(...) Conference participants flocked to a session on the war on terrorism and its implications for credit management, presented by (...) Skip Brandon, COO, Smith Brandon International. "Our world has changed in a lot of ways," said Brandon, who is also former deputy assistant director of the FBI, with responsibility for the national security and counter-terrorism programs. "You must be increasingly aware of how and with whom you do business abroad--and not just in terms of good money and bad money, but more philosophically. Businesses must become increasingly concerned about governments and how they rule." (...)
"Every business should have a crisis management plan," Brandon advised, "whether you are a four-person company or a 40,000-person company. You need to think about this now. You need a plan--not just because of terrorism, but because it's a good business practice. What happened on September 11th was a wake-up call for companies that don't have a crisis management plan or haven't looked at their plan recently." (...)
In response to a question from the audience, Brandon discussed new federal requirements that hold companies accountable for the sources of funds they receive--part of the antiterrorist campaign launched in September. "You are going to have to do some level of due diligence on virtually everybody you do business with," Brandon warned. "The laws put the onus on you, and you will be held responsible for identifying the sources of funds." (...)
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Credit managers from top companies joined with international experts to tackle credit issues in the context of terrorism, money laundering and global recession.
Credit professionals from 23 states and six countries attended the Twelfth Annual FCIB Global Conference in Coral Gables, Florida on November 12-14, sponsored by Euler ACI, AON Trade Credit, JPMorgan and PNC Bank. "We have to press forward with business as usual," said FCIB president Ken Garrison, Jr. as he welcomed the participants, many of whom braved difficult travel conditions to attend the conference. He extended his gratitude to the sponsors of the conference.
Garrison noted that in the wake of September llth and the ongoing global recession, there is a new sense of urgency in gaining first-hand information on credit management from international experts in the field. Credit managers attended conference sessions on letters of credit, export risk mitigation techniques, money laundering, credit risks in Latin America, and new credit conditions created by the antiterrorism campaign, plus an "around the world" roundtable discussion on country-specific credit issues.
Prospects for Emerging Markets
Keynote speaker Vanessa Weaver, member of the Board of Directors of the Export-Import Bank of the United States, opened the conference with an analysis of the global economy and emerging markets. Weaver outlined the synchronized slowdown in the United States, Europe and Japan, and expressed confidence that the governments in all three regions are taking appropriate steps to foster recovery in 2002. She cautioned, however, that "Any number of factors could send us into a sharper and longer slowdown." If recovery begins in 2002, Weaver believes that "It will be led by the United States, followed by Europe, and then in 2003, emerging markets will begin to recover." The rebound will be rapid after the upturn, she predicted, fueled by aggressive interest rate cuts and technology-driven productivity growth in both the U.S. and Europe.
Weaver said that the Export-Import Bank and other financial institutions need to "step up to the plate and provide the kind of financing needed to allow exports to occur during 2002 so we can all pull the global economy back up and ensure that U.S. companies gain footholds in emerging markets, where most of the profits and opportunities will occur in the next decade." She noted that there has been an enormous retreat in private capital flows from emerging markets, creating serious difficulties in countries such as Brazil, Turkey and Argentina. The simultaneous downturn in the U.S., Europe and Japan, she said, has set off an unprecedented deceleration in world trade, which is also adversely affecting emerging markets.
"Private capital flows will return to emerging markets in a very selective, discriminating way in 2002 and 2003," Weaver predicted. "Many companies are accustomed to dealing with emerging markets; they understand the risks and develop the relationships they need. Most U.S. companies, however, don't think about trade with China or Thailand, for example." Weaver warned that U.S. companies "will not be able to compete in the global economy 10 years from now unless we get serious about trade with emerging markets. Europe will be able to compete. Europe is already all over Africa, Latin America and East Asia, and will continue to do well."
Weaver explained that throughout the 1990s, many developing countries instituted striking changes,, including diversifying into manufacturing and away from their reliance on commodities. "They gained global market share that will position them to expand in 2003, and there will be real opportunities," she said. "Between 2003 or 2004 and 2010, the emerging markets will see even greater profits than they did in the 1990s, which was a significant period for many U.S. companies with interests in these areas. By 2003, low interest rates, global recovery, increased confidence and reduced perceptions of risk will signal the return of capital flows to emerging markets." Weaver predicted that emerging markets will see GDP growth of 5 percent in 2003, with 6.8 percent in East Asia, 4.5 percent in Latin America, and 4.5 percent in Central Europe.
Export-Import Bank's Role
The Export-Import Bank has come under criticism in the past year, Weaver noted, by those who believe that private markets should govern financing decisions. "These critics don't understand the role of international financing and the importance of the Export-Import Bank and other export credit agencies around the world," she argued. "We want the Export-Import Bank to be far more aggressive. This doesn't mean that we will take on bad loans or bad risks. It means that we will structure the deals well, understand the cash flows, and step up to approve new deals that would otherwise not go forward in 2002."
Critics argue that if the Bank provides financing where a commercial bank wouldn't, the Bank is simply making bad loans. "They are wrong," Weaver said. "There are good loans and good projects that private financial institutions will not take on, primarily because they don't have enough information. Export-Import Bank personnel can go in to a minister of finance or the president of a company and ask for accounting records that are audited under IAS rules, and we can push for reforms and the kind of structures that are needed. The Bank should not compete with the private sector but provide a bridge between declining times and good times."
EXIM Bank does significant work in China, Mexico, Brazil, Venezuela, Thailand and South Korea, "So we have an enormous amount of experience and understanding about these countries and about individual projects," Weaver said. "We hope to do more in Russia next year. We talk constantly with ministers of finance and others in these countries to ensure that legal reforms that benefit creditors are instituted properly and enforced." She closed her presentation by urging credit professionals to "Let us know what you need. We are going to drive the Export-Import Bank forward, and we are pushing for new policies that will help you."
War on Terrorism
Conference participants flocked to a session on the war on terrorism and its implications for credit management, presented by Dr. Hans P. Belcsak, president of S.J. Rundt & Associates, and Skip Brandon, COO, Smith Brandon International. "Our world has changed in a lot of ways," said Brandon, who is also former deputy assistant director of the FBI, with responsibility for the national security and counter-terrorism programs. "You must be increasingly aware of how and with whom you do business abroad--and not just in terms of good money and bad money, but more philosophically. Businesses must become increasingly concerned about governments and how they rule."
"There are governments in the Arab peninsula that are very vulnerable," Brandon explained, "because they have ruled as autocrats and, at times, been oppressive. You will have to factor this in when you think about where and about how you will do business. Are you, for example, going to have large groups of expatriates abroad? Expatriates living well in a compound can draw a negative response."
September 11th demonstrated that there are "People who take a violent approach to the world, and there are conditions that push people toward this," Brandon said. "We may not understand them, and businesses certainly cannot control all of the conditions. But you will have to be much more aware of them, and you will have to become either part of the continuing problem or, more realistically, part of the solution on a long-term basis. This is not to say that you will have to have your own foreign affairs department, but you will have to be much more aware. We can't simply stop doing business abroad. Economies are so intertwined now that we couldn't rip them apart if we wanted to."
Companies can begin to formulate a response to post-September 11th conditions by looking at one small part of their preparedness. "Every business should have a crisis management plan," Brandon advised, "whether you are a four-person company or a 40,000-person company. You need to think about this now. You need a plan--not just because of terrorism, but because it's a good business practice. What happened on September 11th was a wake-up call for companies that don't have a crisis management plan or haven't looked at their plan recently."
Brandon advised the conference participants to "keep your crisis management plan simple, and make sure that people know it exists. It must be a living document. If you have a huge thick plan, throw it out, because you don't have an effective plan. If your plant catches on fire, or a hurricane hits, or your CEO and half of your board of directors are killed in a plane crash, that thick plan won't get you through."
The plan should provide basic guidance on the most important steps in managing a crisis. "You have to know how to get the information you need to make good decisions, and you need a process for verifying that information. If you look back at September 11th, you'll remember that all sorts of claims were made that weren't true," Brandon noted. "You also need the ability to communicate under severe pressure with your key decision-makers. This is critical, and causes companies more problems than other aspects of crisis management."
In response to a question from the audience, Brandon discussed new federal requirements that hold companies accountable for the sources of funds they receive--part of the antiterrorist campaign launched in September. "You are going to have to do some level of due diligence on virtually everybody you do business with," Brandon warned. "The laws put the onus on you, and you will be held responsible for identifying the sources of funds." Brandon advised credit managers to check the government list of individuals, organizations and businesses that U.S. companies are no longer allowed to do business with.
Credit managers packed the session on money laundering, where Robert Mazur, president of Chase & Associates, Inc. and a former U.S. Drug Enforcement Administration agent, described new antilaundering programs launched by the U.S. government that dramatically affect all companies doing business abroad. Mazur described in detail several recent "corporate disasters" that occurred when major companies were charged with violating money laundering laws. When Mazur concluded his presentation, he was flooded with questions from the audience about identifying money laundering risks, recognizing "red flags," and IRS Form 8300 filings.
The red flags Mazur noted include payments from multiple sources, an unusual number of payments from the same source, checks containing multiple styles of entries, checks with multiple endorsements or originating from a jurisdiction unrelated to the customer's business presence, an irregular volume of business, and customers who are unwilling to provide bank or industry references or unusually concerned about Form 8300 requirements. Mazur also warned the audience about customers who appear to be acting as the agent for another party, who maintain a credit balance for periods inconsistent with the nature of the business, and who seem relatively unconcerned about transaction costs.
In a breakout session on letters of credit, William Hindon, vice president, JP Morgan Chase, outlined the components and types of LCs, their advantages and disadvantages and common problems and solutions. In a concurrent session, Gerald Rama, senior vice president and deputy group head international, PNC Bank, N.A., spoke on export risk mitigation techniques, including forfeiting, credit insurance and guarantees.
A special panel discussion on credit risks and pitfalls in Latin America included Patrick Connelly, senior vice president for worldwide credit services, Tech Data Corp.; Ronald Goldberg, partner, Akin, Gump, Strauss, Hauer & Feld, LLP; and Richard Maxwell, senior vice president, EULER American Credit Indemnity Co. The panelists noted that competitive pressures are pushing exporters to take greater risks in extending credit in Latin America, and discussed methods for mitigating risks within a competitive environment. Ronald Goldberg outlined alternative payment methods for U.S. companies selling goods or services to companies in Argentina, including methods that do not incur additional costs, such as a Letra de Cambio and a Pagare. Richard Maxwell spoke on underwriting trade credit risk in Latin America, with details on specific country risks. Pat Connelly, a seasoned international credit executive, shared his first-hand experience on Latin America.
The conference closed with a round table discussion of country-specific questions and export credit topics submitted by conference participants and FCIB members. Moderated by Paul Beretz, managing director of Pacific Business Solutions, the panel included Lou Aguilera, vice president, asset based global finance, Citibank International; William Bastiaan, global credit risk manager, DSM Sales Offices B.V.; Ignacio Pumarejo Gonzalez, CEO of P.M. Grupo Corporativo, S.A. and partner in the law firm of Pumarejo, Sanchez Rochin y Marquez Asociados; and Alice Knight, vice president of finance, Pacific Paper Marketing USA, Inc. The panelists and members were engaged in a discussion about Argentina, including questions about payment experience, credit insurance and Patacones payments. Panelists and attendees shared their views and credit experience in Brazil, Colombia, Venezuela, China, Japan and the Philippines.
The conference ended with Frank Brogan, Lieutenant Governor of Florida, who greeted the conference participants and thanked them for coming to "the Sunshine State".