Preventing Diversion Starts Close to Home

Mike and Brent break down the key takeaways from an affidavit by a Bureau of Industry & Security Special Agent in Los Angeles, which was unsealed on August 5, 2025, and is a masterclass in how BIS is identifying and analyzing “red flags” indicating potential export controls violations.

Mike and Brent discuss the basics of the case (00:58), the value of the detailed affidavit prepared by the BIS Special Agent in support of the arrests (02:19), the value of the case to those making broader strategic decisions for companies in illustrating the competitive advantages—and ability to maximize the benefits of America’s AI Action Plan—through effective export controls compliance (03:00), the most-relevant details of the allegations (04:20), the dangers of doing business with “fly-by-night” operations of any type (05:45), how these allegations underscore the importance of dynamic risk assessments, i.e., those that focus on changes in customers or orders around significant changes to U.S. export controls (06:14), what the affidavit signals for corporate enforcement (07:21), what we can learn about diversion risks from Brent’s studies of the Qing dynasty and frozen meats (07:40), what seized text messages revealed about the smugglers’ view of the current U.S. Administration (08:57), what the affidavit indicates that trade compliance teams realistically, at the front end, could or should have known (10:31), how to respond to BIS requests for information or outreach visits (13:58), Mike’s leaky dishwasher analogy for diversion (and why you need to fix both) (14:15), how the affidavit shows that BIS agents are applying a high probability mindset in their investigations (18:27), how not to “kick the hornet’s nest” when BIS visits or requests information (20:29), the expectations of U.S. regulators generally that companies that become aware of potential violations, whether or not they voluntarily disclose anything, at least do a “root cause” analysis and consider whether compliance program enhancements are necessary (22:17), and the relevance of General Prohibition 10 and the several inchoate provisions under 15 C.F.R. § 764.2 (23:10).

They then conclude with the ever-popular segment, Brent Carlson’s “Managing Up” (26:03).

Edvard Pettersson’s article, with a link to the BIS Special Agent’s affidavit, “Chinese nationals charged with illegal exports of Nvidia chips” (Courthouse News, Aug. 5, 2025): https://www.courthousenews.com/chinese-nationals-charged-with-illegal-exports-of-nvidia-chips/

The DOJ press release: https://www.justice.gov/opa/pr/two-chinese-nationals-arrested-complaint-alleging-they-illegally-shipped-china-sensitive

More about Brent: https://www.linkedin.com/in/brent-carlson-41ba692/

More about Mike: https://www.linkedin.com/in/mhuneke/

Everything you ever wanted to know about the “high probability” standard: www.hugheshubbard.com/fresh-looks