October 24, 2013
As part of the Federal Reserve's effort to study and improve payment systems, it has set six Town Hall meetings for members of various industries, including trade credit and collections, to begin on November 12.
As noted in the October 3 and October 10 editions of eNews, the Fed is trying to identify key gaps and opportunities to improve U.S. payment systems in an effort to craft solutions for the business-to-consumer and business-to-business areas that will minimize unintended consequences. Spokespeople with the Fed's Financial Services division reiterated in discussions with NACM this week that they are keenly interested in the B2B perspective and in fostering a relationship with credit managers regarding the payment systems improvement effort. The following dates and host cities for the Town Hall meetings, which require advanced registration, have been confirmed, and more information is available on each here:
• November 12, 1:00-4:00pm (EST) Federal Reserve Bank of Atlanta
• November 13, 1:00-4:00pm (EST) Federal Reserve Bank of Cleveland
• November 14, 8:30-11:30am (CST) Federal Reserve Bank of Chicago
• November 15, 8:30-11:30am (PST) Federal Reserve Bank of San Francisco
• November 18, 8:30-11:30am (EST) Federal Reserve Bank of Boston
• November 20, 8:30-11:30am (CST) Federal Reserve Bank of Dallas
NACM will host a free teleconference regarding the Fed payments initiative on November 5 that is exclusive for members. The event will feature Fed Senior Vice President of Industry Relations Sean Rodriguez talking about the report, Payment System Improvement: Public Consultation Paper, and the associated open study/questionnaire about payment systems, including electronic ones. Areas of particular Fed concern to date include fraud potential, international electronic payments and timeliness of funds availability.
The NACM teleconference begins at 12:00pm EST and will last one hour. A question and answer period with a Fed representative will be included in the event.
- Brian Shappell, CBA, CICP, NACM staff writer
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The National Association of Credit Management (NACM) reiterated its opposition to Virginia House Bill 2198 this week as policymakers in the Commonwealth continue to consider the bill's ramifications ahead of the next legislative session in 2014.
Most recently the Virginia Small Business Commission received a preliminary report from an ad hoc committee formed specifically to study HB 2198. The committee requested that any other input from interested parties, such as NACM, be submitted to the committee by October 25. Once all this information is collected, it will be compiled into a final report from the committee after their next work group meeting on November 14, the results of which will be presented to the full Small Business Commission at their next meeting in December.
The Small Business Commission can then make a recommendation either in support of or in opposition to the bill, or it can offer no recommendation at all. However, the Commission's actions are not binding on the bill, and HB 2198 is expected to be part of the Virginia Legislature's agenda in the coming session.
NACM continues to oppose HB 2198 on the grounds that it would make it harder for commercial credit managers to get the information they need to make decisions on potential customers, and that the bill represents a fundamental misunderstanding about the way credit professionals use credit reports not as a reason to deny a company credit, but as a tool that lets them find out more about the customer so that they can find ways to sell to companies despite their adverse credit history.
Specifically, HB 2198's identification provisions that would require commercial credit reporting agencies to identify to the subject of a commercial credit report the source of so-called "negative information" would lead to a severe reduction in the amount of information available on Virginia businesses. "This would make it harder for these companies to access, on credit, the necessary goods and services that they require to grow their business, and would cool commerce in the Commonwealth in the long term," NACM said in its most recent letter. "Furthermore, for Virginia to enact HB 2198 and take this approach to commercial credit reporting regulation on its own, at a state rather than a federal level, would greatly disadvantage Virginia businesses. Companies operating in other states would have an advantage over companies in Virginia because accurate and reliable credit information on businesses would be easier to access in every state other than Virginia, should HB 2198 become law."
Stay tuned to NACM's eNews for future updates on the legislation. If you have more questions about HB 2198, please contact NACM Government Affairs Liaison Jacob Barron, CICP at firstname.lastname@example.org.
- Jacob Barron, CICP, NACM staff writer
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Few industries are more dependent on the spending habits, not to mention the very operation, of the federal government than aerospace. With lawmakers kicking the can down the road on issues like the budget (January), the debt ceiling (February) and sequestration (even later), companies have been left with a major lack of certainty once again. Because many in aerospace, notably parts production, are already operating on thin ice because of other issues in the private market, aerospace is the latest to land in NACM's Industries to Watch.
NACM Economist Chris Kuehl, PhD said the business community was numb enough to Washington lawmakers to react without shock to the shutdown and debt ceiling brinksmanship, yet they still want and need clarity on where things are going. This is especially true for industries that rely on the federal government for a significant portion of their business. And aerospace is deeply tied to Department of Defense spending.
"Whenever you see roiling confusion with the federal budget, they are in danger," Kuehl said of aerospace-related businesses. "Like the auto industry, there are thousands of little companies that make one part that goes into an airplane. They have been seeing orders scaled back or canceled."
Deborah Thorne, Esq., partner with Barnes & Thornburg LLP, told NACM that those with already shaky margins are going to be affected most from trickle-down damage from the shutdown and continued uncertainty. It just might take multiple quarters to bear out. And while Thorne noted that auto and aerospace are different in many ways, concern over those providing that one part for an end user that starts producing less has recent history behind it.
"It cleared a lot of tier two and tier three people that were operating close to the edge," Thorne said of the U.S. auto decline last decade that landed two of Detroit's "Big Three" in bankruptcy reorganization.
It's not just the shutdown that's an issue for aerospace. Less involvement on war fronts translates into things like fewer helicopters, said Kuehl. That has a noticeable downward impact on production expectations. In addition, there were issues over the last year or so that were largely unrelated to the government. There were a number of purchase problems with the Dreamliner line by Boeing, that Kuehl characterized as largely its own doing. He also noted that Southwest Airlines, which was supposed to add more than 100 additional flights for new routes or to increase existing ones, only rolled out about 30.
"Among other things, Southwest has been trying to go international with AirTran, but now they're not going to do it this year and are hoping to next year," Kuehl said. It all adds up to uncertainty from multiple angles for those in aerospace, and uncertainty causes a big, unwanted trickle down.
- Brian Shappell, CBA, CICP, NACM staff writer
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The regulatory pendulum was inevitably going to swing back to a more stringent position in the wake of the late 2000s financial crisis. However, in addition to new policies designed to prevent future meltdowns, regulators also used the crisis as an opportunity to enact measures that further cracked down on terrorist financing and corruption. Many of these new policies apply to companies in all industries and present new risks in the form of increased regulatory scrutiny.
Regardless of the fact that regulators appear to be paying more attention than ever, a new report from KPMG International found that many companies, particularly those in the financial services sector, are still vulnerable to regulatory actions because of what KPMG described as their "reliance on traditional methods of investigating business relationships." Businesses conducting due diligence on third parties, including customers, vendors, suppliers, joint venture suppliers and others, often only perform a basic sanctions check and an adverse-press investigation to identify potential risks, but according to the KPMG report, titled Astrus Insights, these efforts could miss up to 84% of all potential integrity risks.
"Much of the risk that companies face today is the result of the activities of third parties with whom they are doing business," said Richard Girgenti, U.S. head of KPMG's Forensic Services. "Regulators are increasingly holding companies accountable for knowing who their customers are and the actions of their agents, vendors and joint venture partners."
The report notes that companies need to consider additional factors in their due diligence, including background details on the organization, its shareholders, directors, ultimate beneficial owners and litigation history. Based on the analysis of nearly 8,000 integrity due diligence reports, the study found that 23% of the reports examined had an overall risk rating of red, meaning that they were associated with significant risks involving allegations or incidences of corruption, fraud, money-laundering or other illegal practices.
Two-thirds of the reports received an amber grade, which means that risk issues were identified but that they were of less consequence, such as opaque ownership structures, association with politically exposed persons or significant involvement of the subject in civil litigation. Only 12% of reports received a green rating of "all clear" from an integrity risk perspective.
Regionally, Central Asia, Central and Eastern Europe, including Russia, and Middle East and North Africa stood out as the areas posing the highest third-party risks. Russia in particular remains a noteworthy country of interest for companies when conducting their due diligence. Fifty-seven percent of the due diligence reports on Russian subjects were rated red, meaning they posed considerable risk.
- Jacob Barron, CICP, NACM staff writer
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By finalizing the details of a free trade agreement (FTA) with the European Union that has been in the works since 2008, Canada has forged the largest trade pact in its history.
Holdups within a couple of industries, mainly food-related, were overcome on the way to the October 18 announcement of the agreement, dubbed the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). It eliminates about 98% of tariffs existing between the two nations. A 2008 joint study concluded that such an agreement could increase Canada's income by $12 billion annually. Canadian Prime Minister Stephen Harper called the deal an "historic win" for both his nation and the more than two-dozen nations tied to the EU. "It represents thousands of new jobs and a half-billion new customers for Canadian businesses," he said. It is expected that the agreement will be ratified and enacted by 2015.
This is not the only major trade pact either nation is pursuing. Among others, Canada remains a player in the Trans-Pacific Partnership (TPP), which also includes the United States and several Southeast Asia/Pacific Rim economies. Meanwhile, throughout the year, the EU has been hard at work with the U.S. on improving its massive existing trade agreement which already involves a fairly short list of business-stymieing obstacles.
- Brian Shappell, CBA, CICP, NACM staff writer
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One of the chief arguments for the continued existence of the U.S. Export-Import Bank (Ex-Im) is its propensity to not merely support American exports, but to do so at a profit. As such, Ex-Im announced this week that at the conclusion of the government's 2013 fiscal year it had transferred just over $1 billion in revenues to the U.S. Treasury's General Fund, representing the money left over for U.S. taxpayers from fees and services, less what the Bank required in operating costs and loan loss reserves.
"From supporting jobs to helping reduce our deficit, the Export-Import Bank is making a difference for our economy and working for the American taxpayer," said Ex-Im Bank Chairman and President Fred Hochberg. "In addition to sustaining hundreds of thousands of American jobs, Ex-Im Bank also generated more than $1 billion dollars for the U.S. Treasury last year alone."
Over the past two years Ex-Im has faced repeated ideological criticism from conservative members of Congress for providing what opponents consider to be corporate welfare or unnecessary federal spending. These arguments become harder and harder to make with profit announcements such as this one, and the fact that the Bank's profitability seems to be increasing, as this fiscal year's total revenue marks an increase from fiscal year 2012 when Ex-Im sent only $800 million to the Treasury.
"We operate at no cost to the taxpayers. It is a self-sustaining agency," said Ex-Im Director Sean Mulvaney at this year's 24th Annual FCIB Global Conference hosted in Philadelphia in September, while also noting that as positive as it is for Ex-Im to generate this profit, the Bank's primary goal is not to pay back American taxpayers. "Our objective is not 'earnings.' Our objective is not deficit reduction. To the extent Ex-Im's excess receipts contribute to reducing the deficit, it is a byproduct of our core mission in keeping U.S. exporters competitive, preserving U.S. jobs and protecting the U.S. taxpayer while Ex-Im fulfills its mission."
- Jacob Barron, CICP, NACM staff writer
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