Foreign indemnity can produce problems for surety companies based in the United States. A foreign citizen or business may need to obtain a surety bond in the United States during the regular course of business or litigation. However, only some sureties can take foreign indemnity – and those sureties that can take foreign indemnity usually only accept it from certain countries.
The term indemnity means “agreement to hold harmless or make whole.” When applying for a surety bond, an applicant indemnifies the surety by agreeing to repay any and all costs the surety pays due to a claim on the bond they issued for the applicant. Sureties expect to never have a loss.
If a foreign firm or citizen needs a surety bond in the United States, the surety needs to evaluate the worth of the foreign indemnity. A foreign enterprise may offer to indemnify the surety, but the surety may not actually have any way of collecting their dues for several reasons.
First, the foreign firm’s country may not have a stable political structure. A country in the midst of civil war or under a transitional government likely lacks the legal framework for a surety to file a claim against the foreign firm.
Second, the foreign firm’s country may have laws in place protecting their businesses from outside claims. A surety’s legal team cannot simply enter into another country’s jurisdiction or courthouse and file a complaint. The surety would have to hire foreign legal counsel and consult with them to learn about the country’s judicial process.
On top of these problems, any company working across international borders faces the issues of language barriers, time zone discrepancies, currency exchange rates, and cultural misunderstandings. This can make underwriting, consulting foreign legal counsel, filing a complaint, and communicating with the principal very difficult.
However, foreign firms can offer more than just foreign indemnity. In fact, some sureties will accept foreign indemnity from large, public, and well-established foreign firms from countries in Western Europe and Japan.
If a surety will not accept foreign indemnity, the foreign firm can still obtain the surety bond under other circumstances. The foreign firm can let their United States subsidiary indemnify if the subsidiary has strong financial statements, or post full cash collateral in exchange for the surety bond.
Because business nowadays encompasses international and global companies, we have a lot of experience working with foreign firms and obtaining surety bonds for their needs.