October 23, 2014
Just weeks after Home Depot joined the growing list of major retailers to be hacked, Staples may have experienced the same fate. Though company officials have been significantly more vague than companies like Home Depot and Target, Staples has acknowledged it is investigating the possibility of breach of payment card security.
Perhaps the most out-front on the potential breach was not company officials or mainstream media experts but, rather, a blogger (Brian Krebs) who wrote about suspicions arising from numerous banks regarding potential fraud incidents in some of Staples' Northeastern region locations. This puts payment security and data information back among top news stories. While retail consumers comprise virtually the entirety of those affectedâ€”though the Target breach notably started when access was gained during a hack against a vendor/supplierâ€”this breach may lead to elevated data security concerns even in trade credit spheres, as noted in a feature article in the November/December edition of Business Credit. After all, more and more managers are storing credit data in Cloud-based solutions. Software providers, however, believe any backlash will be muted in business-to-business spheres, even as an increase in questions is a natural response from potential users.
"I don't think it's a matter of creating new concerns where they didnâ€™t already exist," said Chris Calvert, vice president of sales, marketing and client services at CreditPointSoftware. "If people had questions before, it might have them asking more questionsâ€¦I don't think it is shaking our customers' confidence in the Cloud."
Jay Tchakarov, director of product management at HighRadius, told NACM in the same Business Credit article that the silver lining of such retail breaches is a chance for well-performing B2B data protection and Cloud service providers to show how much safer their services are for businesses and credit departments. He added that customers are also becoming more educated on the topic of data security, which allows greater depth of conversations, because of publicized security problems in the headlines.
The topic is unlikely to fade in importance any time soon, predicted Rudet Fountain, VP of channel marketing and VP of NACM relations at United TranzActions: "It's a constant game we play. You come up with a new way to encrypt and protect things, and there's a seedy guy in a bedroom somewhere trying to figure out a way around it."
- Brian Shappell, CBA, CICP, NACM staff writer
For in-depth coverage of recent data security breaches and their muted effect on B2B transactions, check out the feature article â€śRumblings in the Cloud?â€ť on page 16 of the November/December edition of Business Credit. The magazine is available online, and compatible with all smart devices and tablets. The printed issue should be arriving to most subscribers within the next week.
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As was the case at the NACMâ€™s inaugural Graduate School of Credit and Financial Management International this summer, compliance may have been the hottest topic among credit managers of companies presently exporting their goods and services at FCIBâ€™s 25th Annual Global Conference last week. Perhaps the biggest takeaway was that perfection isn't always necessary to appease governments and regulators, but diligence most certainly is.
As previously noted by NACM, regulatory activity and the size of fines for violations of compliance mandates in the United States, and for many other developed economies as well, are growing. Luis Noriega, ICCE, vice president of global trade services with JPMorgan Chase Bank, said the enforcement issue is significant for exporters, down to the product and order level. After all, if recent cases are any guide, the exporter is typically going to be held most accountable, rather than a financial institution involved or even those responsible for planning schemes to falsely purchase or forward products to terrorist organizations or banned destinations, among many other non-compliant activities.
"All it takes is one event to cause monetary penalties and strict liabilities to companies," Noriega said. "You can't rely on other links in the chain, be it the payment system or freight-forwarders. You just need to be ready to assist and defend the fact that you are a party in a transaction." A big part of defending is documenting your efforts, and doing so honestly, said FCIB Global panelist Jon Yormick, owner of the Law Offices of Jon P. Yormick Co. LPA.
Yormick warned of the importance of due diligence on a growing number of matters like checking sanctions lists, end-user status and information on principals of a company. While difficult to get some of that information, especially if a private company is part of the transaction, technology down to even basic Google Earth searches can help a business plead its case if something goes awry from a compliance perspective.
"You just have to dig and have your documentation filed well. I don't know that the government is looking for perfection, but they want to see if effort was put in," Yormick said. "What the government does not want is turning a blind eye. They don't want you sticking your head in the sand."
Yormick also strongly suggested against trying to be coy and circumvent compliance laws in any way. "You're going to get a knock on the door, especially if a competitor finds out about it. The anonymous tip line is a great thing for your competitors," he warned.
Tonya Matney, special agent with Homeland Security Investigationsâ€™ Counter-Proliferation Task Force, suggested that helpful tips to stay in the good graces of investigators include performing extra due diligence when doing business somewhere that is a common area for trans-shipping activity (United Arab Emirates, Jordan, Thailand, etc.), following up when documentation is incorrect or inconsistent, applying for proper trade licenses when needed and, when something seem amiss with a request or order, providing a little cooperation.
"We ask that you do not slam the door," said Matney of what to do during a customer request for an order that is clearly non-compliant. "Keep it neutral and try to get as much information as you can. Keep the emails. Call us. Forward it to us. Weâ€™ll investigate itâ€¦you won't have to take any more time."
- Brian Shappell, CBA, CICP, NACM staff writer
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The latest report from the World Trade Organization (WTO) is not as bleak as in past years, but it also isnâ€™t very positive about the immediate future. There are some reasons for optimism, but plenty of concerns as well.
Trade is not as threatened as a year ago and most countries are starting to rethink their patterns of protectionism. The trade data showed a steep decline in recent years, with nations that are dependent on exports particularly struggling (China, Germany).
The primary fear is that Europe will continue to decline and face severe bouts of deflation. It is already in recessionâ€”even Germany has been unable to escape the grip. The real crisis in Germany is driven by the collapse of their export market. When the Chinese started to slow, the Germans were hit hard and really only had the US market to sustain their growth. That has proven to be inadequate and, now, the Germans are in as bad shape as many of the other states in the euro zone.
An unexpected bright spot is that emerging markets are rebounding. India is probably the healthiest of the BRICs (Brazil, Russia, India, China) given the changes in the global economy. The recent plunge in the cost of commodities is benefiting India far more than the others, although China is enjoying the price break as well. China has shifted its focus to internal economics and has passed Germany to become the second largest importer of commercial services in the world. Brazil is experiencing a drought more severe than anything seen in 80 years, one affecting exports of soybeans and sugar. Russia is suffering from the lack of demand for their oil and gas and the impact of much-discussed sanctions.
The second level of emerging economiesâ€”Mexico, Indonesia, Nigeria and Turkeyâ€”are experiencing a similar division as far as success is concerned. The Mexican economy has been evolving into the manufacturing base for the US and is also seeing its nascent energy sector start to yield real benefits. Indonesia is still more potential than reality, but that potential is vast. Nigeria dodged a bullet as far as Ebola is concerned, but is suffering from the lack of demand for global oil, particularly from the US and the Europe. Turkey is occupied with newer conflicts in the Middle East, weighing down economic potential.
One bright spot in the WTO report is that the US economy looks a lot healthier than it was earlier in the year. Much of the collapse in the first quarter has been attributed to the slide in exports and bad weather. The US has not been able to recover the exports lost as a result of Europe's slump, but there has been significant progress in developing new opportunities in Latin America and Asia.
- Armada Corporate Intelligence
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A pair of US Bankruptcy Courts is deciding on petitions for Chapter 15 bankruptcy reorganization protection in two of the more interesting cases to come along since a Texas-based judge risked icy trade relations by denying enforcement of a plan proposed by a Mexican company in 2013.
South Korean mobile-phone producer Pantech Co., unable to remain solvent amid problems of competition with bigger rivals like Apple and Samsung, filed in US Bankruptcy Court in Atlanta under Chapter 15, the US mandate for cross-border insolvency proceedings that includes giving a foreign-based company protection from US-based creditors while reorganizing. It was followed shortly after by LDK Solar Systems Inc., which filed in Delaware. LDK, reportedly suffering from an oversaturation of producers in China similar to the situation that hurt the US and Germany solar industries earlier this decade, already saw three of its American subsidiaries file domestically under Chapter 11. The Chapter 15 case could be complicated because the company is based in China, was incorporated in the Cayman Islands and has already started restructuring proceedings in Hong Kong.
Chapter 15 plans that involve rulings by judges in key trading partner nations are almost universally accepted by US bankruptcy judges. However, controversial Texas-based Judge Harlin Hale in 2013 denied enforcement of Vitro SAB's reorganization plan that had been approved in a Mexican court. He believed Vitro's plan was contradictory to US bankruptcy policy and the interests of American bondholders and trade creditors.
In municipal bankruptcy news, US Bankruptcy Judge Steven Rhodes said testimony and arguments will wrap next week in Detroit's complicated Chapter 9 case, barring an extreme situation, and a decision will be rendered during the first week of November. The complexity of the case, as well as a mountain of objections and court actions from creditors trying to maximize returns and unions trying to preserve pension and health care benefits, rendered the original timetable of a summer conclusion impossible. The outcome remains under close watch nationally because of potential implications for many US cities struggling with escalating debt problems tied primarily to retiree benefits such as pensions and health insurance, which are among the core issues in play in the Motor City.
Finally, the city that put the topic of municipal bankruptcy back on the map a few years ago suffered another embarrassment this month. Harrisburg, PA, which famously was rejected during its 2011 attempt to file for Chapter 9 protection, accepted the resignation of its incoming city treasurer this week. The City Council, skewered by many for perceived mismanagement that led to depleted city funds and the probable insolvency that forced a heated debate about municipal bankruptcy options, tabbed Timothy East as the new treasurer while unaware that he is going through his own personal bankruptcy.
- Brian Shappell, CBA, CICP, NACM staff writer
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In response to media reports that the City of Kilgore, TX was poised to waive the surety bond on a planned baseball complex, the American Subcontractors Association sent a letter several weeks ago to members of the City Council and construction officials urging the city "to require the prime contractor to provide a 100% payment bond, as required by Texas law."
ASA told the city that "without a payment bond, subcontractors and suppliers will encounter a dangerous void in essential payment protections for work performed." The severe risk inherent in the absence of reliable payment protection can "only reasonably be expected to increase costs for the overall construction project being undertaken, as subcontractors and suppliers seek to accommodate the increased risk or even completely deter bidding by the most skilled subcontractors and suppliers, whose resources can be directed at projects for which payment protections are available."
ASA Chief Advocacy Officer E. Colette Nelson noted that Kilgore is a prime example that public entities around the country are increasingly waiving or considering waiving surety bonds. She emphasized the need for ASA and its chapters to intervene at every level of government that is considering waiving payment assurances. In addition, she reminded subcontractors on public works projects to confirm that the prime contractor has provided a payment bond, to obtain a copy of that bond and to assure that it complies with the all of the notice and claims procedures.
- American Subcontractors Association
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