
[chairman of the subcommittee] presiding.
Present: Representatives Jordan, DeSantis, Duncan, Meehan,
Lummis, Collins, Meadows, Bentivolio, Cartwright, Duckworth,
and Connolly.
Also Present: Representatives Issa, Woodall, and Mulvaney.
Staff Present: Molly Boyl, Deputy General Counsel and
Parliamentarian; David Brewer, Senior Counsel; Sharon Casey,
Senior Assistant Clerk; Steve Castor, General Counsel; Brian
Daner, Counsel; Adam P. Fromm, Director of Member Services and
Committee Operations; Linda Good, Chief Clerk; Michael R. Kiko,
Legislative Assistant; Mark D. Marin, Deputy Staff Director of
Oversight; Ashok M. Pinto, Chief Counsel, Investigations;
Jessica Seale, Digital Director; Andrew Shult, Deputy Digital
Director; Jonathan J. Skladany, Deputy General Counsel; Rebecca
Watkins, Communications Director; Jaron Bourke, Minority
Director of Administration; Courtney Cochran, Minority Press
Secretary; Jennifer Hoffman, Minority Communications Director;
Tim Lynch, Minority Counsel; Brian Quinn, Minority Counsel; and
Katy Teleky, Minority Staff Assistant.
Mr. Jordan. The committee will come to order. I want to
thank our witnesses for being here. We'll get to you in just a
minute. We're going to start with opening statements, and begin
by recognizing the chairman of the full committee, the
gentleman from California, Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman. Thank you for holding
this very important hearing today. Our witnesses are here
because it's important the American people understand that with
a pattern and a history of, and I use the word ``corruption''
in parentheses, but inappropriate behavior, questionable loans,
a number of scandals that have made the American people
question whether or not the term ``bank'' is appropriate for
the Export-Import Bank.
Ex-Im Bank is not just a government program or subsidy. It
is, in fact, a longstanding entity that is intended to help us
compete in our exports around the world, it's intended to make
American products that would not otherwise be produced and
exported possible, but it is, in fact, a program that comes
with a cost. Any time the American people have a question about
whether or not the risk is worth the reward. Mr. Chairman, I'm
one member who believes that the risk and reward should be
positive.
Americans compete around the world with countries who play
by different rules. There are countries, like China, that will
simply buy their way into a market. They will bribe individuals
in government to gain rights and capabilities. Even countries
as advanced as France are known to fail to meet the anti-
corruption laws that America observes. So for that reason, it's
important when Airbus has an opportunity to sell to America,
that Boeing have an opportunity to have an even playing field.
No company should be forced to move out of the country in order
to access plans and financing that would be available to them--
would not be available to them if they were within this.
Having said that, our jurisdiction is not on renewing the
Ex-Im Bank; our jurisdiction clearly is on waste, fraud and
abuse and the organization--or organizational strategies
necessary for the American people to have a feeling of
confidence in the Export-Import Bank. That does mean that we
have to look at failures related to corruption and failures
related to does this entity make loans possible where they
otherwise wouldn't be possible, or is it often used for very
high numbers for entities that would, in fact, otherwise still
have a sale.
This committee only a few weeks ago looked at an embassy
program that went awry in Papua New Guinea. We do not blame the
Ex-Im Bank for the failure of that construction project, but a
deciding factor in the mid-construction change was, in fact, an
Ex-Im Bank-sponsored loan program that was going to cause
natural gas to be liquefied in Papua New Guinea and then sent
to China.
I, for one member, have serious questions about whether or
not a company that is American flagged, but ultimately global,
can receive income from one country, sell it to another
country, and then claim that the risk should be on the American
taxpayers.
So as we look at both the loan portfolio, the loan
criteria, and the integrity of the organization, I hope we'll
do so with a positive attitude that this is a longstanding
program that has merit, but that, in fact, we have an
obligation to see lives up to the highest standards, not of a
bank, not of a government entity, but of a program designed on
behalf of the American people to promote positive job growth
here in America through our products being competitive around
the world.
And for that reason, Mr. Chairman, you are showing great
leadership here today in giving the Bank and others an
opportunity to make their case for how they can do better on
behalf of the American people, and I thank you for that, and
yield back the balance of my time.
Mr. Jordan. I thank the chairman.
I would now yield to the ranking member of the
subcommittee, the gentleman from Pennsylvania, Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman. And I welcome our
witnesses on today's panel. Today's hearing is intended to
examine recent allegations of corruption at the Export-Import
Bank, an independent, self-sustaining agency with a history of
supporting U.S. jobs by financing the export of American goods
and services. I do look forward to today's testimony on the
bank's anti-corruption and anti-fraud efforts, the bank's
process for responding to employee integrity issues, and how it
does maintain high ethical standards that Congress and the
American public expect from all government agencies. However, I
am concerned that this hearing today has been called, in a rush
to judgment, intended to tarnish the reputation of the Bank and
its employees in an attempt unduly to influence a vote on the
bank's reauthorization.
Four Ex-Im Bank employees are currently under
investigation. Details of those investigations cannot and
should not be discussed at this hearing, because congressional
oversight is not supposed to jeopardize ongoing personnel
actions or criminal investigations. I hope that the chairman
will agree to instruct members not to jeopardize
unintentionally the investigations by pressing for certain
details of alleged misconduct.
Nonetheless, both Chairman Jordan and Chairman Issa have
stated that these incidents, which we have very limited detail
about, suggest a broader culture of corruption at the Bank, but
the facts do not support that conclusion. Each of these
investigations followed a formal referral for investigation
that originated in the Ex-Im Bank's general counsel's office,
and to date, every case of alleged fraud that the IG has
referred for prosecution concerns outside entities which were
seeking to steal taxpayer funds, not bank employees.
Now, the fact that outside parties attempted to defraud the
Bank does not indicate that there is a culture of corruption
inside the Bank. Calling the Bank corrupt for crimes committed
against it is what we call blaming the victim.
Now, let's talk about what this hearing is really about,
and that is the reauthorization of the Ex-Im Bank. This issue,
for the first time in modern memory, has become controversial,
not because of the issue before us today, but because the Tea
Party faction of the Republican Party is holding this
reauthorization hostage. This hearing seems to be designed to
influence this important upcoming vote with propaganda and
political theater.
A large group of Democrats as well as sensible moderate
Republicans, many of whom I am proud to call my friends,
understand the contribution that the Export-Import Bank makes
to our communities by providing support for jobs and
investments in small businesses all across America. It helps
our domestic manufacturers compete with companies that are
getting help from their own country's export banks overseas. We
have to level the playing field for our companies, because
other countries are putting their thumbs on the scale in favor
of their own manufacturers. If we don't level the playing field
for our companies, our companies and our workers face unfair
disadvantage.
The Bank supports businesses in every state in the union.
In my district alone, I'm very happy that the Bank supports 10
companies and 639 jobs. In fact, in Pennsylvania, the Bank
supports $5.5 billion in exports. Nationwide, the Bank has
supported 1.2 million American jobs, generated billions for the
government, and costs the U.S. taxpayers nothing. In fact, we
make money on the deals. On average, 87 percent of bank
transactions benefit small business exporters of U.S.-made
goods and services. These are deals that could not and would
not be done by the private sector alone, and are the perfect
example of the kinds of public-private partnerships we need to
get our economy going again, get our businesses thriving again
and get our people back to work.
And speaking of getting back to work, I would note that
this is the first hearing on the Economic Growth, Job Creation
and Regulatory Affairs Subcommittee that has even tangentially
anything to do with job creation, and therefore, I appreciate--
having--appreciate the chairman having this hearing at all.
I do hope the chairman will join with me and other
Republican and Democratic members who are calling for a
reauthorization of a bank that supports U.S. jobs by financing
the export of American goods and services. In fact, an op-ed by
William E. Brock, labor secretary under President Ronald Reagan
shows how far away from the tenets of President Reagan the
modern Republican Party has drifted. He said, as a Republican,
I would prefer that the private sector carry the entire load of
supporting our international competitiveness, but the world
market is not a level playing field, and the Bank is absolutely
vital for companies involved in the global economy. Having
worked closely with Mr. Reagan on trade issues, I am confident
that he felt the same.
And, Mr. Chairman, I ask unanimous consent to enter this
op-ed by Former Secretary Brock into the record.
Mr. Jordan. Without objection.
Mr. Cartwright. Thank you, Mr. Chairman, and I yield back.
Mr. Jordan. I thank the gentleman for his statement.
According to a recent report--well, let me do one other
thing first. I ask unanimous consent that Mr. Mulvaney, the
gentleman from South Carolina, be allowed to participate in
today's hearing.
According to a recent report in The Wall Street Journal, at
least four bank employees are under investigation for accepting
bribes and steering Federal contracts to favored companies. In
fact, fraud within and against the Bank may be far more
widespread. The acting Inspector General of the Bank has
informed the committee that there are at least 40, 40 active
and ongoing investigations of fraud. And I would just as an
aside highlight, after the ranking member's opening statement,
that what better time, what better time to discuss real
concerns at the Export-Import Bank than when we're looking at
the issue of reauthorization. I think this would be the
appropriate time to have this kind of hearing and look at these
very issues.
In a hearing last month before the Financial Services
Committee, Mr. Hochberg testified, ``The article that was in
yesterday's Wall Street Journal, in my opinion, is actually a
good article, because it says to our staff and to the exporter,
if you're doing anything funny, any funny business, we are on
to you.'' But just a few years ago the Export-Import Bank was
at the center of the most high profile corruption scandal,
Abscam, when former congressman, William Jefferson, was caught
with $90,000 in his freezer. As part of that investigation, an
Ex-Im Bank employee admitted to taking a $100,000 bribe from a
Nigerian businessman seeking financing from the Bank.
Apparently, the Bank's employees need regular reminders that
it's wrong to accept bribes.
The allegations are appalling, but they are hardly
shocking. The sole purpose of the Ex-Im Bank is to hand out
billions of dollars to private companies in the form of direct
loans, loan guarantees and credit insurance. Given such massive
government largesse, the Bank is a natural target for fraud and
its employees are natural targets for bribery and corruption.
What is shocking is how the Bank has managed that risk.
One of the witnesses before the committee today is alleged
to have accepted bribes from a south Florida exporter known as
Impex Associates. Ex-Im Bank has a long history with Impex
Associates, approving over 22 deals stretching from 2002 to
2011. In 2006, a 70-page lawsuit filed in Federal court laid
out in excruciating detail how Impex Associates was nothing
more than a massive scheme to defraud the Bank. Even after the
whole world knew that Impex Associates was bilking the American
taxpayer, it took the bank's management 3 years, 3 years to
suspect there was anything wrong and refer the matter to the
Inspector General. In fact, during those 3 years, the Bank
approved five more deals with Impex, subjecting taxpayers to up
to $40 million in liability.
According to the 2013 Federal Employee Survey, the Bank's
staff have little faith in its leadership. When asked if, ``my
organization's leaders maintain high standards of honesty and
integrity,'' only 42 percent of the employees at the Bank said
yes; when asked whether they could, ``disclose a suspected
violation of any law, rule or regulation without fear of
reprisal,'' only 50 percent of the Bank employees said yes.
That's the culture that exists at the Bank, that's why it's
appropriate we have this hearing at a time when we're looking
at the issue of reauthorization.
President Obama famously said that when the American people
lose faith in the ethical standards of government employees,
all is lost.
In the private sector, if half of the employees of a
company lost faith in their leadership, there would be big
problems with that company. Unfortunately, that is what appears
to be the case today with the Export-Import Bank. That's why
we're having this hearing.
And with that, I would yield back our time and recognize--
is there anyone else on the Democrat side who--is Mr. Cummings?
Anyone else wish to make an opening statement? Anyone else on
the Republican side wish to make an opening statement?
We will now go to our--members have 7 days to submit
opening statements for the record. We'll now go to our
witnesses. We have first Mr. Johnny Gutierrez, who's the former
official in the short-term trade and finance division--trade
finance division, excuse me, of the Export-Import Bank; we have
the Honorable Fred Hochberg, who's chairman and president of
the Export-Import Bank of the United States; and Ms. Diane
Katz, who is a research fellow in the regulatory policy
division at the Heritage Foundation.
I want to thank you all for being here. We know it's not
always easy to do this, but we appreciate you being here with
us.
Pursuant to committee rules, all witnesses will be sworn in
before they testify. If you'll please stand and raise your
right hand. 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 show
that each witness answered in the affirmative.
You guys know how this works. You're given 5 minutes, more
or less, right around the 5 minute mark, to make your opening
statement. I know some of you submitted those already in
written form. I'd like to thank you all for being here. And we
will start first with Mr. Gutierrez.
WITNESS STATEMENTS
STATEMENT OF JOHNNY GUTIERREZ
Mr. Jordan. Mr. Gutierrez, you have not provided us with
any written testimony before today's hearing. Do you wish to
make an opening statement?
Mr. Gutierrez. Upon advice of counsel, I hereby invoke my
privilege against self-incrimination under the Fifth Amendment
to the United States Constitution, which protects the innocent
as well as the guilty.
Mr. Jordan. We certainly respect that right you have, Mr.
Gutierrez, under our wonderful Constitution.
Mr. Gutierrez, as an official in the Export-Import Bank's
short-term trade finance division, you are uniquely qualified
to provide testimony that will help the committee better
understand allegations of corruption and fraud at the Export-
Import Bank. To that end, I must ask you to consider answering
the questions, so if you'll just bear with me.
Mr. Gutierrez, while you were at the Export-Import Bank,
did you accept any gifts or items of value from either Geraldo
Diaz or Impex Associates?
Mr. Gutierrez. Upon advice of counsel, I hereby invoke my
Fifth Amendment privilege against self-incrimination.
Mr. Jordan. I just have a couple questions, Mr. Gutierrez,
and then we'll let you go here.
Mr. Gutierrez, The Wall Street Journal reported that you
and three other Export-Import Bank employees accepted gifts and
kickbacks and improperly awarded contracts to favored
companies. Are you aware of any other employees at the Export-
Import Bank who accepted gifts or items of value from companies
or individuals seeking export financing?
Mr. Gutierrez. Upon advice of counsel, I hereby invoke my
Fifth Amendment privilege against self-incrimination.
Mr. Jordan. Just one last question, Mr. Gutierrez. Are you
prepared to answer any questions here today about anything you
did while you were at the Export-Import Bank?
Mr. Gutierrez. Upon advice of counsel, I hereby invoke my
Fifth Amendment privilege against self-incrimination.
Mr. Jordan. Does the ranking member have questions for Mr.
Gutierrez?
Mr. Cartwright. Not at this time.
Mr. Jordan. Mr. Gutierrez----
Mr. Issa. Mr. Chairman? I would ask before you dismiss the
witness that--instruct counsel to meet with our counsel to see
whether or not there is or could be a proffer prior to
dismissal, since Mr. Gutierrez is here pursuant to a subpoena.
I would rather do that than to try to make contact later.
Mr. Jordan. We're going to excuse Mr. Gutierrez. If--Mr.
Gutierrez, if there's a chance you and your counsel could visit
briefly with our counsel and--after you're dismissed, we would
appreciate that. So we'll just take a short recess. Mr.
Gutierrez, you're dismissed.
A couple, 2-minute break here, and we'll maybe rearrange
the table a little bit, and then we'll be right back for our
opening statements from Mr. Hochberg and Ms. Katz.
Mr. Gutierrez, thank you for being here today. The witness
is dismissed.
[recess.]
Mr. Jordan. Mr. Hochberg, you are recognized for 5 minutes.
STATEMENT OF HON. FRED P. HOCHBERG
Mr. Hochberg. Thank you. Chairman Jordan, Ranking Member
Cartwright and committee members, thank you for inviting me
here to testify before you today.
Ex-Im Bank is the official export credit agency of the
United States. We operate exclusively in cases where the
private sector is unwilling or unable to provide support, and
to level the playing field against foreign competition. I am
proud of our 400-plus employees, too, each and every day. Ex-Im
Bank has supported 1.2 million private sector jobs in the
U.S.--U.S. jobs since 2009, including 205,000 in fiscal 2013
alone. The Bank operates at no cost to taxpayers, and in fiscal
2013, the Bank generated $1,057,000,000 for U.S. taxpayers
above and beyond the cost of all operations and loan loss
reserves. The $1 billion goes towards deficit reduction.
We report on default rate to Congress every 90 days. As of
June 30th, Ex-Im's default rate was.194 percent, or in other
words, less than one-fifth of a percent. The private sector
average rate, as calculated by the Fed, is currently three to
four times that amount.
Today's hearing concerns ethics and how the agency
addresses this important area of public trust. The Bank is
fully committed to transparency and expects the highest ethical
standards from all employees, and I look at this in three
distinct areas: One, a culture of ethics starts at the top. I
personally and the management team at the Bank are fully
committed to running an ethical agency and operating at the
highest ethical standards in government. Anything less than
this is unacceptable.
Second, a committed culture of ethics must also have a
strong ethical training and compliance program to ensure that
all employees understand and internalize regulations and
ethical expectations.
And third, lastly, because we don't live in a perfect
world, an effective monitoring enforcement program must also
exist. We work very closely with the Inspector General to
monitor and enforce ethical concerns or breaches. One of my
first orders of business when I joined Ex-Im was to establish a
regular meeting with the Inspector General. I continue to meet
with him privately each and every month.
Before joining Ex-Im, I ran a business, a small business,
in fact, for 20 years and I know what it means to meet a weekly
payroll. I also know that the only way for an organization to
be successful is to operate at a high ethical level and have
zero tolerance for fraud, waste or abuse.
Additionally, let me add that the agency's ethics program
are fully compliant with all laws, regulations and policies
that govern this aspect of our work. We are committed to
comprehensive ethics training for all employees--in fact, we
have a manual right here--and foster an environment where
employees are encouraged to ask questions and report suspected
unethical behavior.
Here are just seven examples of what we're doing: all new
employees receive the manual ethics training upon arrival; they
also receive mandatory annual ethics training thereafter;
three, Ex-Im thoroughly reviews all financial disclosure
reports, required to be filed by all employees on an annual
basis; four, we conduct background checks on all of our
employees and contractors that work at the Bank; five, we also
periodically conduct background re-investigations on employees
who have access to sensitive information and those who hold
high level security clearances; six, we provide advice to
employees to avoid any potential conflicts of interest; and
lastly, we work closely with and refer matters, as appropriate,
to the Inspector General.
As I mentioned, I meet monthly with the Inspector General
and we review the status of audits and other ongoing
investigations and periodic reports to Congress. I am only
informed of an investigation at the discretion of the Inspector
General.
Ex-Im Bank fully respects the authority of Congress to
provide oversight of the Bank, and we strive to comply with all
congressional requests to the fullest extent possible without
compromising ongoing investigations. I know that every member
of this panel shares my concern about not interfering with an
ongoing criminal investigation. The last thing I want to do is
interfere with the ability of law enforcement officials to
fully and successfully prosecute wrongdoing.
I know there is intense interest in the allegations
mentioned in the recent newspaper article. So as not to
compromise the ongoing criminal investigations, privacy
interest and due process rights, I can only say the following:
Three individuals are no longer employed by the Bank and a
fourth has been placed on administrative leave.
I want to reiterate, the Bank has zero tolerance for ethics
violations. And I look forward to answering your questions.
[Prepared statement of Mr. Hochberg follows:]
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[GRAPHIC] [TIFF OMITTED] T0965.005
Mr. Jordan. We now recognize Ms. Katz.
STATEMENT OF DIANE KATZ
Ms. Katz. Chairman Jordan, Ranking Member Cartwright and
members of the subcommittee, thank you for having me here today
to testify. My name is Diane Katz and I am a research fellow in
regulatory policy at The Heritage Foundation. The views
expressed in this testimony are my own and should not be
construed as official positions of The Heritage Foundation.
As you are aware, the charter of the Export-Import Bank
expires on September 30th. Proponents of reauthorization assert
that the Bank sustains American jobs, fills gaps in export
financing, and levels the playing field against subsidies
provided by foreign governments; however, there is abundant
evidence to the contrary and the academic literature is
virtually unanimous in concluding that export subsidies are
detrimental.
The Office of Inspector General and the Government
Accountability Office have repeatedly documented mismanagement
and dysfunction within Ex-Im, including insufficient policies
to prevent waste, fraud and abuse. This pattern of carelessness
with taxpayer dollars is evident in the multitude of criminal
cases involving the Bank.
As the chairman noted, employees say that ethical conduct
is not among Ex-Im's strengths. In a 2013 government survey,
only 42 percent of bank employees agreed with the statement, my
organization's leaders maintain high standards of honesty and
integrity.
In a 2013 review of direct loans, the Office of Inspector
General identified the Bank's non-compliance with even the most
basic Federal procedures, noting ``Bank personnel failed to
document applicants' eligibility and application requirements
and disregard mandatory checks on applicants' character and
financial integrity.''
Operational deficiencies appear to have worsened as bank
financing has surged. Ex-Im's portfolio has increased by 94
percent since 2008. As noted by the Inspector General, this
rapid growth raises concerns as to Ex-Im's inability to manage
and monitor its portfolio.
Failures in management and monitoring are evident in dozens
of cases of fraud. Based on a review of government data, The
Heritage Foundation documented 124 investigations initiated
between October 2007 and March 2014, as well as 792 claims
involving more than a half billion dollars. There also have
been 74 administrative actions since April 2009 in which bank
officials have been forced to halt transactions based upon
investigative findings.
A lack of due diligence was explicitly cited in the
disappearance of $577 million related to the Bank's financing
of a massive natural gas project in Papua New Guinea. The
Inspector General noted that Ex-Im did not fully vet the
relevant persons and entities connected with the project.
Similar lapses were cited in the Bank's financing of the
Bolero mine project in Mexico, which defaulted within months of
receiving a $420 million loan. According to the Inspector
General, project vulnerabilities ``were not sufficiently
addressed in Ex-Im Bank's due diligence efforts.''
In other cases, the Bank has engaged in literally dozens of
transactions with an individual or a company before discovering
that taxpayers were being defrauded. For example, from 2008
through 2010, Jose Quijano acted as an exporter in 96
fraudulent loan transactions insured by the Ex-Im Bank. Between
2004 and 2007, Ismael Garcia acted as the purported exporter in
at least 31 fraudulent transactions involving $23 million in
loans. From 2004 through 2007, Jose Velasco and others
submitted false documents for 13 Ex-Im loan guarantees. The
Bank subsequently paid $18 million in claims on the defaulted
loans. Between 2004 and 2009, Luis Moy acted as the exporter in
11 fraudulent Ex-Im Bank insured or guarantied loans totally
$11.2 million.
Fraud and corruption are not the only risks to taxpayers
related to Ex-Im. The Government Accountability Office reported
that the Bank appears to be relying on inappropriate risk
modeling that could produce inaccurate estimates of subsidy
costs and losses.
Ex-Im officials also are skirting requirements for
determining the effect of export subsidies on domestic firms.
Specifically, the Bank omitted relevant data and analysis
beyond that considered necessary to support staff
recommendations for financing.
Despite promises to improve matters over the years, bank
officials continue to neglect due diligence, misstate losses,
and exaggerate benefits. These failures are important to
acknowledge as you consider whether to reauthorize the Bank or
allow its charter to expire. Thank you.
Mr. Jordan. Thank you, Ms. Katz.
[Prepared statement of Ms. Katz follows:]
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Mr. Jordan. We'll now go to questions. The gentleman from
Florida, Mr. DeSantis, is recognized.
Mr. DeSantis. Good morning, Chairman Hochberg. When did you
become aware of Mr. Gutierrez's alleged corruption?
Mr. Hochberg. There are four employees who are under
investigation. And on advice of counsel and after talking to
the Inspector General not to jeopardize their case, I'm really
not able to talk about a criminal investigation while it's
going on.
Mr. DeSantis. So you can't even say when you were apprised
of it just in terms of how we evaluate your role in running the
agency, not even getting into the criminal charges?
Mr. Hochberg. My--the Inspector General's already been
concerned that too much information has leaked about this. He
has--he wrote a letter to----
Mr. DeSantis. Okay. Well, let me--I take your point. Was
this the first time you've been made aware of possible
corruption by the Export-Import Bank employees in your tenure?
Mr. Hochberg. Yes. I've been at the Bank for 5 years. This
was the first year.
Mr. DeSantis. So you were not aware of any other instances
of employee corruption since you've been at the Bank?
Mr. Hochberg. Well, there are four cases that have been
raised in the newspaper. I'm familiar with those four.
Mr. DeSantis. Now, at the June 25th Financial Services
hearing, Chairman Jordan referenced that you said that
yesterday's Wall Street Journal article, in my opinion, is
actually a good article.
Did the Export-Import Bank need a reminder by The Wall
Street Journal that it's explicitly illegal to accept bribes?
Mr. Hochberg. No.
Mr. DeSantis. And I bring that up, because most American's
don't know what the Export-Import Bank is, but a lot of
Americans do remember, and this was--I guess, the misconduct
would have been before you got there, but it came to a head in
2009. There was a Member of Congress that the FBI found
thousands of dollars in his freezer, Congressman Jefferson.
That was a very high profile scandal.
And so I guess my question is, you know, why are we here
again? It's been just 5 years since the Export-Import Bank was
at the center of one of the biggest corruption scandals in
Congress certainly in decades, and yet it's back on the front
page of The Wall Street Journal. So how is that a good thing?
Mr. Hochberg. What I tried to say, Congressman, is that we
work closely with the Inspector General. We have set a high
ethical standard at the Bank. We work closely with all
employees to provide ethics training. We instituted a multi-day
course this year that was oversubscribed. Over 50 people have
taken it so far. We're going to be extending that. We have a
high ethical standard there. On the other hand, enforce--the
reason we have to have enforcement is not everybody plays by
the rules, not everybody follows the rules, and when that does
happen--and in this case, in the cases we're talking about,
employees at the Bank referred each and every one of those to
the general counsel and to the Inspector General----
Mr. DeSantis. So the source of those--the four instances
that The Wall Street Journal referenced, the source of that
were employees referring that, or did those start in the
context of a fraud investigation?
Mr. Hochberg. It started with employees saying that
something doesn't look right in this transaction on this area
of the Bank.
Mr. DeSantis. Okay. Because according to your letter to the
committee, the alleged wrongdoing by Mr. Gutierrez was
discovered during a fraud investigation. I think that's what
you're saying. There as a transaction, people say, hey, there
may be something wrong. So basically the foreign company may be
committing a fraud or the domestic company against the Ex-Im
Bank.
Now, as I understand it, there are at least 40 outstanding
fraud investigations of bank transactions that are outstanding.
Is that correct?
Mr. Hochberg. I don't know about the precise number. I can
say this, Congressman: We--there only have been four employees.
There will always be at a bank of our size a number of
transactions that will be under suspicion or will be
investigated.
Mr. DeSantis. No. I understand that. And I agree with that,
but my point is simply that if we have 40 fraud investigations,
it seems as if that is kind of the way in which some of the
employee misconduct can be discovered, and so if there are
substantial number of outstanding fraud investigations, it
stands to reason that there very well may be more instances of
employee misconduct.
I'm going to ask you this: You noted in your testimony that
the Ex-Im Bank serves to kind of level the playing field, you
have all these foreign countries that engage in subsidies for
their domestic industries. And I guess my question is for you
is, why are we worried about foreign nations engaging in
industrial policies? It just seems to me that, I understand why
that would be politically attractive, but economically it seems
like it would be counterproductive, because you basically have
central planners who are allocating capital rather than
allowing private individuals. And so if China wants to go down
that road, China may not be experiencing the growth that they
would have if they were leaving private capital to allocate
itself based on the private ownership. So how would you respond
to that?
Mr. Hochberg. We live in a world right now--and we have to
partly accept the world we live in. We live in a world where
there is state-directed capitalism in many, many countries;
China's one, but it's not the only one.
We want to make sure that when American companies are
competing--if they compete against another company, it's one
thing; if they compete against China, Inc., or Korea, Inc., or
Russia, Inc., and so forth, sometimes those companies are
backed by those governments, we want to make sure if, only if
our financing is needed to level the playing field, that we
step in. We only step in in those rare occasions where we're
needed to.
Mr. DeSantis. My time is expired. I yield back to the
chairman.
Mr. Jordan. The gentleman from Pennsylvania, the ranking
member, Mr. Cartwright, is recognized.
Mr. Cartwright. Thank you, Mr. Chairman.
Mr. Hochberg, I thank you again for appearing here today,
and I just want to run over a few important facts with you.
First of all, am I correct that the Ex-Im Bank supports 1.2
million American exporting jobs?
Mr. Hochberg. Yes, that's correct.
Mr. Cartwright. Okay. At no cost to the taxpayer?
Mr. Hochberg. That's correct, no cost to the taxpayer.
Mr. Cartwright. And this is a function, to address my
colleague, Mr. DeSantis' concern: How many other countries--
it's something like 40 other countries in the developed world
that have the equivalent of the American Ex-Im Bank. Isn't that
true?
Mr. Hochberg. There are actually 59 other export credit
agencies around the world.
Mr. Cartwright. 59 others in the world. And if we didn't
have ours to help American companies compete, the playing field
would be much less level than it is today. Am I correct in
that?
Mr. Hochberg. That is totally correct.
Mr. Cartwright. All right. Well, nevertheless, we do have
this Wall Street Journal article about four cases of
potentially criminal misconduct, and I want to talk about that.
With respect to those, I understand that on the advice of the
Bank's counsel, you're not able to discuss the details of those
cases. Am I correct in that?
Mr. Hochberg. That is correct.
Mr. Cartwright. Now, we asked the acting Inspector General
whether he would be able to discuss the circumstances of those
four individuals, and in a letter we received from him
yesterday, he explained as follows: ``Disclosure of such
information could seriously prejudice law enforcement efforts
by alerting potential defendants to which potential witnesses
and sources of information the government has obtained.''
To your understanding, Mr. Hochberg, is that the same
reason why you were advised not to discuss the details of those
cases?
Mr. Hochberg. Precisely.
Mr. Cartwright. All right. But, Mr. Hochberg, I'm guessing
it is a matter of some frustration to you that you cannot share
more information about the allegations of misconduct concerning
these four individuals. Is that right?
Mr. Hochberg. Yes. I mean, they're under investigation. I
don't have all the facts, so I would only be making conjecture.
Mr. Cartwright. And I share your frustration, Mr. Hochberg,
but I understand why we can't do that here. It would be a
scandal if something this committee did allowed potential
defendants to avoid prosecution. And while I understand you
can't share with us the details about those four individuals,
the question is, what, if anything, can you tell us about any
employment action the Bank has taken against these individuals
to date?
Mr. Hochberg. There are four employees who are subject to
an investigation, three of which have been separated from the
Bank, one is still on administrative leave, because it was only
discovered in the last 6 or 8 weeks. Each one of those is
subject to a potential criminal investigation and criminal
charges. So we are working with the Inspector General,
Department of Justice, that is doing a full investigation.
Mr. Cartwright. Now, in terms of timing, Mr. Hochberg, as I
understand it, the Bank took employment action against these
individuals before The Wall Street Journal article first
appeared. Am I correct in that?
Mr. Hochberg. Oh, yes, months before.
Mr. Cartwright. So at the time The Wall Street Journal
reported back in June of this year that the Bank has suspended
or removed four individuals for misconduct, the Bank was not
only aware of the allegations, but it had already taken action.
Correct?
Mr. Hochberg. That's totally correct.
Mr. Cartwright. In a letter we received from the Inspector
General yesterday--and I do ask for unanimous consent to enter
this letter into the record.
Mr. Jordan. Without objection.
Mr. Cartwright. He explains that, to date, he has not found
evidence of widespread employee misconduct or any systemic
employee involvement in fraud schemes at the Bank.
My question is, in those instances in which employee
misconduct has been alleged to have occurred, where did the
tips come from and who asked the IG to investigate?
Mr. Hochberg. In each of those cases, they came from other
employees, who either referred the matter initially to their
supervisor or the general counsel, and then later they were on
referred to the Inspector General.
Mr. Cartwright. Would that be a healthy indicator that the
ethical training that you've mentioned and reporting that the
Ex-Im Bank has developed over the years has been working?
Mr. Hochberg. Yes. I mean, I would obviously prefer to have
no fraud at the Bank, but I--if we're going to--if it comes up,
the fact that our employees are alert to it and want to root
that out is something I admire in our employees.
Mr. Cartwright. And would you briefly explain why a
commitment to ethics is important to you in the culture at the
Ex-Im Bank.
Mr. Hochberg. Very simply, I mean, we operate at the public
trust, we're here to level the playing field and to support
jobs, and so it's important that everybody at the Bank operate
at the highest ethical standards. It starts with top
management, it continues through the training we do and making
sure we have a culture that when people see something that's
awry or suspicious, that they alert the proper authorities so
they can take a look at it.
Mr. Cartwright. Well, thank you, sir. And I'm going to
yield back to the chairman.
Mr. Jordan. I thank the gentleman. We'll--before
recognizing the other gentleman from Pennsylvania, I would just
ask unanimous consent to enter into the record the CBO study,
Fair Value Accounting, which estimates that the Bank will cost
taxpayers $2 billion over the next few years. Without
objection, that will be put into the record as well.
Mr. Jordan. We'll now recognize the gentleman from
Pennsylvania, Mr. Meehan.
Mr. Meehan. I want to thank the chairman. I thank our
witnesses today for their presence here in helping us to
identify a little more clarification of just one of the issues
I know that's being raised right now, but let me just do some
background in general.
Mr. Hochberg, the Export-Import Bank, it does, what, about
$50 billion a year now in loans? Is that accurate?
Mr. Hochberg. That's a little high. We're----
Mr. Meehan. It's a little high?
Mr. Hochberg. Last year we did $27.4 billion.
Mr. Meehan. Oh, is that right? Okay. I'm looking at a
different statistic, but I see----
Mr. Hochberg. Well, export supported, so in other words--
because we don't do 100 percent of any loans----
Mr. Meehan. Right.
Mr. Hochberg. --so export supported. Last year we did $27.4
supporting about $36 billion worth of exports.
Mr. Meehan. And most of those were--we see frequently
discussions about big companies that are reportedly part of
this process, but am I accurate in saying that--Mr. Bentivolio
and I are having a little trouble here getting eye contact with
his--but am I accurate in my understanding that actually about
90 percent of those loans go to small businesses?
Mr. Hochberg. Yes. That's correct.
Mr. Meehan. So those are job creators back in the
communities, and people--you--at the outset of your testimony,
you identified that the reason that you're in this market is
that they were not able to get financing at traditional bank
markets. Do you have a second where you could explain that?
Mr. Hochberg. Certainly. I mean, you know, one, I was a
small business owner myself in a family business for 20 years,
and I remember this personally and I see this when I meet with
small business owners around the country: It is always more
difficult for a small business owner to get financing, ever
more so when they also have customers overseas and they're
exporting. It's still more foreign. We're becoming more of an
export Nation, but generally speaking, it's even more difficult
when they're exporting.
Mr. Meehan. The--Ms. Katz, I know you raised some points
about confidence within the institution. I'm not--I did have to
laugh to myself. You were concerned because 42 percent of the
employees within the institution seemed to have confidence in
the standards of honesty, integrity. What do you think the
percentage of American citizens would be if they asked about
the sense of confidence of honesty and integrity of Members of
Congress today.
Ms. Katz. I'm not sure that's--that's the right standard,
Congressman, that I would use.
Mr. Meehan. I just--the people are cynical about a lot of
things you see these days, but I just sort of say that
facetiously. But very seriously, I mean, I'm as concerned as
anybody about the concept of fraud at an institution like this,
but as a former Federal prosecutor, I have to say to you that
the concept of fraud at any institution in which there's
transactions that take place is really not that foreign a
concept; in fact, we deal with it on a regular basis.
Unfortunately, it seems to be human nature.
Would you explain to me why we can't resolve these issues
by effective investigations and prosecutions like we do in many
parts of our society?
Ms. Katz. We do resolve many of them, dozens of cases in
the--with respect to the Bank; however, I think that we----
Mr. Meehan. Dozens? Sorry. Have there been dozens of
prosecutions?
Ms. Katz. Certainly.
Mr. Meehan. There have been dozens? Okay.
Ms. Katz. Oh, certainly, if not more than that. I think,
you know, the--the issue is that there is a record of
mismanagement within the Bank and a lack of standards within
the Bank that create an environment that is particularly ripe
for fraud and other wrongdoing, and that's the concern. I don't
think that it's good enough to say, well, there's corruption
everywhere or there's fraud everywhere, and therefore we can
expect it at the Bank.
I think the expectation should be that our public
institutions are doing everything in their power to minimize
the amount of fraud and corruption that exists, and I don't
think that that's necessarily the case here.
Mr. Meehan. Ms. Katz, I--or Mr. Hochberg, I----
Mr. Hochberg. Well, let----
Mr. Meehan. Let me ask a question and then you can respond
to it. I mean, I had a period where I actually had the
responsibility to sit on the corporate fraud task force in my
previous time as a U.S. Attorney, because we were seeing this
kind of issue throughout corporate institutions all the way--
one of the resolutions, of course, were--in addition to
increased prosecutions were the beginning of better compliance,
the beginning of better kinds of internal controls.
Mr. Hochberg, now aware of some of the concerns, are you
prepared and are there steps in place to begin to put the kind
of compliance programs and internal controls that would give
the taxpayers confidence that decisions that are being made are
being made on the merits and not for any kind of nefarious
purposes?
Mr. Hochberg. We are continually--excuse me. We have an
auditing firm, an outside auditor, Deloitte and Touche, we have
an audit committee, we have the General Accountability Office,
the Inspector General, all of which give us recommendations on
how to make the Bank run better, how to run better, more
efficiently with less incidents or less potential fraud, waste
or abuse, and we have taken those recommendations and we're
continue working to improve that.
I do want to make one comment. When Ms. Katz said there are
dozens, there are only four employees. There may be companies
we look at on the outside trying to defraud the Federal
Government, but that's separate from employees. So I think we
just need to make sure those are really two separate issues.
Mr. Meehan. Well, thank you for drawing that clarification.
And, Mr. Chairman, my time is up.
Mr. Jordan. Thank the gentleman.
The gentlelady from Illinois, the Honorable Ms. Duckworth
is recognized.
Ms. Duckworth. Thank you, Mr. Chairman. And I'd like to
thank my colleague from Pennsylvania, Mr. Meehan, for
mentioning the Ex-Im Bank's support for small businesses. In
fact, last summer, over 100 businesses attended a forum just in
my one district alone in Schaumburg, Illinois, to learn more
about the benefits of Ex-Im Bank. Since then, the businesses in
my district have told me time and again how the Bank's services
keep them competitive in the global marketplace.
Ex-Im Bank is a job creator and it plays a critical role in
the economy in my home State of Illinois, which is the fifth
largest exporting state in our country. At no cost to the
taxpayers, it supported 1,600 jobs in my district alone and
more than 200,000 across the country. And, in fact, 2 weeks
ago, with grave concerns for the Ex-Im Bank, the National
Association of Manufacturers local chapter in my district asked
for a meeting with me, where they brought up the importance of
renewing the Ex-Im Bank's charter. And, in fact, attending that
meeting, in addition to the vice-president of technology,
factory automation at Bosch Rexroth Corporation, I also had the
president of the National Marine Manufacturers Association,
which is a collection of small businesses who build pleasure
boats for the entire--around the Nation.
And one particular business in my district, Quality Float
Works, in Illinois, who just won a $3 million contract with the
nation of Saudi Arabia to provide some services and yet they
cannot get the loan guarantee that they need for the million
dollars in supplies and equipment. They will lose this contract
that they've been competing for for many, many years, and it
equates to an entire shift that they would add to their
factory, people that will be out of work in my district if they
can't get this loan guarantee from the Ex-Im Bank.
In short, the Bank is critical to small businesses,
manufacturers and job creators in my district and all over the
United States. I agree that no organization is immune from
having bad actors within its ranks at some point. The question
is what processes does the organization have in place to ensure
that bad actors are caught and held accountable.
I wanted to clarify something that Ms. Katz said. She said
that of the dozens and dozens of cases that have been--have
been referred to prosecution, but in fact, the Office of the
Inspector General has said that, and--has not found any
evidence of systemic corruption among Ex-Im Bank employees.
According to the OIG, bank employees have not been implicated
in any of the 70 instances in which fraud was referred to
prosecution.
And my understanding, Mr. Hochberg, is that these four
employees that are currently under investigation were actually
discovered by the Bank itself. Is that not correct?
Mr. Hochberg. That is correct.
Ms. Duckworth. Could you--could you talk a little bit about
the Bank's role in the global economy? What are our competitors
doing? Would U.S. businesses fall behind without the Ex-Im
Bank?
Mr. Hochberg. Thank you, Congresswoman. And we actually do
issue, and just recently issued to Congress the end of June an
annual competitiveness report. This is a report that is
mandated by Congress where we survey customers and exporters
and other export credit agencies to see how competitive we are.
As I mentioned to Congressman Cartwright, there are 59 other
export credit agencies and government agencies supporting
exports around the world. We are in a period of the most brutal
competition for exports and, hence, jobs. Country after country
is trying to export their way out of their economic malaise,
and so U.S. companies, and again, 90 percent of the companies
we work with are small businesses as defined by the SBA, have a
very tough time getting both the financing and competing head
to head.
So we make sure if the private sector isn't there and there
is a reasonable assurance of repayment, that we can step in and
make sure that sale happens and supports jobs in our country,
not overseas.
Ms. Duckworth. One of the things, Mr. Hochberg, that
Quality Float Works told me about their concern with Saudi
Arabia and this one contract in particular that they've been
fighting for 3 years to finally win is the slow pay aspect. Can
you talk a little bit about what Ex-Im does in terms of helping
small businesses be able to survive after they provide services
for people that do pay but are slow?
Mr. Hochberg. That is a particular problem. It's a
particular problem in a number of countries, the one you
mentioned, and I've heard that frequently mentioned.
What we do is we provide--we provide insurance. So a
customer, a U.S. company, the way they buy theft insurance or
fire insurance, we will sell them credit insurance so they can
insure their receivables, so that they know they're going to
get paid, and they can also give dating. So if they provide,
say, 60 or 90-day terms to their customer, once they have the
receivable insured by the U.S. Government, they can go to their
bank and borrow against it. It becomes a collateral, part of
what they call their borrowing base, so then they can get the
cash flow, and we could also assist in that. We provide a 90
percent guarantee, if needed by a local bank, to make the loan,
to give them working capital so that they have the cash flow to
fulfill the order.
Ms. Duckworth. Thank you. I'm out of time. I yield, back,
Mr. Chairman.
Mr. Jordan. Thank the gentlelady.
Mr. Hochberg, does Mr. Gutierrez still--is he still
employed at the Ex-Im Bank?
Mr. Hochberg. He is not an employee.
Mr. Jordan. What were the financial terms of Mr.
Gutierrez's dismissal from the Bank?
Mr. Hochberg. He was dismissed from the Bank early----
Mr. Jordan. Is he receiving any compensation now, any
taxpayer compensation now, any compensation from the Bank?
Mr. Hochberg. He is not.
Mr. Jordan. All right. Mr. Hochberg, there have been four
people identified in the Wall Street Journal as being part of
this--being under investigation, four employees. Are the other
three also--have the other three also been dismissed from the
Bank?
Mr. Hochberg. Three, including Mr. Gutierrez, has been
dismissed. One is on administrative leave pending
investigation.
Mr. Jordan. And the one on administrative leave is still
receiving compensation from the Bank?
Mr. Hochberg. That is correct.
Mr. Jordan. All right. Can you tell me who the other three
individuals are? Can you name those other three?
Mr. Hochberg. I cannot name them. I've been asked, since
they're under criminal investigation--Mr. Jordan, as you know,
you're an attorney, I don't want to jeopardize that case so
they cannot be prosecuted to the full extent of the law?
Mr. Jordan. Who has specifically told you that you can't
tell us--identify who those individuals are?
Mr. Hochberg. Well, you--the letter from the Inspector
General----
Mr. Jordan. No, no. I'm asking you, did the Inspector
General say to you, Mr. Hochberg, don't tell Congress the names
of the other three individuals under investigation? Did he
explicitly tell you that, make that statement to you?
Mr. Hochberg. I was told by our counsel----
Mr. Jordan. I'm not asking about your counsel, I'm asking
about the Inspector General.
Mr. Hochberg. Not to discuss this. Yes, he said not to
discuss this.
Mr. Jordan. He said not to disclose the names of the other
three individuals under investigation, one on paid leave, still
receiving compensation? He said don't tell who--don't tell the
American people, don't tell Congress who they are?
Mr. Hochberg. They're under investigation. And you know and
I know I cannot discuss this.
Mr. Jordan. What statute says you can't?
Mr. Hochberg. I'm trying a make sure that--if they've done
wrongdoing, I want them to be prosecuted and removed, and to
the full extent of the law.
Mr. Jordan. Is there any law that says you can't disclose
to a congressional committee doing appropriate investigation
about an agency where there is fraud, alleged fraud, alleged
bribes taking place, and you can't disclose those names? Can
you name the statute?
Mr. Hochberg. Mr. Chairman, I would certainly----
Mr. Jordan. Because I can't name one.
Mr. Hochberg. I'm not an attorney, but I'm not going to----
Mr. Jordan. I'm not either.
Mr. Hochberg. --jeopardize the case.
Mr. Jordan. But I know there's no statute.
Mr. Hochberg. I am not going to jeopardize the case because
I would like these employees, if they are guilty, to be found
guilty and to be prosecuted to the full extent of the law.
Mr. Jordan. So do we, but we'd also like to know that
information when we're doing an investigation.
We had this debate--just last week, Mr. Gowdy raised this
same question. We always--oh, we can't give you information, we
can't give you documents because there's an ongoing
investigation.
Well, we'd like to know, when will you--when do you think
you will be able to tell us who those other three are?
Mr. Hochberg. Mr. Jordan, I will read you what the
Inspector General said. ``A longstanding policy and practice of
Federal law''----
Mr. Jordan. I want to know what the Inspector General told
you. I'm not asking the Inspector General, Mr. Hochberg; I'm
asking you.
Did the Inspector General specifically tell you, don't tell
this committee who is under investigation? Did he say that to
you?
Mr. Hochberg. I am reading from this letter, and I am not
disclosing that information----
Mr. Jordan. I can read a letter. I'm asking you. You're the
witness today under oath. I'm asking you, why can't you tell us
who the four people are? We know one, and he just took the
Fifth. We'd like to know the other three.
Mr. Hochberg. I cannot disclose those names to the public.
Mr. Jordan. I mean, when do you think you will be able to?
Sometime after September 30th? Not before September 30th?
Mr. Hochberg. It depends if they're indicted. If they're
indicted, it becomes a public--then it becomes public
information.
Mr. Jordan. Let's go to this. Let's change gears. Did you
give $10 million--did the Export-Import Bank give $10 million
to Solyndra in 2011?
Mr. Hochberg. No, we did not.
Mr. Jordan. Our understanding is $10 million in loan
guarantees occurred. John Scott, former vice president of
Solyndra, touted the expedited manner in which Ex-Im Bank
granted Solyndra loan guarantees, stating it benefited from a
``fast due-diligence process.''
The Export-Import Bank did not help in any way financing
Solyndra?
Mr. Hochberg. Well, that wasn't the original question. We
financed a company in Belgium that purchased products from
Solyndra.
We generally do long-term financing of foreign buyers who
are looking at U.S. goods versus Chinese goods versus foreign
goods, and to--and if they require----
Mr. Jordan. So you did help with Solyndra.
Mr. Hochberg. No, we financed a Belgian company that----
Mr. Jordan. No, I understand how it works. I understand how
the Export-Import Bank works. But it was tied to Solyndra,
correct?
Mr. Hochberg. It was--they made a purchase from Solyndra,
that's correct.
Mr. Jordan. Well, yeah, that's how the Bank works.
So how about Abound Solar? Did you do a $9.2-million loan
guarantee to Abound Solar?
Mr. Hochberg. I'd have to look at what the--look, we make
loans, Mr. Chairman, to the foreign buyers who's buying from
U.S. companies.
Mr. Jordan. Right. I understand. Both Abound Solar and
Solyndra went bankrupt. We have had--this committee has done a
lot of examination of the loan guarantee program. And we just--
I just found it amazing that you were also tied in with the
very companies in the loan guarantee program which lost
taxpayer money to Solyndra, Abound Solar, Beacon Power, and
others, that you've given money to the--to benefit those same
companies.
Let me go back to you, Ms. Katz, real quickly. You
mentioned the number 74 in your testimony. Tell me about that
again.
Ms. Katz. Those are administrative actions that were
reported taken by the Inspector General following integrity
investigations at the agency.
Mr. Jordan. Closed investigations where they found----
Ms. Katz. Well, what's referred to--there's not a lot of
transparency, as you might imagine, with these things. But
administrative actions are responses by the Ex-Im Bank to stop
transactions, cancel policies, or protect funds at risk based
upon investigative findings.
Mr. Jordan. All right. Thank you.
Last thing before I run out of time here, Mr. Hochberg.
Again, just for the record, no one--the Inspector General
didn't explicitly tell you not to share with Congress the
identities of the other three individuals under investigation,
yes or no?
Mr. Hochberg. I have been advised not to disclose the names
of the individuals who are under investigation, not----
Mr. Jordan. Okay.
Mr. Hochberg. --to jeopardize their case.
Mr. Jordan. And who was that? Who advised you not to? Your
counsel?
Mr. Hochberg. Our counsel.
Mr. Jordan. Ex-Im counsel?
Mr. Hochberg. And working with the Inspector General.
Mr. Jordan. Who advised you, counsel or Inspector General?
Mr. Hochberg. Mr. Jordan, both. I met with the--I meet with
the Inspector General on a regular basis. I meet with him every
month, as I mentioned to you. And when these have come up, he
has said not to discuss them.
Mr. Jordan. All right. I thank the gentleman.
I will yield now to Ms. Kelly. The gentlelady is recognized
for 5 minutes.
Ms. Kelly. Thank you, Mr. Chair.
I'm glad that this panel is here today because I know how
critical Ex-Im is to my district. Three hundred and one
companies and 36,000 jobs in my State depend on Ex-Im
reauthorization.
So, Ms. Katz, I'd like to speak about your testimony. I'd
like to know a little bit more about the research that went
into your assertions, because you seem to rely on reports from
the IG and GAO as the basis for your assertions.
Did you personally conduct any type of investigations into
allegations of fraud or corruption at Ex-Im Bank?
Ms. Katz. I reported on what the Inspector General has
issued and his reports to Congress, as well as the Government
Accountability Office. And I believe that both of those bodies
are considered to be pretty reputable when it comes to their
reports.
Ms. Kelly. Did you interview whistleblowers with direct
knowledge, for instance?
Ms. Katz. No, I did not.
Ms. Kelly. Okay. So you personally didn't do any
investigation.
Ms. Katz. I just do data analysis.
Ms. Kelly. Okay.
Did you ever speak with the IG to understand their
assessment as to whether the Bank, in fact, is rife with fraud
or corruption?
Ms. Katz. I didn't need to do that. Based on the numbers
that the IG reported, it was pretty evident what the degree of
fraud is, as they reported it.
Ms. Kelly. Okay. So let me get this straight. You have
testified that there is a record of fraud and corruption at Ex-
Im Bank, and you haven't personally conducted any investigation
into such allegations, nor have you ever spoken to the IG for
their views on whether such a record exists. Is that right?
Ms. Katz. Well----
Ms. Kelly. Is that right?
Ms. Katz. --Representative, their views are pretty plain.
And if you'd like to see the reports----
Ms. Kelly. I'm just asking you, is that right?
Ms. Katz. If you would like to see the reports in which
they make those views plain, then I'd be happy to send those to
you.
Ms. Kelly. But is that right, what I'm asking you?
Ms. Katz. Are you asking me----
Ms. Kelly. I'm asking you----
Ms. Katz. --am I a police detective? I'm not.
Ms. Kelly. No, I didn't ask you that. I just asked you have
you personally conducted any investigations or if you've ever
spoken to the IG. That's all I'm asking.
Ms. Katz. I have not spoken to the IG. I've read his--the
office and IG's reports. And I don't do criminal
investigations, but I do do data analysis.
Ms. Kelly. Okay. Thank you.
Ms. Katz. Uh-huh.
Ms. Kelly. It would seem to me that, on this issue of
whether the Ex-Im Bank is rife with employee fraud and
corruption, this committee should be hearing from the folks who
have firsthand knowledge about any such investigations, namely
the IG.
Fortunately for us, the IG sent a letter, which has been
talked about. And when we take a look at the letter, the IG
expressly states that, since 2009, in the 71 indictments his
office has secured against individuals who attempted to defraud
the Bank, none were against employees of Ex-Im Bank.
Ms. Katz, do you agree that it's important for the public
to understand that none of the indictments the IG has secured
have involved Ex-Im Bank employees?
Ms. Katz. Well, the public should have all information
about the Bank.
Ms. Kelly. But do you--I just need you to answer that
question.
Ms. Katz. I think I am. The fact that there haven't been
indictments doesn't necessarily mean that there hasn't been
corruption.
Ms. Kelly. Right. But it doesn't mean that there has,
either.
It seems, to me, pretty relevant that there are no criminal
indictments or information for corruption at the Bank since
2009 and that all criminal prosecutions have been brought
against companies and individuals outside the Bank who seek to
steal taxpayers' dollars.
Ms. Katz. My testimony dealt with fraud cases specifically.
I don't think that I made any allegations with reference to
employee corruption. I was very careful about that.
Ms. Kelly. Another thing the IG notes in his letter to the
committee is that, to date, his office has not developed
evidence of widespread employee misconduct or systematic
employee involvement in fraud schemes at the Bank.
And just so we're clear, up until today, were you aware
that the IG's Office found no evidence of any systemic employee
involvement in any fraud scheme? Or are you just learning that
today?
Ms. Katz. I'm aware of the fraud investigations that the IG
has undertaken, and that's where my focus has been.
Ms. Kelly. Okay. Thank you.
I yield back.
Mr. Jordan. Thank the gentlelady.
The gentleman from Maryland, the ranking member of the
committee, is recognized for 5 minutes.
Mr. Cummings. Thank you very much, Mr. Chairman.
Mr. Hochberg, there is a Bloomberg article dated July 25th,
2014, entitled ``House to Subpoena Ex-Im Worker as Time Runs
Out for the Bank.''
I ask unanimous consent that it be admitted into the
record. Mr. Chairman?
Mr. Jordan. Without objection.
Mr. Cummings. Thank you very much.
Mr. Jordan. And in that article, Chairman Issa says, ``Many
of us support the concept of making sure there's an
availability of funds to support competitiveness in exports,
but we have to make sure that the American people believe it's
being spent fairly and honestly.''
Republican Members are concerned about what they have
called a culture of corruption at the Bank based on one Wall
Street Journal article identifying four incidents of employee
misconduct. However, we know that since 2009 the IG has secured
71 indictments or criminal charges against parties who have
attempted to defraud the Bank, none of which were against
employees of the Ex-Im Bank.
That tells me a very simple fact: that they exist across
the government--and we see this across government. There are
individuals who create business entities whose sole intent is
to defraud the government, and in this case defraud the Ex-Im
Bank. There seems to be a legitimate oversight concern for the
outside parties that are attempting to defraud the Bank, and
that is very, very important.
Mr. Hochberg, I would like to discuss some of the antifraud
efforts at the Bank and the results of those efforts. And I
want to go through these things because I think that we need to
be clear on the record of what's going on at the Bank and
what's not. Because there are people whose careers are--could
be tainted based on inaccurate information.
One indicator of fraud is the default rate. Is that
correct? Is that one of the things that you all look at?
Mr. Hochberg. Yes, sir.
Mr. Cummings. Currently, your default rate is approximately
0.2 percent. Is that correct?
Mr. Hochberg. Actually, yes, a drop less than that even.
Mr. Cummings. I'm sorry?
Mr. Hochberg. Slightly less than that.
Mr. Cummings. What is it?
Mr. Hochberg. It's 0.194 percent, less than one-fifth of 1
percent.
Mr. Cummings. Mr. Hochberg, in your testimony, you state
that the Bank works with its IG to establish an effective
monitoring and enforcement program for fraud and ethical
misconduct. The IG has notified the committee that it works
with the Bank employees to identify potential fraud schemes in
the early stages.
Do you agree that Bank employees play an important role in
detecting fraud?
Mr. Hochberg. Without question.
Mr. Cummings. And why do you say that?
Mr. Hochberg. Well, because in these four cases with the
other employees, it was detected by employees. And our
employees go through a rigorous ethical training, as I
mentioned, upon joining the Bank. We actually even have a handy
guide they can keep at their desk.
We have a seven-member staff that is the ethics department
in the legal counsel's office that fields questions: How do I
deal with situations? Is this an ethical behavior?
We also just began conducting this year training, how to
detect fraud in outside agencies, outside contractors, outside
entities.
Mr. Cummings. So this is a big--it sounds like this is a
big deal for you all.
Mr. Hochberg. It's a very big deal. Listen, the public
trust is essential for us doing a good job. And so we take that
very seriously, I take that very seriously, and so does our
ethics staff.
Mr. Cummings. Now, the IG also stated that the most common
fraud schemes involve outside parties obtaining loans through
false representations and submission of false documents. Is
that correct, Mr. Hochberg?
Mr. Hochberg. That is correct.
Mr. Cummings. However, Republicans ignore this fact and
instead choose to examine allegations of corruption reported in
the Wall Street Journal with no other information.
I'm concerned with the evidence of outside parties
attempting to defraud the Bank. These were incidents which were
revealed following an IG investigation based on referrals by
Bank employees.
Mr. Hochberg. That's correct.
Mr. Cummings. So it is concerning that my Republican
colleagues almost ignore the evidence of misconduct by
outsiders and the role of Bank employees in identifying
potential fraud. Instead, the majority focuses on what appears
to be a few isolated incidents.
And don't get me wrong. If somebody is doing something
wrong, we ought to deal with that. But, again, I just wanted to
make sure the record is clear.
And just one other thing, Ms. Katz. In answering Ms.
Kelly's question, Congresswoman Kelly's question, did I hear
you say you made no allegations of employee corruption? Is
that--I wrote it down. Is that what you said?
Ms. Katz. Yes, sir.
Mr. Cummings. Very well.
Thank you very much, Mr. Chairman.
Mr. Jordan. I thank the gentleman.
Isn't it true, Ms. Katz, that when you do the outside fraud
investigation, that's when you find out that there may be some
problems on the inside? Isn't that how it normally works, Ms.
Katz?
Ms. Katz. Well, certainly if there is widespread fraud, it
should raise questions or at least concerns that the internal--
--
Mr. Jordan. But isn't that how Mr. Jefferson was
identified? Isn't that how these four individuals who are now
being talked about today were identified? There was an outside
concern, and then that caused the focus on the inside, and you
found employees who were doing some things wrong.
Ms. Katz. Yes.
Mr. Jordan. Okay. I mean, that's why--I mean, it's all
important, but that's what leads to potential wrongdoing on
folks on the inside.
Ms. Katz. Exactly.
Mr. Jordan. The gentleman from South Carolina is recognized
for 5 minutes.
Mr. Mulvaney. Thank you, Mr. Chairman. I thank both you and
the ranking member for allowing me the courtesy of being here
today.
This is not my first Export-Import Bank hearing. As you can
probably imagine, we've had several over in House Financial
Services. So it's not the first time I've heard some of the
numbers that we've discussed today, some of the testimony that
we've discussed today.
But I just want to encourage, you're not hearing both sides
of the story. We hear, for example, Mr. Cartwright correctly
pointed out in his opening testimony that 87 percent of the
transactions at the Export-Import Bank involve small business.
There's a flip side to that, which is that they're supposed to
have 20 percent, just 20 percent, of their volume go to small
business. They've missed that target regularly. So while the
transactions are high, the number of dollars that actually go
to small business are very small, and smaller than they're
obligated to be by law.
We heard Mr. Hochberg talk about how he's only interested
in leveling the playing field. Fair enough. Only one-third of
the Bank--what the Bank does actually goes toward leveling the
playing field. You could get rid of two-thirds of the Bank
tomorrow and still have the one-third of the Bank that is
actually used to level the playing field.
Finally, Mr. Cartwright correctly mentioned out that
oftentimes this has not been controversial. I don't have to
remind my Democrat friends, it was actually then-Senator Barack
Obama in 2008 who said that this was corporate welfare that
needed to be cut back. So there are two sides to those stories.
What I want to focus on most now today, though, is jobs,
because we hear a lot of talk in here about jobs. And I think
if we take a close look at how the Bank talks about jobs, we
might get some insight into the--let's call it the unhealthy
culture at the Export-Import Bank, what Ms. Katz calls, I think
correctly, this record of mismanagement.
Let's look at how they talk about jobs. The GAO in May of
2013 was extraordinarily critical of how the Bank talked about
jobs. They were concerned with how the Bank counted. For
example, they don't make distinctions between full-time and
part-time work. They don't make distinctions between domestic
jobs and international jobs. They haven't figured out a way yet
to count the jobs that, for example, are created by Boeing in
Japan, and that goes into the number.
They expressed concern, the GAO did, about the language
that they use. They say ``support'' jobs. No one knows what
that means. It's not ``create'' jobs. And I don't think anybody
is taking the position, at least Mr. Hochberg is not, that he's
created 1.2 million jobs. We use this nebulous term called
``support'' that no one really knows what it means, and the GAO
says that that's troublesome.
But it's why they count the jobs that I want my colleagues
to think about the most. The GAO report asked the Bank, why do
you report this? Are you obligated by statute to tell Congress
about the number of jobs that you support? And the GAO said,
no, one of our board of trustees members asked us to start
doing that a couple years ago so that we could make it clear to
Congress the good that we do.
I suggest to you that it's possible that maybe they fudge
the numbers a little bit and that it's insight into what is
going on at the Bank. And my contention is that what we see
here is why--this is a bureaucracy, a bureaucracy that is not
primarily interested in helping small business or creating or
supporting jobs, but a bureaucracy that's first and foremost
interested in justifying its own existence and maintaining its
own level of funding.
Ms. Kelly asked a good question of Ms. Katz, if she talked
to the IG, she talked to the GAO; she has not. I have. We had
that opportunity in House Financial Services. The GAO and the
IG over the last 4 years have identified 76 difficulties within
the Bank, 76 shortcomings, some of which may have led to some
of the outside fraud that we talked about today.
One of the things the Bank was not doing is actually making
sure that the outside lenders were doing credit checks on
people who were using the Bank facilities--same thing that
Fannie Mae and Freddie Mac were not doing before the housing
crisis.
Seventy-six meaningful things that the IG and the GAO said
were wrong at the Bank. Half of them have not been fixed in the
last 4 years. Nine of them the Bank doesn't even admit are a
problem, and they're refusing to try and fix them.
So I think that, as we take a look over what the culture is
at the Bank and how the Bank operates and why the Bank
operates, leads to my question, which is this, Mr. Hochberg:
the thing that we did not have at Financial Services, which is
the results of the Federal Employee Viewpoint Survey results,
which say that only 42 percent of your employees have a--think
that the organization's leaders maintain high standards of
honesty and integrity, and just about half feel like they can
disclose suspected violations of law.
You've been there 5 years. The Obama administration has
been in charge for 5 years. Where does this come from, if not
from the top?
Mr. Hochberg. Congressman Mulvaney, I appreciate your
coming here and providing these questions because you have here
and at the Financial Services Committee.
I take very seriously the Federal Employee Viewpoint
Survey. We do it every year. We encourage our employees to fill
it out.
There are many areas the Bank excelled. There are a number
of areas of dissatisfaction. We have a lot of dissatisfaction
on workload. The workload more than doubled in the last few
years. People do not have the resources. Congress has added
those resources.
And when you look at the survey, when you look at both
positive and neutral, if you put those two together, Ex-Im had
about a 75-percent rating. Government-wide was 80 percent.
We're short----
Mr. Mulvaney. Where does the 42-percent----
Mr. Hochberg. We are definitely short----
Mr. Mulvaney. Where does the 42-percent approval rating,
positive approval rating, on leaders' high standards of honesty
and integrity come from, if not from the top?
Mr. Hochberg. This is an area we're working on. This is
not--it's an area for improvement. There are areas in this
survey we excelled and some areas that need improvement.
Mr. Mulvaney. We could go further if you want to, and I
could ask you about the approval rating on ``I have a high
level of respect for my organization's senior leaders,'' 38
percent. ``How satisfied are you with the policies and
practices of your senior leaders,'' 24.8 percent.
It comes from the top, doesn't it? You've had 5 years to
work on those types of things, haven't you?
Mr. Hochberg. Congressman Mulvaney, we have a high ethical
standard. We have seven people in our ethics department. I look
at our default rates, I look at our performance to Congress, I
look at our financial performance. We have 25 years of
unqualified clean audits from outside, independent auditors,
from PricewaterhouseCoopers for a number of years and Deloitte
Touche. They would indicate if there was a problem at the Bank;
they would show up in those numbers.
Mr. Mulvaney. Thank you very much. I've already overstayed
my time.
Mr. Chairman, Mr. Ranking Member, I would encourage you if
you decide to further pursue this to bring in the IG and bring
in the GAO and ask them about what they think, if they think
the Bank has lived up to their expectations in getting their
house in order.
And I appreciate the time and the effort----
Mr. Cummings. Mr. Chairman?
Mr. Jordan. The gentleman from Maryland.
Mr. Cummings. I ask unanimous consent that he be allowed--
Mr. Mulvaney is on--I'm not on Financial Services. But he has
made a lot of allegations. And I just--I saw you scribbling
stuff. I would just like to hear what his answer is. Because, I
mean, we had wonderful testimony from Mr. Mulvaney.
Mr. Jordan. I----
Mr. Cummings. I'd like to hear it from the witness.
Mr. Jordan. --agree. Mr. Hochberg can respond.
Mr. Hochberg. Thank you.
Well, there are a number of allegations. There's a lot
going on here. Let me try and respond to the few notes I took.
One, this year, about 22, 23 percent of all dollars are
going to small-business entities, so in excess of the 20
percent that is required by Congress, that is a ``should
reach'' by Congress. We have put more efforts into reaching
small businesses and do more with small businesses in terms of
dollar volume than the Bank has ever done. We have done more
loans to small businesses in these 5 years than in the previous
8 years combined. So I am----
Mr. Jordan. Is that 22 percent a direct--defined as
directly going to small business, or is that routed through
larger corporations who then work with small businesses?
Mr. Hochberg. No, that actually is direct.
Mr. Jordan. Okay.
Mr. Hochberg. If you add----
Mr. Jordan. I just want to be clear.
Mr. Hochberg. If you add the indirect, which I believe
actually should be part of it--it's something we've asked
Congress to allow because, frankly, large companies in district
after district--Congresswoman Duckworth----
Mr. Jordan. Are you saying the GAO is wrong? Mr. Mulvaney
cited the GAO said that it wasn't 20 percent. You're saying
they're wrong?
Mr. Hochberg. This year, this year, the year we're in,
we're 9 months into the year, we're at 22, 23 percent.
Mr. Jordan. All right.
Mr. Hochberg. That was one question.
In terms of the jobs number, GAO actually did not--they
validated our methodology. We used the Bureau of Labor
Statistics. We don't make up these numbers. We actually use
hard data from the Bureau of Labor Statistics and apply it to
the actual exports that we do. That's where the number comes
from. What GAO asked us to do was to provide greater
transparency on the methodology, but they did not dispute the
methodology.
We have 78 recommendations from the Inspector General. We
have closed 33 of those. We have sent another 20 that are
being--in discussion with the Inspector General. We have 16
that are actually open that are in discussion, working with
GAO--with the Inspector General, what are the recommendations,
understanding how we could implement them, whether we need
systems or people or change in methodology. And we have two
that are, quote/unquote, ``unresolved'' that we're actually
having a debate with the Inspector General whether they're
warranted or not.
So 2 out of 78 actually have any degree of contention
whatsoever. We have accepted, otherwise, all the other
recommendations of the Inspector General and have put them into
place.
Mr. Jordan. But 38 have been implemented. Is that the
number you gave, 38 out of 78?
Mr. Hochberg. Thirty-three are actually closed.
Mr. Jordan. Okay.
Mr. Hochberg. Which means totally closed.
Mr. Jordan. So they're done.
Mr. Hochberg. --in process of being implemented. And as I
said, only two are being discussed.
Mr. Jordan. And when did you receive these recommendations?
Mr. Hochberg. They come--they've been over the years. Some
of them take----
Mr. Jordan. Over several years?
Mr. Hochberg. Some of them take technology, some of them
take IT support to change, so--but we've been working
diligently. I mean, the Inspector General has said that we have
fulfilled their requirements. And I have not had an objection
from the IG saying that we have not been cooperative, haven't
worked with them, haven't accepted their recommendations.
Mr. Jordan. Yeah, so you've done 33 of the 78. You've
completed 33 of the 78. You've received----
Mr. Hochberg. Thirty-three are closed. The rest we're in
the process of closing.
Mr. Jordan. But that's what we look at. We look at getting
to the finish line and actually getting the job done. Thirty-
three of 78 I think was Mr. Mulvaney's point. That's less than
half.
Mr. Hochberg. Less than half have been totally closed,
and----
Mr. Jordan. Right.
Mr. Hochberg. --the others are in the process.
Mr. Jordan. I understand what you're saying, but I'm just
saying, to Mr. Mulvaney's point----
Mr. Hochberg. Mr. Chairman, there will always be items in
the works. We'll never get to zero.
Mr. Jordan. I understand that.
Mr. Hochberg. It is impossible to get to zero.
Mr. Jordan. I understand that. I understand that. But we
want to be clear and define these things accurately.
The gentlelady from--did the gentleman have another point
to make?
Mr. Hochberg. The only other point I would make, actually--
--
Mr. Jordan. Because usually just the Members get to
filibuster, not the witness, but I'm letting you go.
Mr. Hochberg. You're a very kind chairman, sir.
Mr. Jordan. All right.
Mr. Hochberg. In the last decade, some of the items that
Ms. Katz was referring to, we have processed over 33,220----
Mr. Jordan. Let me ask you about this. Let me just do one
thing, since we've got this extended dialogue with you and Mr.
Mulvaney. And I'll let Mick jump back in if he--Mr. Mulvaney
jump back in if he'd like.
But he raised the issue that half the employees who took
the survey said they can't trust their leadership. Now, you've
got a page and a half about ethics and training and all this
stuff in your written testimony. I read it last night. You make
a big--you made a big deal of it when you made your opening
statement. You made a big deal to a number of Members.
So you can trumpet all that you want, but the fact remains
half the people who work for you who took the survey said, I'm
not really confident in sharing information about dishonesty
and potential problems, I'm not comfortable sharing that.
Mr. Hochberg. Mr. Chairman, half--half--if you add also
those who are neutral, said they didn't have a real opinion on
it, it's 75.
Mr. Jordan. Well maybe because they're scared, too.
Mr. Hochberg. No, but it's 75 percent, and the Federal
Government average is 80 percent. We're below the average. I
would like to get----
Mr. Jordan. Well, if you add it that way, yeah, if you mix
this and that and come up with everything else----
Mr. Hochberg. Well, no, but let's look--listen, I'm looking
at the facts----
Mr. Jordan. --apple pie and butterflies.
Mr. Hochberg. --I'm looking at the facts, and I'm saying,
yes, we're below the Federal average. I'd like to get higher.
But let's put it in----
Mr. Jordan. But the people who, the people who did the
survey----
Mr. Hochberg. Let's put it in context. Let's put it in
context.
Mr. Jordan. --a bunch of them said, I don't want to answer.
And 50 of them--50 percent who did said, you know what, I don't
have much trust. That's a problem. That is a real problem.
So maybe this--maybe we wouldn't have all this fraud, these
investigations, if you could have people who were willing to
come forward and feel confident that they could give that
information to the folks that they work for.
Mr. Hochberg. Well, I go back----
Mr. Jordan. All I'm saying is that's a concern.
Mr. Hochberg. I go back to what the Inspector General said
in his letter to the committee yesterday: There is no--not
developed any evidence of widespread employee misconduct or
systematic employee involvement----
Mr. Jordan. Maybe those same people are afraid to talk to
him.
The gentlelady from Wyoming is recognized for----
Mrs. Lummis. Thank you.
Mr. Jordan. Excuse me 1 second.
Does the gentleman from South Carolina have an additional--
--
Mr. Mulvaney. Just to follow up on Mr. Cummings' inquiries.
I appreciate the information, Mr. Hochberg, and I obviously
appreciate the back-and-forth, something we don't get to do on
the other committee.
I do want to read the executive summary of just one of the
things, the GAO summary regarding the jobs. I'm going to read
verbatim from the very closing of the summary. It's one
sentence.
``Because of a lack of reporting on the assumptions and
limitations of its methodology and data, congressional and
public stakeholders may not fully understand what the jobs
number that Ex-Im reports represents and the extent to which
Ex-Im's financing may have affected U.S. employment.''
And there's a couple other things, but I won't go line by
line.
I guess my point was very similar to what the chairman's
was. If you've got a circumstance where 40 percent of--only 40
percent of the people working at a place are comfortable in
blowing the whistle and you're relying on those people to bring
waste, fraud, and abuse to your attention, then it's likely
that you're missing at least half of the waste, fraud, and
abuse.
And that you're right, you did rely on--I think you
mentioned earlier you relied on people within your organization
to bring the current four circumstances to your attention,
which is great. But when you've got a culture where a majority
of people are afraid to bring that to your attention, it makes
me worry, as a Member of Congress who has some oversight over
this particular institution, that you are not catching enough
of it.
Mr. Hochberg. Well, it is not a majority that said that. If
you take those who said they have the confidence and those who
are neutral, don't either feel one way or another----
Mr. Mulvaney. Mr. Hochberg, if I take the neutral people
and put them on the other side, then there's 60--then I get my
60 percent. I mean, the bottom line is only 42 percent of the
people said they were comfortable doing that. You could take
the people in the middle, you're absolutely right, and move
them either way. That's why you don't count them.
Mr. Jordan. Great point.
The gentlelady from Wyoming is recognized for 5 minutes.
Mrs. Lummis. Thanks, Mr. Chairman.
And I'd like the staff to put up the Impex timeline,
because I'm going to concentrate on the Impex issue, Mr.
Hochberg.
So let's walk through the Bank's relationship with Impex
Associates. That's the Florida exporter that is alleged to have
bribed Mr. Gutierrez.
Do you know when the Bank first approved a deal with Impex
Associates? Looks to me like it was 2002.
Mr. Hochberg. 2002.
Mrs. Lummis. Okay. And when did the Bank's Office of
General Counsel refer Impex Associates to the Office of
Inspector General for investigation of fraud?
Mr. Hochberg. I--well, first, it was before my time. You
know, I did not join the Bank until 2009.
Mrs. Lummis. Okay. Well, it looks to me like it was
December 2009, from this chart.
And the basis for the referral was that the alleged buyer
never existed and that the transaction was suspected to be
fraudulent, right?
Mr. Hochberg. You're more familiar with that--as I said,
this was referred to the Inspector General in--and our general
counsel in 2009.
Mrs. Lummis. Okay. And, in fact, reading the details of
this referral, it says, ``Impex Associates has been the
exporter on more than 10 Ex-Im Bank-financed insurance and
guaranteed transactions, and at least 6 of these transactions
have resulted in claims to date.'' Now, I think that that's up
on the slide, as well.
So the Bank was paying out taxpayer money on 60 percent of
Impex deals, and it didn't suspect anything?
Mr. Hochberg. Congresswoman, first of all, Ex-Im Bank got
an Inspector General in 2007. This came--this was referred to
the Inspector General, that was when the office was
established, in 2009. And under my tenure and once the
Inspector General was there, that's when this issue came to a
head.
Mrs. Lummis. Okay. So----
Mr. Hochberg. You have over 6, 7 years beforehand when it
went undetected by staff, general counsel of the Bank, and so
forth.
Mrs. Lummis. That's amazing, that it went undetected. In
fact, it's kind of stunning. Because Impex's fraud was open and
it was notorious. There was a lawsuit, 2006 Federal lawsuit,
Vyasulu v. Diaz, and it had a 69-page complaint laying out in
precise detail exactly how Impex Associates is a scheme to
defraud the Export-Import Bank.
This lawsuit was publicly filed in open court. How could it
have been missed?
Mr. Hochberg. Congresswoman, it's before my time at the
Bank. I was not there until 2009. I can't really opine on what
happened in 2006, '07, or '08 before I arrived at the Bank.
Mrs. Lummis. But that doesn't make the sins of Ex-Im in not
monitoring this stuff forgivable. It only makes you forgivable.
How did the Bank go on to approve seven more transactions
for loan guarantees and insurance?
Mr. Hochberg. I was not at the Bank. I cannot answer that
question.
Mrs. Lummis. Now, what have you done, then, to make sure
this never happens again?
Mr. Hochberg. Well, I believe we have a--contrary to some
members of this committee, we have a culture of ethics. We have
actually ethics training. I've got seven people in our general
counsel's office and, plus, the general counsel, as well.
As I mentioned, we have an ethics manual that every new
employee does. We review that every year. We have offered
courses--employees this year started; they were
oversubscribed--where employees can actually help them detect
fraud on behalf of outside entities so that companies like an
Impex--that employees are more alert to what should they be
looking for in those transactions.
Those are the kinds of things we've put in place.
Mrs. Lummis. Well, what they should be looking for, at
least, at a minimum, is open court records that document
precisely the fraud that was perpetrated on Ex-Im Bank.
I have additional time I would like to yield to the
chairman.
Mr. Jordan. I thank the gentlelady for yielding.
Mr. Hochberg, did you, did the Bank itself investigate how
Mr. Gutierrez's name became public?
Mr. Hochberg. The Inspector----
Mr. Jordan. Well, let me ask it first this way. How did his
name get public?
Mr. Hochberg. I have no idea.
Mr. Jordan. And, now, did you investigate how it went
public?
In our earlier exchange, you told me that counsel told me I
can't talk about it, can't disclose the names, OIG, the
Inspector General said, you know--advised us not to do that, at
least in a letter; he didn't say it to you directly. So you
made a big deal of this.
If you care so much about that not becoming public, did you
investigate how one name did get public?
Mr. Hochberg. I had a discussion with the Inspector
General, and they are looking into how this became public.
Mr. Jordan. No, did you, inside, internally, did--you made
a big deal, these seven lawyers you've hired, this big pamphlet
you've held up several--or booklet you've held up several
times, two and a half pages of your testimony talking about
ethics, even though half the people are nervous about the folks
above them and feel like they can't be honest.
You made a big deal of this, and so it seems to me, if
something went public that wasn't supposed to go public, you'd
be all over it, you'd investigate that. And you're telling me
you didn't investigate it?
Mr. Hochberg. No, I did--I said I spoke to the Inspector
General about it and said, how are we getting to the bottom of
this?
Mr. Jordan. Did your lawyers, did these seven people in
ethics, did all this--did they look into it? Not the Inspector
General; did you guys look into it? It's one thing to have the
Office of the Inspector General look into it. It's another
thing if you guys internally look at it. Did you do that?
Mr. Hochberg. We referred this to the Inspector General
because it was a----
Mr. Jordan. You didn't do any of your own internal
investigation?
Mr. Hochberg. We referred it to the Inspector General.
Mr. Jordan. Do you know today, testifying before Congress,
how Mr. Gutierrez's name became public, how the Wall Street
Journal got his name and said he's under investigation for
bribery and fraud? Do you know how that got public?
Mr. Hochberg. I do not.
Mr. Jordan. No idea.
Mr. Hochberg. I do not.
Mr. Jordan. And does anyone else outside the Inspector
General's Office, to your knowledge, at the Export-Import Bank
know how his name became public?
Mr. Hochberg. At the current time, no.
Mr. Jordan. All right.
The gentleman from Georgia is recognized for 5 minutes.
Mr. Collins. Thank you, Mr. Chairman.
Mr. Hochberg, I just have, you know, some questions here.
Let's go over--I think there's a lot of concern, as noted in
this hearing, about the Bank and some of its dealings and some
of the things we're reading in the headlines. So let's just
start with a few things, and we can do that, okay?
According to the CBO, over the next 10 years, Ex-Im's six
largest programs will generate $14 billion under the government
standard accounting framework. However, when CBO applies the
private-sector accounting framework, the fair value accounting
method, CBO projects the Bank to lose $2 million.
I want you to discuss that process. Because, from my
perspective, this is what a lot of my constituents say, there's
government accounting, then there's real accounting. And this
is something that I would like an answer on.
Mr. Hochberg. Well, thank you, Congressman.
You know, the government accounting system that was put in
the FCRA, the Federal Credit Reform Act, in 1990, went into
effect in 1992, that's the accounting system that the U.S.
Government runs on. We can--you know, I ran a company for 20
years. You can't pick and choose your accounting system. That's
the accounting system that the government uses.
Fair value accounting is an alternate approach to
accounting. It is not--it is not force of law, it's not what
Congress has passed. So we abide by the accounting system
that's in place.
The swing you mentioned from if you change accounting
systems assumes one other gross statement, and that is that
nothing else changes. Well, things could change. We could
change our fee structure, we could change the way we operate to
make sure that we're still self-sustaining.
Mr. Collins. So----
Mr. Hochberg. It assumes nothing changes.
Mr. Collins. Okay. And I appreciate it, but I guess my
question here is, okay, you go from $14 billion under--yes,
we're going to--but a $2-million loss. Which is real?
Mr. Hochberg. Well, under the current----
Mr. Collins. Are you going----
Mr. Hochberg. Under our current accounting systems, $14
billion by GAO--by, yes, GAO is--CBO is the correct number. But
the fact of the matter is, Congressman, in October of this
year, unmistakably we sent to Treasury one billion, fifty-seven
million dollars. Over the last 2 years, we have sent to
Treasury cash of $2 billion. That's unmistakable. Whether you
change the accounting system or not, the cash is still there.
Mr. Collins. Okay.
Following up on some other issues, Mr. Hochberg, the Wall
Street Journal article, 2010, ``The Bank changed how it
disclosed financing deals and no longer discloses all the
small-business loans it originates.''
This is something that seems to be a thread today on a lot
of other issues, not just this hearing but others, that
transparency and accountability are things that the people are
clamoring for. We see this in scandals all over the place.
My question is, what is your rationale for reducing
transparency and disclosure in this area?
Mr. Hochberg. Well, Congressman, I'll also refer you to
this competitiveness report that we issue. We are cited as
being, by our competitors, being the most transparent export
credit agency in the entire world. And, frankly, the biggest
readers of this document each week, each year, is not just
Members of Congress, it's the 59 other export credit agencies,
because we have greater transparency on our loans through the
Federal Register, our environmental record, and so forth.
Mr. Collins. That's wonderful. But then, if that be true,
that's great, it's a nice little book, but why not disclose it
all? Why did we change the method? Why do we not disclose
them--disclose all the small-business loans it originates?
Mr. Hochberg. I am unfamiliar with----
Mr. Collins. This is a 2010 Wall Street Journal article
that discussed this.
Mr. Hochberg. Well, I'd be happy to get back to you on
that. I'm not familiar with this precise----
Mr. Collins. Okay. And if you would, then I'll submit the
questions into the record. I'd like a written response on it.
Mr. Hochberg. I'd be happy to do that.
Mr. Collins. Because, again, you can bring the committee--
and I think this is the part we're getting to, these questions
that come up. And I would, like you, I would point to something
that says we're doing it fine, but the reality is there's
articles that say that we're not doing it. So, as we look at
it, you know, these are things that we need.
Also July of 2010, the Bank's board of directors issued a
resolution on individual delegated authority authorizing
certain individuals and Ex-Im Bank officers to approve loans,
guarantees, and insurance up to $10 million.
What steps have you taken to address the Inspector
General's criticism that individual delegated authority allows
for application of inconsistent criteria and may insufficiently
mitigate the risk of default or fraud?
Mr. Hochberg. In an effort to both streamline the Bank and
also provide accountability, we have--senior officers can
approve up to $10 million. We have an audit of that on a
regular basis that we ensure that those who have individual
delegated authority are complying with the full credit
standards of the Bank.
We have uniform credit standards across the Bank. We're
working to increase the harmonization between programs, but we
actually have a harmonized credit standard at the Bank. We have
a division of the Bank, a senior vice president, who looks
truly at credit policy to make sure that we apply it uniformly
across every area of the Bank. We apply the same credit
standards for countries regardless of what area of the Bank
it's in.
So I would say that that's not correct.
Mr. Collins. So you would disagree with the Inspector
General?
Mr. Hochberg. Today----
Mr. Collins. After inputting the steps that you just talked
about.
Mr. Hochberg. Yes.
Mr. Collins. Okay.
Mr. Hochberg. In other words, each time the Inspector
General has made some suggestions, we have worked to either
incorporate them already or are working to incorporate them.
Mr. Collins. Real quickly, and I know, Chairman, my time,
but just indulge us 1 second.
Going back to this other question where you say you'll get
back to me on no longer disclosing, one of the things the
Office of Inspector General said, there are 40 outstanding
investigations involving fraud against the Bank. I just have a
question, because we're not disclosing small-business loans. Do
most of these cases involve small-business loans?
Mr. Hochberg. Generally speaking, yes. I can give you a
better precise answer, but, generally speaking, yes.
Mr. Collins. So the ones that we're not disclosing are the
ones that right now we're investigating for fraud against the
Bank, for the most part.
Mr. Hochberg. No, I don't think that's the case, sir. I'm
sorry, your question is, we disclosed--last year, I'll give you
an example, we did 3,413 small-business loans.
Mr. Collins. Wait, wait, wait.
Mr. Hochberg. Each one of them is----
Mr. Collins. Let's go back. That's not my question.
You're----
Mr. Hochberg. I'm not sure I understand your question.
Mr. Collins. Well, then, let's go back. According to the
Office of Inspector General, there are 40 outstanding
investigations involving fraud against the Bank. Okay? Now,
will you agree with that statement or disagree with that
statement?
Mr. Hochberg. I accept what the Inspector General----
Mr. Collins. Okay. Do most of these cases involve small-
business loans? This is not--I don't want to know 3,000 of it--
I want to know about these 40, and do they involve mainly
small-business loans?
Mr. Hochberg. I don't want to mislead you. Let me get you a
precise answer after I get your question in writing, and I'll
look it up.
Mr. Collins. Okay. So you don't know.
Mr. Hochberg. I do not know precisely.
Mr. Collins. Okay. And these are outstanding
investigations, and you don't know?
Mr. Hochberg. I don't know the----
Mr. Collins. Okay.
Mr. Hochberg. --nature of every single outstanding
investigation.
Mr. Collins. Okay.
Again, I think there's a lot of issues here, there's a lot
of concern on the Hill concerning these actions, the things
that we see. Transparency is needed, transparency in these
questions.
And, again, I think, as we said before, looking at these
ideas and having the transparency, no matter what others may
say, it's coming down and saying, okay, what is the truth and
what we're seeing between the truth and reality. These have got
to be answered, and I know the people in my district want to
know this.
And this is important for this committee to continue to
look at, because this affects a lot of businesses, it affects a
lot of priorities in this country. And, frankly, it's not
something that the government needs to be dabbling in,
especially if there's other ways to do it.
So, Mr. Chairman, I do yield back.
Mr. Jordan. I thank the gentleman.
Mr. Hochberg, real quickly, before yielding to Mr.--or
recognizing Mr. Connolly, do you know if the bribery
allegations against Mr. Gutierrez and the three others have--
has there been any referral to the FBI and the Justice
Department, do you know?
Mr. Hochberg. To my knowledge, the Inspector General is
working with the Justice Department on these.
Mr. Jordan. So the Justice Department is involved today
as--your understanding, the Justice Department is involved in
this investigation.
Mr. Hochberg. That's correct.
Mr. Jordan. And including the FBI.
Mr. Hochberg. I don't know that.
Mr. Jordan. Have you had any--have you personally had any
conversation with the Justice Department and the FBI regarding
the investigation into the bribery allegations against Mr.
Gutierrez and the three others?
Mr. Hochberg. No, I do not.
Mr. Jordan. Okay. I thank the gentleman.
The gentleman from Virginia is recognized.
Mr. Connolly. Thank you, Mr. Chairman.
Welcome, Mr. Hochberg, to our committee. I'm sure it's a
special moment for you.
Mr. Hochberg, what did you do before you became the head of
the Ex-Im Bank?
Mr. Hochberg. I spent 20 years in business, a family
business, small business for 20 years. Then I actually also--
after that, I served in the Clinton administration. And I was
also a dean of a school of management and urban policy in New
York.
Mr. Connolly. And with that private-sector background, what
made you decide you wanted to head up the Ex-Im Bank in this
administration?
Mr. Hochberg. You know, my family--my mother actually came
here from Germany and started a business, and I was--I grew up
in that. I grew up at the kitchen table hearing about it. I
enjoyed going in--going to work together. I got my master's
degree; I was the first college graduate to go work at the
company. Worked for 20 years building a business called Lillian
Vernon, a catalog company that became a public company. I took
it public and spent 20 spectacular years there.
And I like public service. I like public service. Perhaps
that's coming from immigrant parents, where you think about
trying to make this country a better country. And so this was a
way I could participate in that, both at the Small Business
Administration, as a dean of a graduate school, and then here
at the Export-Import Bank.
Mr. Connolly. Well, I hope you understand that there are a
number of us who very much appreciate that and are pleased
you're where you are and that you've made that kind of decision
about public service. Thank you for your service to your
country.
Your testimony explained that on the advice of general
counsel and the Bank's IG, who's leading the ongoing
investigations, you will not disclose the details or
information about the individuals involved in the alleged
incidents of fraud or corruption. Is that correct?
Mr. Hochberg. That's correct.
Mr. Connolly. Do you think it's fair that because there are
alleged incidents of such fraud or corruption that the entire
work of the Ex-Im Bank should be discredited and, indeed, we
should allow the expiration of the authorization of the Ex-Im
Bank to exist at all?
Mr. Hochberg. No.
Mr. Connolly. Why?
Mr. Hochberg. We have four individuals who are--one--have
had alleged wrongdoing. We don't know that they've committed a
wrongdoing. They have not been indicted. They have not gone to
court. So I think that we--that is--you know, those are four
isolated cases. We have not had any in--I have been at the Bank
since 2009. It is the first time. Nothing in 2009, '10, '11,
'12, and just came in at the end of '13, this year. So we've
had a number of years that have been no allegations whatsoever
and no indictments.
Mr. Connolly. Because I think some who are maybe committed
to an ideological agenda to allowing the Ex-Im Bank to expire
want the public to have an impression that somehow it's rampant
with corruption and fraud. These are isolated incidents.
Were any of them referred by you or your management,
actually, to the IG?
Mr. Hochberg. They were referred to by other employees.
Mr. Connolly. Okay. So the system worked.
Mr. Hochberg. The system worked. People looked and said,
there's something wrong with this transaction or something
doesn't seem appropriate here, and they brought it to the
attention of the ethics officer and/or the IG.
Mr. Connolly. And, certainly, if you look at it in a
context of a 5- or 6-year period, obviously it does not
characterize in any way the operations of the Ex-Im Bank.
Mr. Hochberg. I would agree with that.
Mr. Connolly. Unfortunately, human nature being what it is,
sooner or later there's always a bad apple that can appear, and
the question is, how do we deal with it? And how would you
characterize the response of the agency when brought to your
attention?
Mr. Hochberg. I am proud of the agency and our ethics
department, which acted immediately. The employees, as evidence
came through, were either put on administrative leave, and then
ultimately three of them, as I said, have been separated from
the Bank.
Mr. Connolly. Why do you think--okay. Thank you.
Why do you think we need an Ex-Im Bank?
Mr. Hochberg. We need an Ex-Im Bank because--first of all,
we've been around for 80 years. It's the same reason we started
with: We need to create more jobs in this country. This is
about--and one of the sources of jobs is going to be exports.
One of the impediments to exporting is both risk and perceived
risk, as well as foreign competition. So we exist when the
private sector can't step up to fill in the gap.
That's one reason during the financial crisis we did almost
between two and three times the volume of loans, because there
was a great need. As banks have entered the market again, our
volumes are once again trimming back because our need is not as
great. But my counterpart in Britain says, just because you've
not had a fire in 5 years does not mean you sell the firetruck.
Mr. Connolly. Focus just a little bit on the foreign
competition. So do our foreign competitors have an analog to
the Ex-Im Bank?
Mr. Hochberg. There are at least 59 other export credit----
Mr. Connolly. I'm sorry, how many?
Mr. Hochberg. There are at least 59 other export credit
agencies around the world whose purpose, frankly, is even
more--much more aggressive than anything we have in the United
States.
Mr. Connolly. Who, for example, sticks out in your mind in
that category?
Mr. Hochberg. China is the largest, without question. China
is very large. Brazil has a very active program, frankly, but
so does Japan, so does Korea, so does Germany. Those are some
of our most formidable competitors.
Mr. Connolly. When we look at, for example, the airline
industry or the aircraft industry, what's Boeing, for example,
up against?
Mr. Hochberg. Boeing is up against Airbus, which is
supported by the export credit agencies of Germany, Britain,
and France. They have three export credit agencies that support
the sale of Airbus planes.
I was just in China. China is building a large commercial
aircraft to compete with both Boeing and Airbus. Russia has an
aircraft that also competes.
So the competitive intensity around aircraft, which is our
largest--aerospace is our largest single export category--is
intense and getting more intense.
Mr. Connolly. Would you say that even with the help of Ex-
Im Bank it's not a level playing field, in terms of what we're
up against with Airbus?
Mr. Hochberg. Oh, it frequently is not a level playing
field.
Mr. Connolly. Yeah.
Mr. Hochberg. I mean----
Mr. Connolly. I would just end by saying, you know, I
understand, I guess, from a pure ideological point of view,
those who argue, well, ceteris paribus, all other things being
equal, we shouldn't need this kind of instrument, the market
should work. But your testimony about 59 export subsidies--or,
entities that subsidize our foreign competition tells us we're
a long way away from a perfect world or a level playing field.
And it would be naive and, indeed, self-destructive, it seems
to me, for the United States not to reauthorize the Ex-Im Bank.
Thank you, Mr. Chairman, for your indulgence. I appreciate
it.
Mr. Jordan. I thank the gentleman.
The gentleman from Florida is recognized.
Mr. DeSantis. Mr. Hochberg, you stressed your commitment to
ethics, and I do think that that's sincere on your part, and I
appreciate that.
Do you believe, just understanding human nature, that there
is a greater risk of bribery and graft with Ex-Im just simply
because there are lucrative deals at issue?
Mr. Hochberg. Greater than what?
Mr. DeSantis. Greater than, say, the Department of
Education.
Mr. Hochberg. I'm not in a position to really evaluate
degrees of enticement to take briberies from one agency to
another.
Mr. DeSantis. Okay. Very well.
In terms of the accounting, I know they are back and forth.
The way that the Bank does the accounting, there's a windfall
for the taxpayer. The way the CBO did it under fair value, it
was a loss of a couple billion over 10 years.
My question is just simply, you were in the private sector.
That's pretty standard convention to use the fair value
accounting. What is the reason that fair value accounting is
not used at Ex-Im?
Mr. Hochberg. The Federal Government, Congress has passed a
law that we use FCRA, Federal Credit Reform Act, that guise,
for government accounting. We don't pick and choose our
accounting system. You, as Members of Congress, vote to approve
whatever the accounting system is, and we abide by that law.
Mr. DeSantis. So you're not opposed to fair value if
Congress wants to go that way? I was under the impression----
Mr. Hochberg. Well, I haven't made an opinion of----
Mr. DeSantis. Okay.
Mr. Hochberg. I haven't studied it to give you an opinion
on that. I'm simply telling you I follow the law.
Mr. DeSantis. Okay.
Mr. Hochberg. The law says we follow----
Mr. DeSantis. No, I understand that, but I thought you had
expressed some resistance to it. So you will not endorse using
fair value accounting with the Bank at this time?
Mr. Hochberg. I will endorse whatever the law says I should
do.
Mr. DeSantis. Do you believe that--because there is an
issue about the Bank supporting jobs, using the term
``support''; there was back-and-forth. Do you believe that the
Bank actually creates jobs net? In other words, if there wasn't
the Bank, we would have fewer jobs here in the U.S. economy?
Mr. Hochberg. Without question.
Let me just talk about supporting jobs for a minute. I was
recently in Chicago, a company called Howe Corporation. It
makes refrigeration units they use on fishing boats and so
forth. Mary Howe, fourth generation, is now exporting up to 40
percent a year. She said to me, because of you--it's in the
Chicago Tribune--because of the Ex-Im Bank, I did not have to
lay off a single person, I kept my 40 people working.
So, in that case, we supported those jobs. We did not
necessarily add jobs, but were we not there, Mary said very
clearly, I would have had to lay people off; I did not want to
lay people off, so you supported my being able to keep a full
workforce.
In other places, where, as Congresswoman Duckworth said,
there's a new sale--in Mary's case, we replaced sales lost
because of the financial crisis. Where there's a new sale, it
often means adding another shift and hiring employees.
So it depends. We use the word ``support'' to be
conservative as opposed to being----
Mr. DeSantis. No, I understand that. And I think you can
point to a transaction, and you may have there, where maybe
those jobs would not have been there without a certain finance
package.
But as I read the reports, there are examples in which Ex-
Im loans benefit foreign competitors of our domestic
manufacturers. For example, there was an energy refinery in
Turkey, and there was concern raised here domestically from
Texas refinery manufacturers basically saying, look, you're
directing government power to do this deal, but then that has
ended up disadvantaging us.
And so, when you're saying it creates more jobs, are you
also accounting for maybe the back end of some of those
transactions and how that could affect domestic competitors?
Mr. Hochberg. Congress has put in our charter, and we
follow it, and we updated those regulations, it's referred to
as ``economic impact.'' On every transaction, we review, does
the economic benefit to the U.S. economy outweigh any potential
harm?
So, in the particular transaction you're referring to, we
looked at, what is the economic benefit to the U.S. economy by
making these exports, what is the potential harm to the U.S.
economy, to ensure that there's a positive benefit to the U.S.
economy.
And then the independent board, which is made up--it's a
bipartisan board--still votes on that transaction.
Mr. DeSantis. There was back-and-forth about the number of
dollars that go to small businesses. I think it was 19 percent
last year, and I think you've said now it's up to 22 percent--
--
Mr. Hochberg. We're stronger right now.
Mr. DeSantis. --so far this year. As I understand it, the
definition of ``small business,'' that includes firms with
employees up to, what, 1,500?
Mr. Hochberg. Well, the SBA makes those determinations of
what actually is a small business. It's not our determination.
We----
Mr. DeSantis. But is that--no, I understand that. But is
that--when this stuff is being put out, it would include the
firms up to 1,500? Is that the number that's used?
Mr. Hochberg. Generally, in manufacturing, the rough number
is 500. But, again, the SBA, they determine--I was at the SBA.
They look at every industry and say, but what's small by that
industry's category?
Mr. DeSantis. So, no, I understand that, but I'm just
trying to figure out, the upper level of what would be
considered small would be 1,500, is that--I've just read
reports. I'm just seeing if that's the case.
Mr. Hochberg. I haven't seen a number that high.
Mr. DeSantis. Okay. Well, look, the 500, if we can get that
used for Obamacare, the initial thing, that would give a lot of
relief to a lot of small businesses in my district. So I'm not
above counting that as 500.
One final question. How does the Bank view its role in
terms of the national security component that could affect
economic transactions between certain States? And some of these
deals are with essentially State-directed enterprises.
It was reported today in an article by a columnist in The
Washington Post that two of Hamas's supporters are Qatar and
Turkey. Last fiscal year, the Bank authorized $775 million to
Qatar, $4.3 billion for business in Turkey. Of course, Turkey's
Prime Minister has come out and said that Israel is worse than
Hitler, and he has basically taken a very anti-Western, pro-
Islamist stance.
So how can we, just as people in Congress, when we're
looking and we have duties with national security, how can we
be sure that the deals that are being done are also consistent
with our national security goals and strategies?
Mr. Hochberg. There's something referred to as the National
Advisory Committee, which reviews all transactions over $30
million that the board votes upon. So they are shared with the
State Department, Treasury, Commerce, and other relevant
agencies, who render an opinion whether there's anything wrong
with the entities that are part of the transaction.
So, in your case with Qatar or Turkey, as an example, they
were all green-lighted by the various agencies that are part of
the National Advisory Council.
Mr. DeSantis. Well, no, and I appreciate that. And, in
fact, I think looking at some of the conflicts we see, I think
our administration has been erring by siding with Qatar and
Turkey over some of the stronger allies that we have in the
region.
But I appreciate the testimony, and I yield back.
Mr. Jordan. The gentleman from Pennsylvania is recognized.
Mr. Cartwright. Thank you, Mr. Chairman.
And, Mr. Hochberg, I want to associate myself with the
remarks of Mr. Connolly of Virginia. And I thank you not only
for appearing here today, but I recognize your extensive
credentials in the business world, your capabilities. You have
the ability to go out and make an exponential amount of money,
more than what the Federal Government is paying you for your
public service, and I thank you for that.
I also want to note that you came to the Ex-Im Bank in
2009. 2009 isn't when the Ex-Im Bank started. It started in
1934 by Executive order of President Franklin Delano Roosevelt.
And for everyone's information, Congress did not sue
President Roosevelt for that Executive order as going beyond
the bounds of the Constitution. In fact, President Ronald
Reagan supported expanding it, as was noted in the New York
Times article, op-ed, published yesterday by former President
Reagan's Secretary of Labor, William Brock III, who was also a
Republican Senator from Tennessee. His op-ed is called ``Don't
Kill the Export-Import Bank.'' And he makes the particular
point that President Reagan saw the value in the Bank in
assisting American businesses to compete abroad and supported
expanding it.
I also want to note that the Export-Import Bank, in your
testimony, Mr. Hochberg, has a default rate of 0.194 percent,
which is less than one-fifth of 1 percent. And I certainly
invite Mr. Mulvaney, my colleague, to challenge that if he
thinks that that is incorrect. But that's a very small default
rate, indeed.
But I want to direct my--and we don't mean to ignore you,
Ms. Katz, but you're here from The Heritage Foundation. Am I
correct in that?
Ms. Katz. That's correct.
Mr. Cartwright. The opinions you express are not simply
your own, they are also those of The Heritage Foundation,
correct?
Ms. Katz. No, that's not correct. They reflect my own.
Mr. Cartwright. They're your own opinions but not those of
The Heritage Foundation?
Ms. Katz. Correct.
Mr. Cartwright. Okay. Are you paid by The Heritage
Foundation?
Ms. Katz. Yes.
Mr. Cartwright. Do they know you're here today instead of
at work?
Ms. Katz. I consider this work.
Mr. Cartwright. Okay.
Mr. Jordan. Dealing with us is----
Mr. Cartwright. Here's a question: Is The Heritage
Foundation in favor of abolishing the Export-Import Bank?
Ms. Katz. I'm in favor of abolishing the Export-Import
Bank.
Mr. Cartwright. Okay. So--well, so you don't know if The
Heritage Foundation----
Ms. Katz. Well, I----
Mr. Cartwright. --shares that opinion?
Ms. Katz. Well, The Heritage Foundation is made up of, you
know, some, I don't know how many people, 2- to 300 people, and
there's a variety of opinion in Heritage about all sorts of
things, but I'm here to discuss my research and my opinions,
and not those of Heritage in general.
Mr. Cartwright. All right. Can you tell us what percentage
of the supporters of The Heritage Foundation are exporting
companies?
Ms. Katz. I have no idea.
Mr. Cartwright. Can you tell us what percentage of the
supporters of The Heritage Foundation are companies assisted by
the Ex-Im Bank in exporting?
Ms. Katz. No, because I really don't pay any attention to
who--you know, who funds Heritage. I do know, though, that the
largest proportion of funders are individuals.
Mr. Cartwright. Can you tell us what percentage of Heritage
Foundation supporters of big companies or people associated
with big companies, that don't like competition from small U.S.
exporters, assisted by the Ex-Im Bank?
Ms. Katz. I have no idea, but I do know that 75 percent of
the--the benefits of Ex-Im financing go to about ten very large
corporations, and only about half of a percent of small
businesses in the U.S. Receive assistance from Ex-Im.
Mr. Cartwright. Do you--I want to jump to a point that my
colleague from Pennsylvania, Mr. Meehan, was driving home, and
he's a former Federal prosecutor. Do you have any information
that U.S. attorneys are not good at prosecuting cases of fraud
when they're perpetrated against the Ex-Im Bank?
Ms. Katz. I have no information about that.
Mr. Cartwright. Are you saying that U.S. attorneys don't
have the full range of prosecutorial tools available to them
when handling cases of fraud perpetrated on the Export-Import
Bank?
Ms. Katz. Well, they certainly have had dozens of cases to
prosecute, which they have.
Mr. Cartwright. But you're not saying they don't have the
full range of tools, are you?
Ms. Katz. I don't know what their--their arsenal is, sir.
Mr. Cartwright. Do you have any information that the FBI
doesn't have the full range of investigative tools when
handling cases of fraud perpetrated on the Export-Import Bank?
Ms. Katz. I don't know what the FBI's resources are with
respect to the Export-Import Bank, although I do know that, you
know, there have been, you know, considerable number of cases
of fraud at the bank.
Mr. Cartwright. So every time there's a case of fraud
involving the Export-Import Bank, a case of fraud against--
perpetrated against the Export-Import Bank, every time there's
such a case, the U.S. Government has at its disposal the full
range of investigative and prosecutorial tools that it can
bring to bear on any prosecution that brings in this Nation. Am
I correct in that?
Ms. Katz. You're--I assume you're correct, but my
preference from a policy standpoint would be to be able to
prevent fraud cases rather than building up, you know, ever
larger resources for prosecutors to--after the fact. And what
we do know is that Ex-Im is not managed with the intent of
maximizing protection against fraud.
Mr. Cartwright. Well, I happen to agree with Mr. Meehan of
Pennsylvania that to do away with fraud entirely, you have to
change human nature, not abolish the Export-Import Bank.
And I yield back, Mr. Chairman.
Mr. Jordan. I thank the gentleman.
No one's alleging that the Department of Justice can't do
fraud investigation of the Export-Import Bank, although I have
questioned the Department of Justice investigation into other
issues that have been in front of this committee, and I think,
you know, 26 Democrats agreed with every single Republican,
saying we needed a special prosecutor in that situation. So no
one's alleging that here.
What we are saying is there's nothing in the law that
prevents Mr. Hochberg from telling us what he knows, and he
won't do that. He won't tell us the three other individuals, he
won't tell us anything about how Mr. Gutierrez' name became
public, he even won't tell us if he even did--if they've done
an investigation, it sounds like they haven't, as to how that--
if it's so important that we not jeopardize and disclose who
these people are, you would have think--you would have thought
that they would have done an internal investigation to figure
out how Mr. Gutierrez' name became public.
So that's all we're saying, is why not--frankly, Mr.
Hochberg, we've had this before. We've had witnesses sit here
and tell us, we can't give you information that you're asking
for, because there's an ongoing investigation, and then we do
subpoenas and we get the information. In fact, the Inspector
General told us, we asked him for certain documents relative to
today's hearing, and he said, go ask Mr. Hochberg. Get them
from him. So obviously by--when he tells us that, you could
provide them, you just choose not to provide them.
The gentleman from South Carolina is recognized for 5
minutes.
Mr. Mulvaney. Thank you, Mr. Chairman. I've just got some
bits and pieces to fill in.
Jobs, Mr. Hochberg. Mr. DeSantis before he left asked you a
question about whether or not you count potential job losses
when you provide your information to Congress about how many
jobs you support. You don't--you don't count that, do you? For
example, Delta claims they lost 7,500 jobs via the sale of--
Export-Import Bank support to a purchase of Boeing jets by Air
India. You don't count those losses when you report those jobs
to Congress, do you?
Mr. Hochberg. First of all, Delta's never validated where
they got those numbers from. I have no----
Mr. Mulvaney. But I think you testify--I'm not trying to
bait you, but I think you testified in the previous hearing
that I was in that you report a gross number.
Mr. Hochberg. We report the gross numbers of jobs that are
supported by Ex-Im financing, but in candor, Congressman
Mulvaney, in my opinion, they actually understate the jobs,
they do not overstate them.
Mr. Mulvaney. Fair enough. Mr. Cartwright raised a good
point about default rates, and I meant to talk about that
before, the default rate of .0, I think--0.195 is your default
rate. Now, back as recently as the late 1980s and early 1990s,
the default rate was 40 percent. You all changed the way you
count defaults, didn't you? Or Congress changed it for you?
Mr. Hochberg. We calculate our default rates according to
the way Congress has asked us to do so. And I have the results
in front of me for the last 6 years----
Mr. Mulvaney. Is it the same way that----
Mr. Hochberg. --and most financial----
Mr. Mulvaney. --private financial institutions report
defaults?
Mr. Hochberg. To my knowledge, it is the same, and in fact,
I mentioned in my oral testimony that our default--the
commercial bank and industrial bank default rates as calculated
by the Fed, the average is 3 to 4 times higher than ours.
Mr. Mulvaney. No. I understand that, but you don't count
defaults the same way as a commercial bank does. A default to
them is not the same as a default to you.
Mr. Hochberg. We count----
Mr. Mulvaney. It's not apples to apples, to Mr.
Cartwright's point, though.
Mr. Hochberg. No. We calculate defaults to the way the
Congress has asked us to report the default rates to Congress.
Mr. Mulvaney. And back in the 1980s and 1990s, when the
definition was different, that was as high as 40 percent, you
still have----
Mr. Hochberg. I don't know whether it was the same
methodology.
Mr. Mulvaney. You still debt on your books at the Export-
Import Bank from pre-Castro Cuba, don't you? Do you think
you're going to collect that debt?
Mr. Hochberg. We--I don't--I can't answer that question,
because I don't know the answer to it.
Mr. Mulvaney. If it were on there, do you think that you
would be able----
Mr. Hochberg. It's--it's a hypothetical question.
Mr. Mulvaney. But if it is on there, then I get to ask the
question next time, right, because it's on there. You all have
debt on the books from pre-Castro Cuba, you have debt on the
books from, I think, 1970s China when Mao was there. But
anyway, my point of this--to Mr. Cartwright is this, that do
not take--I encourage my colleagues not to take it as an
apples-to-apples comparison. The .195 percent is not the same,
not calculated the same way as it is in, say, Bank of America
or PNC or something like that.
The IG had two things to say, and I'm just going to ask you
if you agree or disagree with these statements. The IG gave
testimony to the Financial Services about 4 or 5 weeks ago. And
Mr. Gratacos said that the bank management's consistently
failed to establish internal controls over business operations,
and noted that there were ``clear guidance to staff, and
establishing clear roles and authorities have not been
prevalent at the Ex-Im Bank.''
Do you agree or disagree with that statement?
Mr. Hochberg. I disagree.
Mr. Mulvaney. And then he went on to say that, and I'm
reading now from Ms. Katz's testimony until I get to the
quotations that, such operational shortcomings worsening of the
bank, et cetera, et cetera, and then as noted by the Inspector
General, ``this rapid growth in Ex-Im Bank's total portfolio
exposure raises concerns as to Ex-Im's ability to manage and
monitor this significant portfolio growth.''
Do agree or disagree with that?
Mr. Hochberg. I disagree with that.
Mr. Mulvaney. Fair enough. And then lastly, Mr. Cartwright,
or I think it may have been Mr. Connolly mentioned Ronald
Reagan. My experience in my brief period here is that I don't
use Ronald Reagan quotations, I sort of treat them like Bible
quotations in that you can usually find something to take
either side of a particular story, but in order to rehabilitate
my favorite President during my lifetime, in 1981 he suggested
the bank needed to be reduced by at least a third, and in 1985
he asked ``Is it fair to ask taxpayers to help pay billions for
export subsidies to a handful of America's biggest
corporations? We also save billions by eliminating taxpayer
subsidies to some of America's biggest corporations through
Export-Import Bank loans.''
So it seems to me that the debate has been going on for a
long time. The issues are still there. I just was hoping that
maybe this might be the year we could fix some of them.
With that, I'll yield back. Thank you, Mr. Chairman.
Mr. Jordan. I thank the gentleman for his participation
today. Let me just go where Mr. Mulvaney was, Mr. Hochberg, and
I don't--I don't know. I mean, you normally try to ask
questions you know the answer to, but I don't know this one.
The--he was--Mr. Mulvaney was talking about the Delta and the
gross number of jobs that you report. The example you gave with
the lady in Chicago, I think is in the refrigeration business
and she has 40 employees, is that--when you report to Congress
jobs that Ex-Im Bank financing supports, would those 40 jobs be
in that number?
Mr. Hochberg. Only the jobs--only what would be allocated
to the financings we've done. We don't finance 100 percent of
her business, so I would not count 40 jobs.
Mr. Jordan. But--so--but you would count some of them?
Mr. Hochberg. We count those that are allocated to
exporting.
Mr. Jordan. And how do you determine that?
Mr. Hochberg. We use the Bureau of Labor statistics, we
look at the dollar volume, they have tables we're able to
access that says looking at the full supply chain of different
categories of industrial products, we were able to calculate
how many jobs are created in the supply chain.
Mr. Jordan. In that example, do you know how many were the
supported job that she talked about, how many were used in your
calculation that you gave Congress?
Mr. Hochberg. Well----
Mr. Jordan. Was it three, was it seven, was it 39?
Mr. Hochberg. Mary said to me she's got about 40 employees,
and depending on the year, 20 to 40 percent of her sales were
exports. So it depends----
Mr. Jordan. You took 30 percent of that number and gave
us----
Mr. Hochberg. No. Each year we would report based on what
actually we did. We don't take averages. We say what did we
actually do working--if we did zero that year, we'd count zero.
Mr. Jordan. Okay. Okay. Just, I didn't--I didn't know how
you do it.
Ms. Katz, there's--are you familiar with this--the loan,
the ExxonMobil liquid natural gas----
Ms. Katz. Yeah. The New Guinea, the Papua New Guinea?
Mr. Jordan. The Papua New Guinea, yes.
Ms. Katz. Yes. A bit.
Mr. Jordan. All right. And it's been reported that the
Inspector General released a report detailing comprehensive
inspection of this transaction, and he specifically said the
fault of the bank for taking insufficient steps to protect the
bank from fraud, and we've talked about a lot today, and for,
``being unable to properly account for $500 million in local
costs.'' Are you familiar with that?
Ms. Katz. Yes.
Mr. Jordan. And so is it accurate to say we don't know what
happened to $500 million?
Ms. Katz. Well, there were--they were claimed to be local
expenses, but they don't have----
Mr. Jordan. Any receipts? Any details about those local
expenses? So we have no idea.
Ms. Katz. They can't verify, they can't verify them.
Mr. Jordan. And, Mr. Hochberg, I assume that's a concern to
you and the folks at the bank?
Mr. Hochberg. Well, I just disagree with the assertion.
Mr. Jordan. All right.
Mr. Hochberg. So let me just--let's discuss what this
project is. If I can--can I take 1 minute to--Congressman
Mulvaney, when we have a debt to Cuba, it is written to zero.
We don't throw it away, because we--we may write it down to--it
has zero value on the books, it's been totally written off; on
the other hand, we don't take debts like that and remove them
from our books, because, as the case with Argentina, other
countries, at some point we expect to be repaid, but in terms
of the value, it's zero.
Mr. Mulvaney. Do you count it as a default?
Mr. Hochberg. It's already been written off. Yes, it's then
a default number.
Mr. Mulvaney. It's been counted as a default?
Mr. Hochberg. Yes. Yes. It's then a default number.
Mr. Mulvaney. Thank you very much.
Mr. Hochberg. Back to your question, Mr. Chairman. On the
project of Papua New Guinea, this was a project, a large LNG
project in Papua New Guinea. The U.S. Export-Import Bank
provided $3 billion so that more jobs would be supported here
in the United States. Part of our support, we do a project of
that nature, as you can understand, some costs are incurred
locally, they're not all--so as--standard practice with the
OECD, Organization of Economic Cooperation and Development, we
can do up through 30 percent of local costs to make sure that
that sale gets done. About $576 million was incurred in local
costs. Exxon Mobil is the project sponsor. They have certified
under criminal penalty that those costs were true and incurred
and validated. And the Inspector General has said, quote-
unquote, that that transaction was properly structured and
documented and complied with all laws of Know Your Customer,
and they had no evidence whatsoever for improper local costs
submitted. So that is--I would disagree with Ms. Katz.
Mr. Jordan. All right. On the--with the three other
individuals identified in The Wall Street Journal article who--
for alleged fraud and potential bribes, were their--are they
being investigated in relation to the same matter that Mr.
Gutierrez is being investigated for? Is it all related to Impex
or are the other three on some different issue or transaction?
Mr. Hochberg. There are four individuals and there are
three separate cases.
Mr. Jordan. So--and you--I assume you're going to--when I
ask you what those other cases involving what companies, you're
going to say, I can't tell you.
Mr. Hochberg. The Inspector General is working through
these cases. They've really--they would like the opportunity
and not to have anything more compromised then they believe has
already been compromised by the----
Mr. Jordan. But I keep coming back to this, Mr. Hochberg.
There is nothing in the law that prevents you from, under oath,
in front of a congressional committee doing a legitimate
congressional investigation at an appropriate time when we're
looking at the Ex-Im Bank reauthorization legislation, there is
nothing in the law that prevents you from disclosing the
information we ask about.
Mr. Hochberg. These are alleged and they're under criminal
investigation.
Mr. Jordan. And we understand ``alleged'' means alleged,
and you can--you can--that does--you're innocent until proven
guilty, in fact, you can invoke any privilege and right you
have, like we just saw a few hours ago from Mr. Gutierrez where
he invoked his Fifth Amendment privilege, we understand all
that, but we're asking you, the guy at the head of the Bank,
who just told us that there are four individuals under
investigation for alleged bribes and corruption on three
different issues dealing with three different loans the bank
has made to different companies, different organizations, and
you're only going to tell us when--we only know about Impex,
we're asking about the other two. Can you tell the companies
involved in the other two?
Mr. Hochberg. First of all, you've made a couple of
assertions that they deal with loans and other individuals. All
I can say is there are four individuals; three are no longer
working at the Bank, one is on administrative leave, and the
Inspector General and the Department of Justice is
investigating this for a possible criminal case.
Mr. Jordan. And you said you had--you've had no interaction
with the Department of Justice. So is it accurate to say the
Department of Justice has not instructed you not to share
information with Congress?
Mr. Hochberg. This is--these are in the hands----
Mr. Jordan. Yes or no? That's a yes or no. Did the
Department of Justice instruct you not to share information
with Congress?
Mr. Hochberg. I have not dealt with the Department of
Justice.
Mr. Jordan. All right. And just again for the record, and I
did this earlier, the Inspector General has not specifically
told you, Mr. Hochberg, do not talk to--do not disclose the
three other individuals, do not disclose the three other
companies or whatever's involved in these three situations? Did
he specifically tell you not to disclose that to us?
Mr. Hochberg. The--our general counsel made that
recommendation on concurrence from the Inspector General.
Mr. Jordan. The inspector--that's--I'm not asking you that.
Mr. Hochberg. The--the----
Mr. Jordan. I'm asking did the Inspector General
specifically tell you----
Mr. Hochberg. I did not speak directly----
Mr. Jordan. Because what we get from the Inspector General
when we asked for certain documents, he said, go talk to Mr.
Hochberg, see if you can get the documents from him. So that
would imply that you can give them to us, which is what the law
allows you to do if you so choose, but you are choosing not to
answer our questions and give us that information.
Mr. Hochberg. I am choosing not to interfere with a
criminal investigation.
Mr. Jordan. Okay. Does the gentleman have additional
questions? The gentleman from South Carolina?
We want to thank you, Mr. Hochberg and Ms. Katz, for being
here today for an important hearing. And the committee's
adjourned.
[Whereupon, at 12:18 p.m., the committee was adjourned.]
APPENDIX
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Material Submitted for the Hearing Record
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