Scary Trade Compliance Stories with Adrienne Braumiller

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Lalo 0:00
Before we jump in a note on our content, this episode depicts a traumatic event. Listener, discretion is advice. Check our show notes for detailed information

Adrienne Braumiller 0:19
anytime you lie to the government about anything dealing with your import, of your export, even if it’s really an innocent reason, it’s a hassle.

Lalo 0:34
Welcome to simply trade. Brought to you by global Training Center. My name is lado, and together with my co host, Andy, we have well over 60 years of combined trade logistics and supply chain experience along the way, we have seen and witnessed different challenges in trade compliance. We decided to put the show together and call on our friends and colleagues in the business to hang out with us and share their knowledge in all things trade. Thank you for spending some time with us. Enjoy the show. You

Andy 1:03
Hey, LELO, it’s good to be back. We are looking forward to another great show today, but it’s the feedback we’ve been getting has been great. So I want to say thank you to our listening audience. Wait till we release the video on this, because then you can, you know, print a picture and then throw darts at it for me here, so, but because I look like the south end of a northbound mule. So anyway, but hey, you know, things have been going well, but with that, Lalo, how have you been doing good? Doing good,

Lalo 1:40
getting ready to head out this weekend. But yeah, everything’s been going well here with with a show, like you said, and this might be what our second or third show, after we made that announcement that we are trending in Europe. So let’s see how this, yes, this goes now, after we said that, so, but which is really good. I mean, we’re kind of excited about that and trying to see a little bit more of our numbers. So again, thank you to our European audience. Thanks for listening, and anybody else too. I mean, we see people from Mexico, Saudi Arabia, even, you know, in all parts of the world that are listening, which is cool, you know. And of course, our biggest audience being the US. So thank you all for supporting us and listening to us, and always, don’t forget to hit the the follow like button and follow Yes. And even we

Andy 2:29
need you guys is like, please take a slip. And we’ve been doing a lot of work. Here we need you. Here we go.

Lalo 2:35
Well, even any feedback, you know, even any any feedback, good or bad is good for us. You know, we that way. We’ll know what we’re doing right or wrong, and so we’re, you know, just let us know, and we’ll be more than glad to adjust accordingly. And so, but anyway, this shows a special show, I guess it’s we’re running it on on a different date. It’s Halloween, so we’re coming over. Yeah, we’re excited to run it on on this on this date, we’re theming this show as a as a spooky stories of trade compliance, or call it what you will, you know, but

Andy 3:13
Well, for the the audience here, we we’ve talked about some key things when you’re looking at sourcing, when you’re looking at these contracts, your terms of sale and what you’re supposed to be paying. If you remember, we’ve had a couple of attorneys make the statement, it’s worth having your contracts looked at and certain clauses put in there. So attorneys, as much as we, you know, chagrin sometimes to have to use them at the same time. Let me tell you their expertise in the law can protect you and save you money,

Lalo 3:49
right, right? So I invited, or we invited, actually, a good friend of ours that we’ve known for a million years. I mean, and God, I’ve known, I’ve known Adrian for a long time. We go way back from when I was in the software business, and think, think, think we did.

Andy 4:08
Adrian Braun Miller, yeah. Adrian Brown Miller, oh, my goodness, is that? Is she the one thing that that one of the first times I actually got to meet Adrian, we were at a icpa conference in Fort Worth, actually, man, I tell you what you’ve been all over the world. It is such an honor to have you join Lalo and myself. Thank you so much. Just such a great person. I really

Adrienne Braumiller 4:34
thank you so much for having me, and I’m glad I’ve gotten to know both of you lo these many years.

Lalo 4:41
Well, thanks, ADR, and I figure I told Andy, if someone’s going to have any horror stories about trade compliance, I think Adrian will will know some of these. So, so that’s why we have you on the show. And hopefully you’ll, you’ll help our audience realize that some of these scary stories don’t have to happen to them, you know. And and you can. And point them in the right direction. So, so,

Andy 5:04
well, the thing that I like about people telling stories of situations, most folks can identify with a story at some point in there, you know, some character in there, or some situation, and go, You know what I could be in that, or, no, I wouldn’t touch that, or whatever the case is, but it’s like some of the things that I guess what we’re going to talk about, what went wrong, everything you wanted to know that went wrong here, kind of so. Adrian, what do you have for us? Oh, well,

Adrienne Braumiller 5:34
I have a story that is really the worst of all, the scariest of the scary and and at the end of it, we’ll have to say, like, what lessons can we learn from it? And in my 30 year career as an attorney, this is probably the worst case that I’ve ever had to deal, deal with. It starts out, this is an export control case. And so essentially, what happened was I had a young man come to me. He was a Russian national. He lived here in Dallas, and he was the chief technology officer for a fairly sizable Corporation here in Dallas. And he was like 34 years old, and at the time, he had 20 patents to his name. He was, yes, he was a brilliant, brilliant, brilliant man, right? Super smart. So he reached out to me one day and he said, Hi, Adrian, I live here. I’m a permanent resident alien here in the US. I’m seeking my citizenship. I had a shipment that I was sending to my mother in Russia seized by the government, and it was an export, and he goes, I think it’s because I lied about the value of the contents, right? So he did not file the AES record. Essentially, what these were, were integrated circuits or chips, if you will, right? So he was sending those,

Andy 7:22
oh, and that’s, that’s really something to go to his mother, right, right?

Adrienne Braumiller 7:26
So I’m saying to him, your mother, hmm, that doesn’t really make

Andy 7:34
It’s a gift from the heart integrated circuits. Yeah, yeah. Okay,

Adrienne Braumiller 7:39
so, yeah, so part of, part of the issue here is that I don’t I never really got, I don’t know that I ever had the real story or the full story. But what happened with this client? Let’s call him Joe. That’s a good Russian name. Just kidding. Anyway, Joe. What happened with Joe is so he got this seizure, and I got copy of the notice, and I I contacted the local OEE office, the Office of export enforcement agent who was assigned to the case, and I asked him, I said, I’m not sure exactly what’s going on, but you know, I do know there were some errors on our side, and we do want to work with you, and we want to be compliant. And can you please call me if there’s anything else coming down the pike? Right? So about a month goes by, it’s probably just after Thanksgiving, and the next thing I know is I get a call from his wife who says that they were coming back from a Caribbean island and he was arrested. He was arrested by the federal government and put in jail. Wow. So I’m like, Oh my lord. Okay, so I I essentially find out that they, the government is saying that what he was exporting was being exported. And it was ear 99 by the way, but the end user was supposedly a Russian defense contractor using these chips to make IEDs, and the government said those IEDs were being used to kill American military. And I was like, Oh, my God, this is horrible. Well, so So Joe was like, no, no, no, no, I would never do that. I do have a partner, but, you know, I would never do that. That’s not what I did. Blah, blah, but I really couldn’t talk to him that much. And I did have a criminal attorney who who actually was handling a lot of that crime. Criminal piece of it, because I don’t do criminal law. So you know, we were hoping to get him out before Christmas, on his his arraignment, but what happened was he got very sick. So the the judge decided, because he was very sick, that he would keep him he didn’t want to have a hearing until after. Joe was feeling better, right? He had the flu, so he’s like, I don’t want to do anything until later. So we finally, I think it was like, right after Christmas, we have the hearing, we get the bail set, we get him out, and we arrange for him to meet with the special agents. We’re going to fully cooperate. Right anytime there’s an investigation you want to fully cooperate. You want to try and mitigate any kind of penalties that might be issued against you, and cooperation is one way to do that. So the next day, we were supposed to meet with the government. And can anyone guess what happened? Does anybody build an idea?

Lalo 11:12
Did he not show up? Yeah, did he leave? Worse

Adrienne Braumiller 11:16
than that, he killed himself. Oh, I have never had a client kill themselves. So, oh, my god. Apparently, apparently, and again, 34 years old, apparently. In the Russian culture, you know, when you’ve reached such a high level as Joe had, there was so much shame and concern about what this was going to do to his reputation. The letter that he left was not like he did anything other than his friend who was supposedly going to help him sell this stuff and make some money and give it to his mother that it was his friend’s fault, right? And I saw the one of the special agents let no actually one of the assistant US attorneys at a conference. And he came up to me, and he told me how sorry he was that my client chose this path. And I said to him, can I ask you, like, did you really have something so horrific on him that he would that was worth him killing himself. And he said, Oh, God, Adrian, no, we had, we had some things on him. He might have spent possibly a year in jail, maybe six months, but it wasn’t worth killing himself over, you know. So I think, what would be the moral of the story? It’s a horrible you know. Let’s think about some morals here. I think really the key is, is like, obviously, anytime you you lie to the government about anything dealing with your imported or export, even if it’s really an innocent reason, it’s a hassle. I don’t want to have to make a filing, right? I don’t want to file anything. It’s a hassle. Well, if I, if I lie about the value, and by the way, I think these were valued at about $15,000 so it wasn’t, you know, a huge number, right? And there’s no duties on exports, but, but anyway, it does seem suspicious, correct? And I think from for me, it was really, you know, it was very sad to me that that, that this young man, you know, killed himself over something that really would not have a medal to the end of the world, you know. So that’s my scariest

Andy 13:44
story. All right, let’s look at some application out of this. Well, first off, obviously you don’t want to, you know, falsify the value on those kinds of things. The other question is, chances are, if he falsified the value, I would be, I would not be surprised if you also didn’t describe the commodity correctly. But regardless, that said is that somebody, especially from a business perspective, but you know, you can apply it to your personal life as well. But if you know the the Sarbanes and Oxley legislation, that’s one of the things that I think went through that was, actually it’s good, if you apply it, what is, what’s, what do I mean by that? Sarbanes and Oxley just means that you’ve got to make sure any part of any transaction you’re part of, that the information is accurate and that you know that you’re you’re giving forth the correct information that that you know of at the time. If a mistake is made, it’s like, usually somebody didn’t know something correct. But if you follow that principle, right, accurate value. Use accurate descriptions and make sure you know who you’re dealing with. Because that’s the other thing. Is like, yeah, he’s shipping it to his mother, thinking that that would absolve that probably, but it’s all along, he’s doing some kind of business deal with somebody else. So you pull in your your family into that. It just makes it that much more difficult. I wouldn’t do it. It’s

Adrienne Braumiller 15:20
just, yeah, it was a very strange, it was a very strange anomalous case in my I mean, I would, I don’t normally deal with those, but what I do deal with a lot are mergers and acquisitions, right?

Andy 15:35
Oh, as that’s another one.

Adrienne Braumiller 15:37
Yeah, that’s another one. And I also deal with a lot of anti dumping, countervailing duties. One of the cases that I had that was very interesting. I think this happens a lot with, you know, smaller companies that really don’t take the time to do their due diligence, which is really critical. Anytime you’re you’re involving yourself and importing, I still surprised to this day how many companies don’t really understand what they’re doing and what legal requirements there are in the importing arena.

Andy 16:11
Hey, Adrian, hang on, just a second. Let me. Let me interrupt you, just for a second. Absolutely. We’ve had a couple of podcast shows on the anti dumping, countervailing duty. What’s great about that was, it was talking about, you know, how serious it was from a, you know, the laws and the regulations and all that. And then we had, it was Bonnie. We had on there, didn’t we? Lilo, yes, yeah. Bonnie, yeah. Bonnie’s so great, you know, right? But she was actually giving, you know, practical, if you will, steps on what you should be doing. From a compliance standpoint. That all said, what this is going to be great is hearing what happens when you don’t do the things that we’ve already covered in some of that. So I want to, this is ought to be good, like, your point is companies that don’t vet their product properly, or the people they’re dealing with, or the, you know, the the parties to the transaction as it goes through and they’re undervalued, or whatever they’re doing, this ought to be good. So go ahead.

Adrienne Braumiller 17:17
Well, so company, this was a company that was importing furniture, right? So they were importing furniture, and they discovered that, oh, my god, wooden bedroom furniture from China is subject to anti dumping and countervailing duty. We had no idea. And I’m like, Well, have you been importing for some time, or are you a newbie? Oh, we’ve been importing for some time. I’m like, Ah, okay, so this company said, You know what, Adrian, we’d really like you to lay out in a memo pros and cons of different options, including doing a prior disclosure. And if you could figure out for us what our liability would be, if you could quantify what you think high level we might owe, can you put that in the memo and then send it our way? Sure I can so

Andy 18:19
they which, which, which puts more liability on them, because now it’s in black and white,

Adrienne Braumiller 18:23
exactly. Thank you. That’s exactly the point I can but a lot of times, you know, senior management wants to see the justification and the options and also the bottom line, right. They want to see that. So this company decided they were, they the amount, I think, was in excess of half a million. And so they were very concerned about, could they even pay it, right? So, because there’s no legal obligation to file a prior disclosure, and because it would have essentially bankrupted bankrupt the company. They decided not to, not to do anything, but just not to to bring in goods anymore that were one bedroom furniture from China. So they decided to do nothing. So I go on my merry way half about six months later, I get a call from the US Attorney’s Office, Miss Brown Miller, we know that you previously represented ABC Company. And I’m like, okay, and they said, Yes, we know that you represented them and that you wrote a memo on the pros and cons of doing a prior disclosure. I said, okay,

Andy 19:46
right off the bat, red flags are going up,

Adrienne Braumiller 19:49
and I said, I said, Do you have a copy of my memo? Because, you know, that’s attorney client privilege. Oh no, ma’am. We don’t have a copy. We just know of it. Okay? So I’m thinking the. Myself, self. This is really horrific. So I think, you know, I think it’s fine when you are doing an analysis for a client about prior disclosure or any other option, you just have to be very careful that they know that if it’s put in writing that whoever it’s released to, it needs to be a very tightly, tightly controlled group of people, and even then, you don’t know, because what happened in this case is somebody that they shared it with went to a false claims attorney and was the relator in a False Claims Act case. Okay, so that whistleblower stands stood to gain up to 30% of any penalties that were collected by the government in another similar case. That was also one bedroom furniture from China. That one I was basically through data mining. So, you know, there’s a company out there by the name of false claims act LLC. I don’t know if you guys have ever heard of that company. No, what they do is they data, mine the manifest data for companies that import furniture from China, and if they see certain things like a filing cabinet, which this happened a lot. Misdescription in the of the cargo filing cabinets are actually bedroom end tables or nightstands, right? Nightstands? So there was, you know, so they’ll look for certain trends, because that’s what you know that they could find. And they they essentially went after my client, and the government went after the president and the sourcing manager personally. So there was a lot of like cooperation, but, but I think really the key here is, like, do your due diligence. You know, it’s fine to understand how to classify something, but are there any other special duties that apply to this product? Right? It’s not just go to going to the Harmonized Tariff and saying, here’s, here’s the applicable tariff code. What? What else? What other duties could apply to this

Lalo 22:36
product? There was the example that one of our guests used that it’s a cabinet made out of wood, and they happen to want to put a nice, pretty slat on the top. That was a stone slat had really that was just decorative. But the whole product, the tariff, was a cabinet, you know. And so obviously nothing came up, you know. But turns out that that stone was, you know, the

Andy 23:02
top to it, and made it anti dumping,

Lalo 23:05
anti dumping, yeah, but it didn’t, obviously show up. It didn’t show up in the in the tariff, because, I mean, you’re classifying for cabinet, not for that. You know that that’s right. And

Adrienne Braumiller 23:16
I know there was, like, a false claims act against Z galleries some years ago. And I’m not sure of the facts of that one, but I do know. I believe it was a $15 million penalty, which doesn’t sound very much, you know, in comparison to other penalty cases. But I mean, that could hurt. That could certainly hurt.

Andy 23:40
Well, I don’t care what size company you are. $15 million is a change now, yeah, but here’s what I was going to ask. Sounds to me like, all right, the company you were talking about the false claims LLC, that they must be doing that so that, if they find something and they turn them in, they potentially have that. That’s it. Can claim that 30% of the deal, right? So that’s how they’re getting paid, if you will. So I would give that a similar analogy here. And you know me, I’m dumb as a box of rocks. I have to keep it simple. But for folks out there in the audience here is that if you’re going to do the importing, and you’re you’re really not, you’ve not done your due diligence, as you mentioned that in vetting your product and all the things are going on that would be similar to with like, let me go swimming In the, you know, Florida bayous or something like that. You know, what do you got out there? You got snakes out there. You got alligators going, crocodiles, whatever, out there. And you’re gonna get bit potential. Now, you could swim and not have a problem. But then, every now and then you’re gonna get in and you’re gonna get bit here’s the point. You got people like that. Uh. False Claims company that’s, you know, lurking out there. You don’t know anything about it, just like but it’s a danger. You got other folks that are looking for things, and if you’ve not done your job right, you can, he’ll, he’ll get you so again, coming back is crossing the T’s and dotting the eyes. And if you’re an executive of a company, as you just mentioned, some of that comes into play there is that you personally can be held liable and potentially even criminal if you’ve neglected certain things to, you know, not take the appropriate action. So,

Adrienne Braumiller 25:36
right, yeah, and the the president of this company had to cough up $250,000 of his own money, you know, the sourcing guy. I think it was like 50k and that, you know, I think most of us would say, if we had to pay that penalty, it would hurt.

Andy 25:59
It would hurt, yeah, oh yeah. It would be really It would allow those sitting on easy street. You know, I’m looking forward to Lalo and I are going to be at the icpa conference and and as we were just talking about that, but I’m hoping to rub elbows with him enough that that kind of Fortune rubs off on me. There

Unknown Speaker 26:19
you go. There you go, well,

Andy 26:24
oh my goodness, yeah.

Adrienne Braumiller 26:26
I was just gonna say, I was just gonna say, Yeah. The other area that could be kind of scary that I mentioned earlier is mergers and acquisitions. And that’s one thing that I think a lot of companies when they are purchasing other companies fail often to really do any due diligence on on the customs and trade side. And I never understand why that is right, because it could be a huge impact to actually the value of of the deal, you may end up paying way more money than it’s really worth because of the liabilities. So I know in one case, a company, it was a large company, consumer products company, acquired another company, and it basically involved watches. And watches have four different duty rates,

Andy 27:28
right? Yeah, well, four different classifications, four

Adrienne Braumiller 27:31
classifications, four different duty rates, three of which are ad valorem and one which is a specific or flat rate, right? So this, this happened some years ago, but it kind of trickled into an industry wide investigation of all watch companies. And so essentially, what happened was, I think 50, 50 million was paid for the the target company that was acquired, but as they were digging into this valuation problem, you know, allocating too much of the value of the four components to the flat rate provision, they ended up figuring out that there was about $5 million in duties that were owed us customs, right? And that was 10% of the purchase price, and there was no escrow. That was part of really, right? So I think really, you know, if you’re if you’re a M A attorney, and you don’t have a trade lawyer on your team, or someone that’s in trade compliance. It could be with the company that’s the acquirer. You know, you’re going to end up not knowing what you bought, right? There’s a huge risk here.

Lalo 28:57
Andy, so those are a few scary stories there. I guess what’s even scarier is that we ran out of time, and we need to split this up into two episodes

Andy 29:07
we do, and I can tell you, for a listening audience, one of the things we’ve been doing several shows up to this point, and I hope you’re looking at them. You can go back if this is your first one. Take a look at simply trade and all the different shows that we’ve got, because there’s some good topics in there. But here’s what I want you to do. Take a look at the global Training Center. You need to get yourself and or your staff up to speed. And one of the things I’d like to promote here is on behalf of Lao and his company. I’m PERS. I’m not with the global training center, so I want to tell you that this I’m putting in a pitch for him. It’s a great company. It’s a cost effective way for you to get some good knowledge and skills in the different courses they offer. So take a look at the website. Global Trade concern, and take a look at try just one course, so you can see what’s in there, and you can see if this is the average so hope you’ll do that. All right, Lalo, let’s end this one for today, and we’re going to continue talking with Adrian in the next show.