Export Firms Must Carefully Review Rules to Avoid Fines

Small and medium-sized companies ship only half the U.S. exports but account for the majority of investigations for trade violations.

What lands the smaller companies in trouble is sloppiness or ignorance, says Bob Schoonmaker, special agent in charge of the federal Office of Export Enforcement in Irvine and a 13-year veteran of export investigations.

With the Internet and the euro making it easier for small firms to enter global markets, companies that jump into exporting without doing their homework could find themselves facing substantial fines and penalties and even be put out of business.

“What happens, especially in smaller companies, is that they pick somebody with little or no training . . . maybe a shipping clerk, and say, ‘Fill out the forms,’ ” Schoonmaker said.

Most products don’t need an export license before shipment, “but you can’t just throw it in the box and say, ‘Send it out,’ ” he said.

Here are some common mistakes he sees:

* On the shipper’s export declaration, companies write “NLR,” for “no license required,” without checking to see if a license is required.

“I’ll ask them about it and they’ll say, ‘Well, I replaced Mary, and Mary used to put that down,’ ” Schoonmaker said.

* Or firms write “LVS,” which stands for “limited value shipment,” a designation for certain restricted trade categories in which shipments valued up to $5,000 are exempt. But Schoonmaker sees LVS export labels with shipments valued at $15,000 or $20,000, which, he said, shows the companies don’t know what they’re doing.

* Companies work diligently with federal export officials on their export designation. But years pass, their product changes, and now they need a license. They fail to check it out, relying instead on 5-year-old information.

Or the product stays the same but the regulations change, as in the case of the new restrictions imposed in December on companies trading with India and Pakistan. Suddenly companies with decades-long, unrestricted trading relationships need federal clearance, but they fail to take action.

In other instances, the company will clear its export product or service with federal trade counselors, then spend several months manufacturing or producing it. In the short period of time since they checked it out, their trading partner is barred from trade or regulations can change, putting them in violation.

“Nowadays you need Internet access to check the BXA [Bureau of Export Administration] Web site religiously,” Schoonmaker said.

* Companies hire or invite foreign nationals from trade-restricted countries here and provide them with technical or manufacturing information that otherwise would require an export license.

The same thing can happen with companies selling information or programs and transmitting it wholesale over the Internet to individuals in countries with trade restrictions. Even seemingly innocent e-mail chats with the swapping of information can be violations, Schoonmaker said.

These are mistakes for which companies can pay dearly. Criminal prosecutions are few in number, but company owners can end up in prison if they knowingly violate export laws. Under civil penalties, even if they unwittingly violated the regulations, they can be fined up to $10,000 for each export violation.

Companies also can be prevented from doing business internationally, either with outright sanctions or simply by a listing on the BXA Internet site, which may make other companies leery of doing even domestic business with them.

“The reason people run into [export] problems is that they assume that anything they can do here, they can do anywhere in the world,” said Andrew Olson, co-owner of Team International, a marketing and trade consulting company in Manhattan Beach.

But Southern California small businesses have a wealth of help available to them, with the region home to half of the state’s 14 international trade centers; the Long Beach-Los Angeles World Trade Center; L.A. Trade, a coalition of trade agencies with a Web site at https://tradeport.org; and the federal trade office in Newport Beach, Olson said.

“To put it in perspective, less than 4% of U.S. manufactured products, by dollar value, require an individual validated license prior to export,” said Michael Hoffman, Western region director for the Commerce Department’s Bureau of Export Administration in Newport Beach. That translates into only 11,000 export licenses evaluated in 1998, compared with more than 100,000 in the late 1980s, Hoffman said.

Where trade restrictions exist, they are often based on the export country (a virtual trade embargo exists in only seven countries), on the end use of a product or service or on the end user. Fluoride, for example, an essential component of toothpaste and chemical weapons, could require an export license based on its country of destination and use.

This information is available online at https://www.bxa.doc.gov and from the six trade counselors at Hoffman’s Newport Beach office. Call (949) 660-0144.

“I just wish [business owners] understood the importance of this and how they can get in trouble,” Schoonmaker said. “It seems wiser for them to take action in advance. Even though the regulations are thick, if you get into a regular system of export controls, it’s not that hard.”

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Times staff writer Vicki Torres can be reached at (213) 237-6553 or at vicki.torres@latimes.com.