Even More Scary Trade Compliance Stories with Adrienne Braumiller

*Machine operated script*

Adrienne Braumiller 0:10
A lot of people want to say, my broker is responsible. What do you do about trade? Complies? Oh, my broker handles everything. No, you have a responsibility too.

Lalo 0:21
Welcome to simply trade brought to you by global Training Center. My name is Lalo, 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’ve 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 and all things trait. Thank you for spending some time with us. Enjoy the show

Andy 0:50
again, continuing our discussion with a Broadmoor, she was giving horror stories, if you will, of things that did not go well in a transaction, whether it was export or import or and all that. But this will be part two of a really good discussion here, and she’s got some more stories to tell us. But if you haven’t heard part one, you need to go back and take a look at it right as we go into part two, right?

Lalo 1:22
So let’s just do that. If you haven’t heard part one, just hit go back to that first episode, because some of this may flow into the with references from the first show. So go ahead and do that, and let’s bring Adrian back on

Andy 1:39
all right? Well, I can tell you that personally, I’ve been involved in some M and A activities, and when it’s early on, there’s such a it’s almost like a top secret type project, because you know, especially if you’re a publicly traded company, that you’ve got to make sure things don’t get disclosed to the public early and all that saying that it’s when. So here’s where I’m going with this is, again, I come back to the leadership of companies. When you’re looking at a company to buy, or you are a company that you’re maybe acquired, and, you know, bought, it is paramount that in the very early days in the M and A negotiations, that you better have some trade folks involved and your Your compliance folks involved. And you know, in the M and a team, and then they have their, you know, subsequent tier two type teams that go in and say, Okay, we’re going to go start doing the investigation, if you will, and research, if you will, in certain areas. And they’ll do forensic auditing, accounting, and same thing with the purchasing, the sourcing. There are people that need to check all that out. When you’re buying a company, if you are selling your company, get yourself ready for all that, because you need to disclose it. If you do, it makes the whole situation clean. But if it doesn’t, I have seen where some very prominent, long time tenured employees, including the General Counsel of some big corporations that at the end the acquisition went through, but they wound up losing their job because of the problems that were discovered after the

Adrienne Braumiller 3:39
fact. Right? Yeah, absolutely, yeah. I’ve seen too many cases where we’ve actually been brought in after the that acquisition, or, you know, right before closing, but they’re still planning on closing, regardless of what we’ve done. Oh,

Andy 3:58
yeah. And they want you to, well, just hurry up, do your thing, right, right? Yeah.

Adrienne Braumiller 4:02
And you know, that’s the wrong time to do it. That is the wrong time to do it.

Andy 4:09
And that’s what I called being the proverbial pooper, scooper. At the end of a parade. It’s like, they want you to come in the last moment. Just sign off on it. Or if there’s a problem, just clean it up real quick, and then, you know, it’s like, I’m sorry, but it doesn’t work that way. Oh, yeah. So

Lalo 4:25
absolutely, and there’s a, there’s a universal theme that we’ve had also with our shows Adrian, where the trade compliance person that’s in charge is kind of like, left out of the whole corporate decision making. So this kind of aligns with that. You know, also, when you’re doing a merger and acquisition, I mean, you you can’t just ignore trade comply. I mean, of course, we like to say that we’re we’re preaching to a choir here, but at the same time, it’s true, you know, and your story just proved it. And you. And almost like I said, that universal theme of the actual individual who feels kind of left out in that decision making process within their company, you know, not even in a M and A, but, but in this case, now that you’re talking about an M and A, it’s kind of goes hand in hand with that, you know,

Andy 5:18
yeah, well, and I can tell you that I don’t think there are people intentionally with malice, oh, yeah, trying to avoid the compliance. They just don’t think about it initially. They’re so busy and looking at, you know, is this a good strategic move from a marketing perspective, from a operations perspective, the money involved in this and all that, and there’s no question that there are legal departments and legal groups that are involved in that. What’s surprising to me, though, is that even those attorneys that are involved in it never give think thought to, you know, the compliance side of things. You know, they’ll look at labor law, they’ll look at taxes, uh, they’ll, they’ll look at all those different things. It’s like, Hey guys, you’re missing a big thing that you sometimes it sinks the deal. It’s like, you know what? We just uncovered something. Either that $50 million price can be lowered and you guys take care of it, or, you know, whatever the case may be, we’ll buy you for 50 million, but you get before you do, we do. You’re gonna have to pay that $5 million in duty,

Adrienne Braumiller 6:27
right? And I think, I think, you know, even the converse is true. Where you I’ve had a couple of really large companies who, I mean, these are fortune 500 companies, and they received an audit notice, and instead of having a highly trained trade compliance professional, or even they don’t have a department, and they don’t have a person who knows Anything about trade, so they’ll have, you know, non subject matter experts, or they’ll have someone in, for example, a traffic or logistics department, try to handle the the audit. This has happened in a couple of situations, and you know, those audits went south. They went they went south, and in one case, you know, it ended up triggering an investigation, when really, I don’t think the facts warranted any type of investigation, but because if you put people in front of customs who don’t understand the customs regulations and the trade lingo that customs is used to hearing, right? It’s a problem. So like, if customs said, you know, to a company during some kind of meeting, you know, what is your basis of appraisement? How do you value your goods and and the company replies, transfer price. Well, that’s not a basis of appraisement, okay, that’s a transaction. Yeah. So you’re they’re looking for as a transaction value, as a computed value, you know, the methods of appraisement. They’re not looking for transfer price. What do you mean by that? Right? So I think you know that’s that’s also the point is that you know, if you’re a large company and you don’t have people who know what they’re doing, that if you don’t have a trade compliance department, that can get you in a lot of hot water,

Andy 8:41
wow, that is, that’s a big one on the M and a side of things. And as you start looking at it again from the executive side of things, if you’ve got some possible mergers that are, you know, being considered, you ought to take a look and say, pull in your compliance related person, and say, What’s your opinion of this? You don’t even have to say you’ve got a mergers like, What’s your opinion of this particular company? Or can you find out anything on it? Is it a good company, or is it kind of shady, or what’s the deal? And be interesting to come back with some what, what research they get? Oh, absolutely. She can do do that with a customs attorney firm too. So,

Unknown Speaker 9:25
yes, you can.

Andy 9:29
Gee, I just happen to know a good one,

Lalo 9:33
redheaded one out of Dallas. Yeah, there you go. Oh, I

Adrienne Braumiller 9:38
love it. I’m trying to think of, oh, I have one more. That’s Foreign Trade Zone. You want that one?

Andy 9:43
Yeah, you know what? I may have a good one for you too, but go ahead.

Adrienne Braumiller 9:47
Okay, well, so in this one case, so the company had a customs broker operating the Foreign Trade Zone for the company. I. And the director of compliance received, and he was relatively new, he received a $14 million pre penalty notice. And basically it’s they were said, you’ve got a situation where goods are not showing on the weekly estimate, the 3461 and so, but you’ve got different or additional products on the 7501 so because of that delta between, you know, the permission to remove merchandise on the 3461 and you’ve got a bunch of things declared on the 7501 is considered smuggling, and so that in that case, the importer of record was forced to file either daily live entries and paid duty, or they had to pay duty on everything that was in the Foreign Trade Zone and deactivate the zone. So what we did in that case is, this is kind of funny, so I I said, let’s see how large the Foreign Trade Zone bond is. Guess what? There was no Foreign Trade Zone bond the import. Really? Yeah, the importer didn’t have one. And so we submitted an offer in compromise, and I offered them $15,000 there, because there was no I was like, Hey, you’re not covered customs. There’s no Foreign Trade Zone bond. Here’s 15k Will you take that? We were able to work it out. Customs did accept the the offer and compromise based on our promise to put in place, you know, better procedures and broker oversight and broker management. Because really, in this case, the the failure that the company had is that they relied too much on their customs broker to manage their compliance program, and you really can’t delegate that. You know, a lot of people want to say, my broker is responsible. What do you do about trade compliance? Oh, my broker handles everything. No, you have a responsibility to

Andy 12:22
so that’s and you need to know, and that’s why some of the things that we’re looking at in these shows it’s we’re wanting to empower, especially upper management, with the knowledge and the questions that they should be asking their staff. Doesn’t mean you have to become an expert in this yes, you have people that you may outsource to, but you better have enough knowledge to realize that if it goes wrong, it’s coming, you know, on around your neck. There’s where this little bit be hung. So right,

Adrienne Braumiller 12:55
agreed

Andy 12:56
absolutely in the Foreign Trade Zone, especially if you’re operating, you have a third party logistics, a three PL or four PL in this would be an agent sub agent scenario. There are certain things that you’ve got to comply with in running an FTZ with your annual reports and and you know those estimates and the audits thereof, if there is a significant difference of what you’re filing on your 3460 ones versus the 7501 summary at the end of the week. Then you have to get in there, and you need to be looking at that, going, why is there such a big difference? Customs understands there’s going to be problems. There may have been new orders that came in that just hit them out. Okay, at least you can account for it, but you don’t want to do that week after week after week,

Adrienne Braumiller 13:45
right? Exactly, yeah, yeah. And I know I’ve had customers where there are clients where they had software glitches, where the software would cause some kind of discrepancy on the 7501 as well, where they had actually withdrawn from the zone a whole lot more than they ever declared on the 7501 so there’s a lot of things that can happen, you know, in a Foreign Trade Zone environment and And it’s important to really make sure you have excellent software and as well as partners who are working with you to kind of do health checks on your Foreign Trade Zone operation to make sure that you discover the discrepancies before customs does

Andy 14:39
well, I wound up, let me give you one that I think, and see what you think about this is that with a the operation of an FTZ, they were a third party logistics entity that was dealing with it. Well, their client had a parts database listing, and that file would come over and. In that listing would be, you know, like the part numbers and the description country of origin, and then also the value of that product, okay, early on, during the formation of the FTC and the application process and all that the value down to the part number level was not available initially they were working on it. So what they wound up doing is they said, and for whatever reason, instead of leaving that value field blank. They said they couldn’t do that, so they put in 9999 you know, $999,999 right? 99 cents. Supposedly, that all got purged out. Guess what? There was an entry that went through with that part number. And it wasn’t like it was right off the bat. It’s like, you know, 6789, months later, you know, all of a sudden that part number came up on a customer order. Guess what? The value had never been updated. So here’s this exorbitant value went through, was transmitted. Now, right off the bat, I’m going to tell you the checks and balances any entry, and this is something from your compliance side, whether it’s an FTC, where your custom broker, whatever, if you’ve got an entry that goes forward with an exorbitant value, it needs a second or third level check just To make sure is it accurate or what’s going right, right, right, that this particular entry wound up with one and a half million dollars in duties assessed on it. Okay? It actually made it through on that. Apparently, an entry summary was filed and it hit the statement, and there was a very small window to try and get that corrected. Finally, it did get corrected at the last moment, because I said, well, first off, you know, get that deleted off the statement, back it out, and see what you can do with it. Fortunately, all that did get corrected, but it was like, you know, the software had to be the software vendors had to be involved in that, because it had already gone past all the checks and balances, right? And people let it go. Well, if you’re understaffed, that’s a good example of making sure you got plenty of people that are involved. You don’t have to look at everything. But if it’s over 510, grand, five, you know, 50,000 whatever the case is, right? My duties are assessed. Boy, you better get a management or somebody to give an extra look on that and say, Yeah, this is valid.

Adrienne Braumiller 17:51
Sure, absolutely agree.

Lalo 17:55
Well, Adrian, hopefully you might have had some time to think about this, but we, we like to wrap up with a quick trade jam. I think that’s what the term we might end up using. But anyway, trade gym, where it’s a quick, maybe one minute or so, piece of advice, or whatever, you know, even a hack you know that you might think of that that might help someone in about a minute or so you have something like that that you might want to share with you. I

Adrienne Braumiller 18:23
think the one thing I think, is the most helpful is for companies to make sure that they have an ace, an ace account, and that if they’re an importer or exporter or both, that they’re regularly monitoring their their ace reports, the data that they see there. Because, you know, a lot of times people will say, we don’t do X, or we don’t or we do do y, and then I’ll say, but what does the ACE data show? And we’ll look at it. And a lot of times the ACE data, which is the reporting to the government will show something completely different from what they thought they were reporting to the government. So I think from my vantage point, doing an ACE data review periodically to make sure that the classifications are right, to make sure that the customs brokers that you’ve empowered to file entries on your behalf, or freight forwarders filing export shipments that those are parties that you’re really doing business with, right? You’d be surprised how many things you find in the ACE data that you weren’t aware of previously, and oftentimes it’s very different from what you thought. So for me, I think that’s a critical thing that that any good importer or exporter would do if they want to be highly compliant.

Andy 19:56
I would take it to say that isn’t First off, that is a great. Great suggestion. Secondly, I would say, make sure, not only do you have an ace account, but you have your staff, somebody in your staff, that is that becomes proficient and accessing that the ACE system and running the appropriate reports in there, and not just occasionally themselves. They they need to become an expert in that. But it’s there’s so often I’ve seen situations where items could come across the border, and, you know, truck borders, southern border, whatever. And you’d be amazed on how many its or bonded freight movements are tied to a particular, you know, importer of records, Bond, if you will, somebody’s cutting in, and it may be a broker, somebody’s done one thing, and then all of a sudden, that broker on the borders, it was a one time shop shipment, and then they’re continuing to use it or something. It’s just that’s, that’s a good one. That’s a good one there to know what you’ve got going in Ace.

Adrienne Braumiller 21:08
Yeah, the data doesn’t normally lie. That’s the thing. Is, every now and then you can find some differences between your documents and ACE data. It’s very rare. So I just tell people, Look, the data doesn’t lie. You may think one thing, but this is the data,

Andy 21:28
and if there’s an error, okay, fine, then at least you know about it so you can get it fixed. But it’s let it sit there. You

Adrienne Braumiller 21:34
own it. Exactly agreed.

Andy 21:38
Adrian, you are so wonderful. I hope we get to do some more of these with you.

Adrienne Braumiller 21:43
Okay, I want to,

Unknown Speaker 21:45
yeah, there you go. Alrighty,

Unknown Speaker 21:47
thanks guys. Hey.

Andy 21:49
And before we go, let me just I jump in here on something again, is that, folks that we’re offering all these podcasts for free, but I want you to understand something that you need to get you and or your staff up to speed on certain subjects. And one of the most cost effective ways is the global training center. Take the time to go in and look at the global training center and just review the topics, and you know, hopefully you can see some things that you need to do. I would like to ask just try one course, just one course, and you can see if you like it or there’s more

Lalo 22:31
that you can do.