WEBVTT 00:00:14.299 --> 00:00:17.179 Hi, welcome again to Red Flags Rising. My name 00:00:17.179 --> 00:00:19.219 is Mike Honecke. I'm the co -chair of Hughes, 00:00:19.359 --> 00:00:21.839 Hubbard & Reed's Sanctions, Export Controls, 00:00:21.839 --> 00:00:24.660 and AML Practice Group. With me yet again is 00:00:24.660 --> 00:00:27.039 my good friend, Brent Carlson, the director at 00:00:27.039 --> 00:00:30.000 the Berkeley Research Group. Today is Sunday, 00:00:30.160 --> 00:00:34.579 August 24th, 2025, just after 2 .30 p .m. Eastern 00:00:34.579 --> 00:00:37.299 time. Brent and I wanted to do a bit of an emergency 00:00:37.299 --> 00:00:39.340 podcast today and jump on something that just 00:00:39.340 --> 00:00:41.079 came to our attention at the end of last week 00:00:41.079 --> 00:00:43.950 that we thought would be a good... Follow on 00:00:43.950 --> 00:00:47.530 to episode 26, which we'll release just ahead 00:00:47.530 --> 00:00:49.850 of this one. Brent, what is the topic that we 00:00:49.850 --> 00:00:51.710 want to talk about today? Yeah, we came across 00:00:51.710 --> 00:00:56.609 a China Talk podcast episode on GPU black market 00:00:56.609 --> 00:00:58.990 smuggling. China Talk is a podcast by Jordan 00:00:58.990 --> 00:01:01.490 Schneider about China and technology. And he's 00:01:01.490 --> 00:01:03.969 been focusing, too, on some of the export controls 00:01:03.969 --> 00:01:07.409 topics that we've talked about. His guest on 00:01:07.409 --> 00:01:10.790 this latest episode is Steven Burke, who is with 00:01:10.790 --> 00:01:13.709 Gamers Nexus. Steve Burke just came out with 00:01:13.709 --> 00:01:16.670 a three and a half hour documentary in which 00:01:16.670 --> 00:01:19.310 he's going through the entire smuggling chain 00:01:19.310 --> 00:01:23.349 from source, plug, the mule, middleman, the fence, 00:01:23.530 --> 00:01:26.510 the fixer and user. He goes to China and he walks 00:01:26.510 --> 00:01:28.370 through each of these elements in the chain to 00:01:28.370 --> 00:01:30.750 show that this stuff is actually going on. These 00:01:30.750 --> 00:01:33.510 products that are ostensibly banned for export 00:01:33.510 --> 00:01:36.469 to China are readily available. It poses some 00:01:36.469 --> 00:01:38.290 interesting questions that we can discuss and 00:01:38.290 --> 00:01:40.930 unpack a little bit. on this short pod and then 00:01:40.930 --> 00:01:43.689 point people over to the China Talk episode as 00:01:43.689 --> 00:01:45.810 well. Even if you have a passing interest in 00:01:45.810 --> 00:01:48.909 these topics, it's fascinating to me that export 00:01:48.909 --> 00:01:51.790 control diversion investigations are going mainstream. 00:01:52.090 --> 00:01:54.090 Steve's normal focus here are basically consumer 00:01:54.090 --> 00:01:56.269 reviews and a little bit of consumer advocacy 00:01:56.269 --> 00:02:00.189 around gaming cards, GPUs, around CPU boxes. 00:02:00.590 --> 00:02:03.030 I remember building my own CPU as a teenager 00:02:03.030 --> 00:02:05.450 with my dad. A little bit of nostalgia came back 00:02:05.450 --> 00:02:08.189 about Steve's background and what they do. He 00:02:08.189 --> 00:02:09.990 said his next video is going to be a review on 00:02:09.990 --> 00:02:12.349 a computer bag. Right. We'll put links, the show 00:02:12.349 --> 00:02:14.610 notes. Brent, you're right to mention the podcast. 00:02:14.750 --> 00:02:16.909 The documentary that he put together is three 00:02:16.909 --> 00:02:19.729 and a half hours long as published. There's a 00:02:19.729 --> 00:02:23.090 slightly shorter China Talk podcast episode with 00:02:23.090 --> 00:02:25.789 Jordan Schneider that is really a useful overview 00:02:25.789 --> 00:02:28.689 of what was Steve doing? Why was he doing it? 00:02:28.830 --> 00:02:31.569 What were his reactions to what he learned? Right. 00:02:31.650 --> 00:02:35.530 It's interesting how this whole topic of export 00:02:35.530 --> 00:02:38.849 control diversion, focusing on these GPUs that 00:02:38.849 --> 00:02:42.550 are the core for the AI race that we're in between 00:02:42.550 --> 00:02:45.050 the United States and China, is that this whole 00:02:45.050 --> 00:02:47.710 topic has become mainstream. It was very interesting 00:02:47.710 --> 00:02:50.409 to watch that entire documentary. It's one of 00:02:50.409 --> 00:02:52.650 the best investigative journalism pieces I've 00:02:52.650 --> 00:02:55.150 seen in a very long time. He's sincere and he 00:02:55.150 --> 00:02:58.189 loves his whole thing of going in and reviewing 00:02:58.189 --> 00:03:00.289 hardware. As he walks through it and he talks 00:03:00.289 --> 00:03:02.729 with these people, it's very genuine. It's very 00:03:02.729 --> 00:03:04.889 unassuming. And he's just gathering these facts 00:03:04.889 --> 00:03:06.930 as he goes through it. I found it quite interesting 00:03:06.930 --> 00:03:08.490 to watch. Well, Brent, what were some of the 00:03:08.490 --> 00:03:12.050 main points that Steve's documentary and his 00:03:12.050 --> 00:03:15.409 podcast with Jordan hit on? The big key takeaways 00:03:15.409 --> 00:03:18.750 are, number one, despite positions that may say 00:03:18.750 --> 00:03:20.889 that there is no smuggling going on, there actually 00:03:20.889 --> 00:03:23.569 is quite a lot going on. It's happening on a 00:03:23.569 --> 00:03:26.590 scale that is quite impressive for anybody to 00:03:26.590 --> 00:03:29.340 look at. When Steve and his colleague were going 00:03:29.340 --> 00:03:31.960 through China. They found these pieces readily 00:03:31.960 --> 00:03:35.159 available. They found hardware that is ostensibly 00:03:35.159 --> 00:03:38.060 banned through export controls readily available 00:03:38.060 --> 00:03:40.819 in markets in China. On the China side, they 00:03:40.819 --> 00:03:42.759 look at this as just business as usual. There's 00:03:42.759 --> 00:03:45.969 no ban domestically. The other thing, too, is 00:03:45.969 --> 00:03:49.430 that there's a whole ecosystem in China for using, 00:03:49.669 --> 00:03:53.090 applying, reapplying these items. The diversion 00:03:53.090 --> 00:03:55.110 risks are not something where you're going to 00:03:55.110 --> 00:03:57.949 have a whole big two -ton rack that's going to 00:03:57.949 --> 00:03:59.909 go out there, but it's going to go in pieces. 00:04:00.129 --> 00:04:02.889 And China has a large ecosystem already in place 00:04:02.889 --> 00:04:05.009 that's able to take these and adapt them and 00:04:05.009 --> 00:04:07.669 get them in through that smuggling chain. It's 00:04:07.669 --> 00:04:10.419 well worth to watch this documentary. The key 00:04:10.419 --> 00:04:13.379 risks are for companies, U .S. exporters looking 00:04:13.379 --> 00:04:16.620 at their customers, who are they selling to and 00:04:16.620 --> 00:04:19.100 ostensibly who are the end users and where the 00:04:19.100 --> 00:04:21.620 risk could be at the front end for companies. 00:04:21.839 --> 00:04:23.720 U .S. companies are not involved in that whole 00:04:23.720 --> 00:04:26.300 smuggling chain. That's all downstream. The risks 00:04:26.300 --> 00:04:28.819 are where it gets out the door, how it starts 00:04:28.819 --> 00:04:30.920 to get into that chain from the very beginning. 00:04:31.019 --> 00:04:34.480 What due diligence are they doing on their customers 00:04:34.480 --> 00:04:39.199 and end users? What red flags are they? identifying 00:04:39.199 --> 00:04:42.759 and addressing, are the companies applying the 00:04:42.759 --> 00:04:44.879 high probability standard, which is leveraging 00:04:44.879 --> 00:04:46.779 that full definition of knowledge into the EAR 00:04:46.779 --> 00:04:48.899 that we've talked about. And Brent, there was 00:04:48.899 --> 00:04:52.000 a frequently used terminology for the smuggling 00:04:52.000 --> 00:04:54.259 chain, something that I think translates to ants 00:04:54.259 --> 00:04:57.319 moving a house. Yes, yes. There were a couple 00:04:57.319 --> 00:04:59.439 of phrases used in this documentary that were 00:04:59.439 --> 00:05:02.480 quite useful. One is ma yi ban jia. So it's the 00:05:02.480 --> 00:05:06.160 ants moving house. In the smuggling chain that 00:05:06.160 --> 00:05:09.180 Gamers Nexus looks at, there are a lot of little 00:05:09.180 --> 00:05:11.279 small players moving a lot of little small pieces 00:05:11.279 --> 00:05:14.240 that in aggregate add up to a lot. I think that's 00:05:14.240 --> 00:05:16.899 one thing to really think about. The other phrase 00:05:16.899 --> 00:05:19.500 that came up repeatedly when talking with people 00:05:19.500 --> 00:05:24.519 in China was the phrase in Chinese is It means 00:05:24.519 --> 00:05:27.100 open one eye and close one eye, looking the other 00:05:27.100 --> 00:05:29.639 way or turning a blind eye. That's where we talk 00:05:29.639 --> 00:05:31.699 about the risk on the front end for companies. 00:05:32.139 --> 00:05:34.540 Again, exporters are not looking to actively 00:05:34.540 --> 00:05:37.300 violate U .S. export control laws, but there's 00:05:37.300 --> 00:05:40.000 a risk that there could be due diligence that 00:05:40.000 --> 00:05:42.199 was not adequately done to address those red 00:05:42.199 --> 00:05:45.399 flags from a general prohibition 10 and full 00:05:45.399 --> 00:05:47.620 definition of knowledge perspective. Right. It's 00:05:47.620 --> 00:05:50.160 interesting. It shows there are many layers to 00:05:50.160 --> 00:05:52.970 knowledge and awareness. that one could possibly 00:05:52.970 --> 00:05:56.170 have. I don't think anyone, certainly anyone 00:05:56.170 --> 00:05:59.069 who's had any experience in China would think 00:05:59.069 --> 00:06:02.410 that for a critical item in short supply with 00:06:02.410 --> 00:06:04.389 significant markups, that there would be zero 00:06:04.389 --> 00:06:06.910 smuggling. I also don't think the government 00:06:06.910 --> 00:06:10.790 would say zero smuggling is. the standard by 00:06:10.790 --> 00:06:12.810 which we'll judge whether the export controls 00:06:12.810 --> 00:06:15.449 are successful or not. There's some very good 00:06:15.449 --> 00:06:18.569 writing, for example, by Greg Allen from CSIS 00:06:18.569 --> 00:06:21.769 that he put out around the DeepSeek scandal and 00:06:21.769 --> 00:06:24.149 the Sputnik moment that came out around there 00:06:24.149 --> 00:06:27.410 that we have written and spoken about also, explaining 00:06:27.410 --> 00:06:29.850 that, well, the real test is the unknowable, 00:06:29.850 --> 00:06:32.269 and that is where would DeepSeek, where would 00:06:32.269 --> 00:06:35.290 have others been today if there had been no controls? 00:06:35.589 --> 00:06:39.279 I think it was pretty... universal from the people, 00:06:39.420 --> 00:06:42.079 at least in Hong Kong, that Steve spoke to, that 00:06:42.079 --> 00:06:44.720 they all thought they would have much more capability 00:06:44.720 --> 00:06:47.620 in terms of AI if the export controls hadn't 00:06:47.620 --> 00:06:50.160 been there. Even if they could always find a 00:06:50.160 --> 00:06:52.860 GPU or two that they need, even where they have 00:06:52.860 --> 00:06:56.939 built 50 or 60 GPU systems, sometimes right before 00:06:56.939 --> 00:06:59.339 the cutoff, before they needed a license, sometimes 00:06:59.339 --> 00:07:01.819 after licenses were required. That doesn't mean 00:07:01.819 --> 00:07:04.850 that export controls are a failure. It also doesn't 00:07:04.850 --> 00:07:07.389 necessarily mean that anyone is acting with a 00:07:07.389 --> 00:07:10.089 high probability awareness, these one by one 00:07:10.089 --> 00:07:14.230 individual smuggling activities. The huge difficulty 00:07:14.230 --> 00:07:16.490 from both the policy perspective and a company 00:07:16.490 --> 00:07:19.290 perspective is how do you quantify what's really 00:07:19.290 --> 00:07:22.209 happening? It all depends on framing. It creates 00:07:22.209 --> 00:07:25.170 a risk for companies if they say there's no smuggling. 00:07:25.350 --> 00:07:28.230 Well, there is smuggling, but they could fairly 00:07:28.230 --> 00:07:30.660 say, well, look, yes, there's. smuggling. We're 00:07:30.660 --> 00:07:32.339 not going to deny that there's smuggling, that 00:07:32.339 --> 00:07:35.259 there's not grand scale smuggling that one of 00:07:35.259 --> 00:07:37.379 these big companies who are trying to build a 00:07:37.379 --> 00:07:40.019 super cluster would be doing. Then the problem 00:07:40.019 --> 00:07:41.480 is, well, how do you know that's not happening? 00:07:41.660 --> 00:07:43.839 Coming back to the source of the ants moving 00:07:43.839 --> 00:07:46.459 house, Jane, that you mentioned, it demonstrates 00:07:46.459 --> 00:07:50.180 the importance to companies adopting what you 00:07:50.180 --> 00:07:52.079 and I have been talking about, a high probability 00:07:52.079 --> 00:07:55.579 protocol. This exemplifies how impossible it 00:07:55.579 --> 00:07:58.899 is to stop smuggling. That doesn't mean that 00:07:58.899 --> 00:08:01.199 we give up. It doesn't mean that we might as 00:08:01.199 --> 00:08:03.199 well just sell them if you got them and see how 00:08:03.199 --> 00:08:05.600 much money we can make until the capability is 00:08:05.600 --> 00:08:09.139 entirely indigenized in China. But it highlights 00:08:09.139 --> 00:08:13.019 very visually in documentary video form with 00:08:13.019 --> 00:08:15.459 music and cut scenes and all kinds of stuff that 00:08:15.459 --> 00:08:18.379 there will be times when somebody goes to you 00:08:18.379 --> 00:08:20.860 and says, how could you have missed this? You 00:08:20.860 --> 00:08:22.839 want to be able to say, look, yes, we didn't. 00:08:22.839 --> 00:08:24.500 And this is an actual example from the video, 00:08:24.579 --> 00:08:27.529 right? We didn't. catch the guy in the United 00:08:27.529 --> 00:08:31.410 States running bootleg GPUs out of his trunk, 00:08:31.589 --> 00:08:34.909 right? But we did catch things that would indicate 00:08:34.909 --> 00:08:38.210 higher risk of actual military end use, military 00:08:38.210 --> 00:08:40.870 intelligence end use, WMD end use, that type 00:08:40.870 --> 00:08:44.309 of thing. On this, when I open, when I closed 00:08:44.309 --> 00:08:47.389 reference, a lot of that was Steve Burke asking 00:08:47.389 --> 00:08:50.029 muddlers and middlemen in China, did they think 00:08:50.029 --> 00:08:52.929 that the manufacturer, that the design company 00:08:52.929 --> 00:08:56.019 knew this stuff was happening? That was the common 00:08:56.019 --> 00:08:59.899 refrain, that they thought the exporter, manufacturer, 00:09:00.299 --> 00:09:02.720 design companies knew that this was happening, 00:09:02.919 --> 00:09:05.659 but were essentially turning a blind eye to it. 00:09:05.740 --> 00:09:08.539 Now, there's nothing in the video that says that 00:09:08.539 --> 00:09:10.879 any of those companies actually knew exactly 00:09:10.879 --> 00:09:14.059 that this supply chain was working this way. 00:09:14.600 --> 00:09:16.679 There's reference, for example, to legitimate 00:09:16.679 --> 00:09:19.419 individual users in the U .S. selling their stuff 00:09:19.419 --> 00:09:22.080 on Craigslist, Facebook Marketplace, things like 00:09:22.080 --> 00:09:23.980 that. That's not something the design company 00:09:23.980 --> 00:09:26.080 or the manufacturing company would ever really 00:09:26.080 --> 00:09:29.320 know about. The real risk to companies is that, 00:09:29.360 --> 00:09:33.159 look, now you have well -produced visual evidence 00:09:33.159 --> 00:09:37.039 of spuggling and guys actually taking racks apart 00:09:37.039 --> 00:09:39.639 and showing GPUs in them. It's probably a bit 00:09:39.639 --> 00:09:43.320 unfair. It's just yet another... avenue of risk 00:09:43.320 --> 00:09:47.340 in this very complex geopolitical game of semiconductors. 00:09:47.379 --> 00:09:50.399 It's out there. This documentary that Steve Burke 00:09:50.399 --> 00:09:52.460 does, it just shows that it's rampant. Those 00:09:52.460 --> 00:09:54.460 products are readily available in China. What 00:09:54.460 --> 00:09:56.840 we're going to see happening is the U .S. government 00:09:56.840 --> 00:10:00.360 has been taking an increased interest in tamping 00:10:00.360 --> 00:10:03.279 out that smuggling chain. Absolutely. This is 00:10:03.279 --> 00:10:06.929 the type of publicity, especially red meat that 00:10:06.929 --> 00:10:09.389 members of Congress are, I'm sure, going to jump 00:10:09.389 --> 00:10:11.769 on once they get back from the August recess 00:10:11.769 --> 00:10:14.269 after Labor Day weekend. This is the type of 00:10:14.269 --> 00:10:17.049 thing that will just further spur investigative 00:10:17.049 --> 00:10:18.730 journalists to keep doing what they're doing. 00:10:18.929 --> 00:10:21.009 It wouldn't surprise me if many people at BS 00:10:21.009 --> 00:10:23.210 have already seen this video. Yeah, absolutely. 00:10:23.549 --> 00:10:25.970 It really has gone mainstream. Gamers in Excess 00:10:25.970 --> 00:10:28.149 made a t -shirt that has that Chinese phrase 00:10:28.149 --> 00:10:30.570 in it, open one eye, close one eye, and they're 00:10:30.570 --> 00:10:32.809 sold out. They're backordered. It's an indication. 00:10:33.519 --> 00:10:36.620 that there's increasing widespread mainstream 00:10:36.620 --> 00:10:39.919 attention on this whole issue. It's important 00:10:39.919 --> 00:10:43.440 to reiterate in all this that even though anybody's 00:10:43.440 --> 00:10:45.960 company in the United States, they're not actively 00:10:45.960 --> 00:10:48.080 looking to be part of any sort of smuggling chain. 00:10:48.179 --> 00:10:50.360 You don't want to get exposed and caught up with 00:10:50.360 --> 00:10:53.419 it. You don't want to get exposed to any potential 00:10:53.419 --> 00:10:58.299 enforcement liability risk because of, let's 00:10:58.299 --> 00:11:01.059 say, mistakes done on the front end, at the source, 00:11:01.159 --> 00:11:03.750 at the top of that chain. It goes back to that 00:11:03.750 --> 00:11:06.629 case that we talked about on a recent episode 00:11:06.629 --> 00:11:09.830 about the arrest down in LA of two guys who were 00:11:09.830 --> 00:11:12.710 buying up these GPUs or actually buying servers 00:11:12.710 --> 00:11:15.049 that had the GPUs and then shipping them to Southeast 00:11:15.049 --> 00:11:18.909 Asia that were then funneled into the PRC. Steve 00:11:18.909 --> 00:11:20.850 Burke actually talks about that case as well. 00:11:21.419 --> 00:11:24.120 But we also talk about that case from the perspective 00:11:24.120 --> 00:11:27.799 of U .S. export controls from the company side 00:11:27.799 --> 00:11:30.299 in the U .S. exporters looking at that. That 00:11:30.299 --> 00:11:32.799 episode is preventing diversion starts close 00:11:32.799 --> 00:11:35.740 to home, but it comes down to developing and 00:11:35.740 --> 00:11:39.679 implementing a high probability protocol to leverage 00:11:39.679 --> 00:11:42.220 the full definition of knowledge under the export 00:11:42.220 --> 00:11:45.350 administration regulations. to make sure that 00:11:45.350 --> 00:11:47.830 due diligence on the front end by the companies 00:11:47.830 --> 00:11:50.029 is, first of all, identifying, and then second, 00:11:50.169 --> 00:11:52.470 addressing any red flags that might come up because 00:11:52.470 --> 00:11:54.690 that would give them exposure. If there were 00:11:54.690 --> 00:11:58.370 red flags as to the end user and these items 00:11:58.370 --> 00:12:00.509 on the front end side, that's something you've 00:12:00.509 --> 00:12:02.549 got to jump on now because it's going to come 00:12:02.549 --> 00:12:04.870 under more scrutiny as time goes on. It does 00:12:04.870 --> 00:12:07.190 show that export controls are working. When you 00:12:07.190 --> 00:12:09.590 see smuggling as a reaction to that, that is 00:12:09.590 --> 00:12:11.610 a positive sign from the government's perspective. 00:12:12.269 --> 00:12:15.049 But what this also means is that the front door 00:12:15.049 --> 00:12:17.409 may be closed, but the back door still remains 00:12:17.409 --> 00:12:19.570 open. And that's where the government is going 00:12:19.570 --> 00:12:21.750 to focus its efforts. That's where companies 00:12:21.750 --> 00:12:23.629 should be focusing their efforts to make sure 00:12:23.629 --> 00:12:26.129 that they don't have any back doors in their 00:12:26.129 --> 00:12:28.730 compliance programs that could bring risk onto 00:12:28.730 --> 00:12:30.850 themselves in all this. That's a great point, 00:12:30.929 --> 00:12:32.870 Brent, that you made also at the end of our last 00:12:32.870 --> 00:12:36.169 episode, episode 26. There you were talking about 00:12:36.169 --> 00:12:39.549 the impact or... maybe not as much of an impact 00:12:39.549 --> 00:12:43.129 that the new law requiring BAS to report annually 00:12:43.129 --> 00:12:45.409 to Congress might have. You mentioned that was 00:12:45.409 --> 00:12:47.370 closing the front door because, look, if you 00:12:47.370 --> 00:12:50.190 put, for example, the name of any of these house 00:12:50.190 --> 00:12:52.629 -moving ants on the export application, there 00:12:52.629 --> 00:12:54.190 probably would be some questions raised. The 00:12:54.190 --> 00:12:56.730 smugglers and middlemen here are not the people 00:12:56.730 --> 00:12:58.870 getting named on the export control application. 00:12:59.289 --> 00:13:02.250 That's right. They are nowhere near what's being 00:13:02.250 --> 00:13:06.470 put on paper. The challenge for exporters is... 00:13:07.019 --> 00:13:10.500 How much of this is going on when things like 00:13:10.500 --> 00:13:12.960 this do become public, like the arrests of the 00:13:12.960 --> 00:13:15.480 two individuals in Los Angeles a few weeks ago 00:13:15.480 --> 00:13:18.139 that we also covered on the pod? Are there things 00:13:18.139 --> 00:13:22.820 becoming public that might make us rethink any 00:13:22.820 --> 00:13:25.279 of the prior judgments we made about risk, either 00:13:25.279 --> 00:13:28.679 as to specific people or as to types of customers 00:13:28.679 --> 00:13:31.559 or types of purchasers that we want to change? 00:13:32.139 --> 00:13:34.379 That's actually a good thing. That's a very good 00:13:34.379 --> 00:13:36.379 story to be able to tell if you're asked questions 00:13:36.379 --> 00:13:40.279 later. There should not be a hesitancy or a renaissance 00:13:40.279 --> 00:13:42.860 in companies' trade compliance teams to evolve. 00:13:43.080 --> 00:13:45.159 In our experience under the Foreign Corrupt Practices 00:13:45.159 --> 00:13:48.100 Act, evolving in response to events, whether 00:13:48.100 --> 00:13:50.399 those are public guidance events from the U .S. 00:13:50.419 --> 00:13:52.340 government, whether those are public enforcement 00:13:52.340 --> 00:13:54.899 events from the U .S. government, was a way to 00:13:54.899 --> 00:13:57.200 demonstrate to the satisfaction of the U .S. 00:13:57.220 --> 00:13:58.919 government the effectiveness of your corporate 00:13:58.919 --> 00:14:01.500 compliance program. The worst thing to do would 00:14:01.500 --> 00:14:04.580 be to be something in a documentary like this, 00:14:04.700 --> 00:14:08.299 have that moment where you go, oh, we shouldn't 00:14:08.299 --> 00:14:12.000 have approved X, Y, or Z, but then not do anything 00:14:12.000 --> 00:14:14.299 about it because you're afraid that it would 00:14:14.299 --> 00:14:17.100 be some form of admission. Look, the advantage, 00:14:17.399 --> 00:14:20.080 the real trick to the high probability standard 00:14:20.080 --> 00:14:22.799 and why it actually works, not only for government 00:14:22.799 --> 00:14:25.240 to bring more cases more quickly. the way it 00:14:25.240 --> 00:14:27.659 helps companies' compliance teams is there's 00:14:27.659 --> 00:14:30.039 this huge gray area that we're all making judgments 00:14:30.039 --> 00:14:33.860 in as best we can. It allows you to shift as 00:14:33.860 --> 00:14:37.159 you need to without fundamentally challenging 00:14:37.159 --> 00:14:39.419 the premises on which you've been operating. 00:14:39.899 --> 00:14:43.419 A bit tricky, not for the faint of heart, but 00:14:43.419 --> 00:14:47.379 there is a path forward after documentaries like 00:14:47.379 --> 00:14:49.779 this come out. after other types of allegations 00:14:49.779 --> 00:14:53.279 come out to ingest what might be the core relevant 00:14:53.279 --> 00:14:56.620 information and determine in a document whether 00:14:56.620 --> 00:14:58.659 you need to make any changes. Well said. You 00:14:58.659 --> 00:15:00.840 know, we've known for a very long time that compliance 00:15:00.840 --> 00:15:03.559 is not just a one and done exercise. It needs 00:15:03.559 --> 00:15:05.860 to constantly evolve as new information comes 00:15:05.860 --> 00:15:09.399 to light, as new regulations come, new enforcement 00:15:09.399 --> 00:15:12.120 initiatives come out. Compliance programs need 00:15:12.120 --> 00:15:13.960 to adopt with all that. That's what this is all 00:15:13.960 --> 00:15:16.379 about. It would be a mistake to turn away or 00:15:16.379 --> 00:15:18.679 pretend it doesn't exist because really with 00:15:18.679 --> 00:15:22.120 what this documentary shows and with other press 00:15:22.120 --> 00:15:23.840 coverage that we've seen over the last couple 00:15:23.840 --> 00:15:25.600 of years, the horses are out of the barn on this 00:15:25.600 --> 00:15:28.960 now. It's becoming a mainstream issue. It's time 00:15:28.960 --> 00:15:30.700 to really take some action. Brent, what do we 00:15:30.700 --> 00:15:33.340 mean by mainstream? Well, I think our podcast 00:15:33.340 --> 00:15:35.960 has done pretty well. We have a bit fewer subscribers 00:15:35.960 --> 00:15:39.399 than Gamers Nexus does. They have about 2 .5 00:15:39.399 --> 00:15:42.080 million subscribers. I'm sure that for probably 00:15:42.080 --> 00:15:45.320 all of those people, they did not subscribe to 00:15:45.320 --> 00:15:48.179 Gamers Nexus' YouTube channel in the hopes that 00:15:48.179 --> 00:15:50.299 they might have an unexpected three and a half 00:15:50.299 --> 00:15:52.799 hour documentary on export control smuggling. 00:15:52.820 --> 00:15:55.620 But that's mainstream. It's just a few more downloads 00:15:55.620 --> 00:15:58.419 than I think we have on this podcast. That's 00:15:58.419 --> 00:16:00.399 right. Things are super niche until they're not. 00:16:00.919 --> 00:16:02.919 Then when it hits critical path, then all things 00:16:02.919 --> 00:16:05.759 are off. Well, interesting times, Brent. What's 00:16:05.759 --> 00:16:08.120 your managing up segment for today? My thoughts 00:16:08.120 --> 00:16:11.159 on managing up this time around are really things 00:16:11.159 --> 00:16:13.320 can be hidden in plain sight. Once attention 00:16:13.320 --> 00:16:16.879 gets to it, then it takes on a life of its own. 00:16:17.220 --> 00:16:20.120 There's a Warren Buffett saying that when the 00:16:20.120 --> 00:16:22.000 tide goes out, we all see who's swimming naked. 00:16:22.570 --> 00:16:25.549 An indication of a tide going out in the export 00:16:25.549 --> 00:16:28.049 controls world is when you do see more reports 00:16:28.049 --> 00:16:30.289 like this becoming mainstream. There's going 00:16:30.289 --> 00:16:32.429 to be a lot of attention placed on this. You're 00:16:32.429 --> 00:16:33.950 going to have a lot of folks in government that 00:16:33.950 --> 00:16:35.970 are going to be looking at this on both sides 00:16:35.970 --> 00:16:38.690 of the aisle, all the way up to the highest levels 00:16:38.690 --> 00:16:41.190 in the administration, because nobody wants to 00:16:41.190 --> 00:16:43.909 be embarrassed by this. Now's the time to take 00:16:43.909 --> 00:16:46.330 a reassessment of the compliance program, like 00:16:46.330 --> 00:16:48.370 we've talked about, develop and implement a high 00:16:48.370 --> 00:16:51.350 probability protocol. We're glad to compare notes 00:16:51.350 --> 00:16:53.409 with anybody at any time if they want to talk 00:16:53.409 --> 00:16:55.769 about how that's going to be implemented and 00:16:55.769 --> 00:16:57.929 how that can be done. But it's here. It's now. 00:16:58.230 --> 00:17:02.470 And it's the facts of life. Well said, Brent. 00:17:02.830 --> 00:17:05.329 There are paths forward for everyone involved. 00:17:05.630 --> 00:17:07.390 It may require a little bit more creativity. 00:17:07.589 --> 00:17:10.890 It will require a bit of legwork, but the path 00:17:10.890 --> 00:17:13.170 is there for everyone involved. Absolutely. The 00:17:13.170 --> 00:17:15.190 path is there. Well, Brent, that concludes this 00:17:15.190 --> 00:17:19.390 episode of Red Flags Rising. Be well. Thanks, 00:17:19.390 --> 00:17:20.970 Mike. Be well. And to everyone else out there, 00:17:21.089 --> 00:17:21.430 be well.