Financial Services Committee

Investigation Reveals Export-Import Bank Exaggerating Help for Small Business

• Reuters news agency investigation finds Ex-Im lists “companies owned by billionaires” and “Japanese and European conglomerates” as “small businesses”
• Ex-Im’s list of “small businesses” includes one that has 53,000 employees
• “The errors make it difficult to identify exactly how much Ex-Im support goes to big businesses such as Caterpillar and how much to small companies.”
• Hensarling: “The bulk of Ex-Im’s help indisputably goes to large corporations that can finance their own operations without putting it on the taxpayer balance sheet.”
• Read the full report below.

Export-Import Bank admits errors in small biz data

Nov. 13, 2014
LINK TO ARTICLE

(Reuters) - The U.S. Export-Import Bank has mischaracterized potentially hundreds of large companies and units of multinational conglomerates as small businesses, a flaw in its record keeping that could undermine the export lender's survival strategy.

A Reuters analysis showed companies owned by billionaires such as Warren Buffet and Mexico's Carlos Slim, as well by Japanese and European conglomerates, were listed as small businesses and Ex-Im acknowledged errors in its data in response to those findings.

Bank officials and supporters have used the Ex-Im's support for American small business as a first line of defense against a campaign by conservatives to shut it down as an exponent of "crony capitalism."

The bank won a nine-month extension of its mandate in September and faces a bruising battle over the next seven months to secure its future.

Critics reacted quickly.

“Rarely does Ex-Im miss a (public relations) opportunity to claim that it primarily helps small business, but Ex-Im is again playing fast and loose with the facts," said Representative Jeb Hensarling, a Texas Republican who chairs the House Financial Services Committee. "The bulk of Ex-Im’s help indisputably goes to large corporations that can finance their own operations without putting it on the taxpayer balance sheet.”

A comparison of some 6,000 businesses characterized by Ex-Im as "small" with information supplied by corporate data collector Dun & Bradstreet, which Ex-Im also uses to vet applicants, and other sources turns up some 200 companies that appear to be mislabeled and many more whose classification is uncertain.

A division of Austria's Swarovski jewelers shows up, as does North Carolina's Global Nuclear Fuels, which is owned by General Electric and Japan's Toshiba and Hitachi.

The extent of the errors, which also mean some genuine small-business transactions are not labeled as such, is not clear. Separate Ex-Im databases do not even agree with each other.

Responding to a list of 10 examples provided by Reuters, Ex-Im acknowledged errors in most of them but said their impact was small and that the mislabeling of small companies as large ones may have a bigger effect on the total tally of small-business support. A spokesman said the bank aimed to be as transparent as possible.

"When it comes to our data, we strive for 100 percent accuracy, and anything less is unacceptable, which is why we are constantly improving our systems,” he said, pointing to Ex-Im's recent hiring of a chief information officer, an overhaul of databases and a review of paper documents.

In an emailed response to Reuters, the bank cited five examples from 2013 in which small companies were labeled as large ones by mistake.

The errors make it difficult to identify exactly how much Ex-Im support goes to big businesses such as Caterpillar and how much to small companies.

The problem is primarily political, as there are no legal implications of businesses being misclassified by Ex-Im. The bank does not set money aside specifically for companies that meet industry-specific revenue and employee limits set by the Small Business Administration. The SBA guidelines exclude companies that may be small but are owned by deep-pocketed conglomerates.

SLIM AND BUFFET

Reuters calculations show that as much as $3 billion in authorizations listed as those for small business may have been misclassified over eight years - roughly 8 percent of Ex-Im's $38 billion in small-business support over that period. Total authorizations came to $189 billion.

For example, among small-business beneficiaries is Texas-based Condumex Inc, the U.S. sales operation for Mexico's Grupo Condumex, a subsidiary of Slim's Grupo Carso.

Or take Brock Grain Systems, a division of CTB International Corp, which has been owned by Buffet's Berkshire Hathaway since 2002.

In its battle to survive, Ex-Im has presented its statistics with exacting precision.

Ex-Im says that in the fiscal year ended Sept. 30, it engaged in 3,347 transactions supporting small businesses, accounting for almost a quarter of financial authorizations and nearly 40 percent of the exports the agency supported.

The lender authorized $20.5 billion during that fiscal year in low interest loans and other support for U.S. exporters and buyers of "Made in America" products.

The mislabeling of transactions, however, makes it difficult to tell exactly how the pie is divided. It extends to a website that allows lawmakers and others to check how Ex-Im supports businesses in each congressional district.

The list of small businesses in Texas, for example, includes engineering and construction company Bechtel, which has 53,000 employees.

On Thursday at 10:00 a.m. the Full Committee will hold a hearing to examine terrorist financing and the Islamic State.

Hensarling on the Export-Import Bank
 
Mr. Hensarling views the Ex-Im battle “somewhat as a precursor to the tax reform fight because there are so many vested corporate interests” served by the current tax code: “If we can’t get rid of this agency and the corporate welfare it represents, how will House Republicans ever muster the intestinal fortitude to be able to do fundamental tax reform?” He adds, with some political poignancy, “I don’t know how we will ever have the moral authority to deal with social welfare if we can’t deal with corporate welfare.”
 
Hensarling on Dodd-Frank

Mr. Hensarling sees an opportunity to revisit the 2010 Dodd-Frank law, which was drafted in haste after the financial crisis and was falsely promoted as an end to too-big-to-fail banks. Mr. Hensarling says that “given the state of the economy, people are taking a second look” at both the law and the story they were sold by its authors. “We’ve all heard about Wall Street greed. I think people are now starting to be a little bit more sensitized to Washington greed—the greed for power and control over our lives and our economy.”  

He notes that consumers aren’t pleased with the results: Free checking and credit-card perks are disappearing, and more generally the economy is lagging. Mr. Obama’s approval ratings on economic policy are down, and Mr. Hensarling thinks one reason is the burden on lending and small community banks by Dodd-Frank’s “sheer weight, volume, complexity and number of regulations.”

Hensarling on the CFPB

He is particularly focused on the law’s Financial Stability Oversight Council… and on the Consumer Financial Protection Bureau (CFPB), which he calls “the single most unaccountable agency in the history of America.” Housed within the Federal Reserve, it draws funding from the Fed but doesn’t answer to any Fed officials, or to congressional appropriators, or to a bipartisan commission, as most independent agencies do. The bureau is run by a single director who cannot be removed unless the president can show cause. Mr. Hensarling also notes that the Bureau doesn’t even have true oversight by the courts because of the Supreme Court’s Chevron legal doctrine that compels judges to show deference to the bureau’s decisions. This lack of accountability may be why the bureau has been constructing what Mr. Hensarling calls “the Taj Mahal” to serve as its Beltway headquarters.

Mr. Hensarling believes the CFPB’s lack of accountability is also leading to “consumer protections” that Americans don’t want or need. Once the bureau’s rules are fully implemented, he says, “one third of all blacks and Hispanics” will “no longer be able to buy the homes that they have traditionally been able to buy. We are protecting them out of their homes! The qualified-mortgage rule should have been called ‘quitting mortgages’ because that’s what it’s all about. So I think I’ve got the argument that is very compelling and people feel it,” says Mr. Hensarling. “They’re less free and less prosperous.”

The CFPB and the game show Jeopardy! seem to have an interesting connection (see here and here).

Although this week’s Jeopardy! contestants couldn’t name the agency, the unaccountable CFPB is certainly making a name for itself in all the wrong ways.
 
Here are five more answers that probably ended up on the cutting room floor in the Jeopardy! Studio:

President Obama recently voiced concerns about the negative impact of “endless regulations” in foreign countries.  Millions of unemployed and underemployed Americans must be wondering why he isn’t as concerned about the economic harm caused by the “endless regulations” of his own administration here in the U.S.A.

While the American people are repeatedly told that nothing is getting done in Washington, struggling small business owners and entrepreneurs across our nation can only wish that were true.  They know better than anyone that the Washington bureaucracy is busier than ever churning out red tape.

Washington set a new record in 2013 by issuing final rules consuming 26,417 pages in the Federal Register.  Another 3,305 regulations are moving through the pipeline at the historic rate of roughly one new regulation every two hours.

Job number one of the Financial Services Committee is job creation and economic growth.  That’s why the committee has passed dozens of bipartisan, pro-jobs bills during the 113^th Congress.  Yet Harry Reid has killed them, refusing to even bring them up for votes.  Instead, he adds them to the pile of jobs bills collecting dust in the do-nothing Democrat-controlled Senate.

If President Obama truly cares about the harm caused by “endless regulations,” he should pick up the phone today, call Senator Reid and urge him to take action on these bipartisan jobs bills.

Your move, Senate.

During the 113^th Congress, the House has passed 23 bipartisan, pro-jobs Financial Services Committee bills, including two that were approved by the House earlier this month with strong support from Republicans and Democrats.  A list of those House-approved bills follows:

H.R.634
H.R.701
H.R.742
H.R.749
H.R.801
H.R.992
H.R.1062
H.R.1105
H.R.1155
H.R.1256
H.R.1341
H.R.1564
H.R.2274
H.R.2374
H.R.2672
H.R.3193
H.R.3211
H.R.3329
H.R.3448
H.R.3584
H.R.4167
H.R. 5405
H.R. 5461

Your move, Senate. Let's get America back on track.