Use of the False Claims Act to Pursue Fraudulent Evasion of Customs Duties Yields Success
February 24, 2015

On February 12, 2015, the U.S. Department of Justice announced that three U.S. importers have agreed to pay over $3 million to settle a False Claims Act suit involving imports of aluminum extrusions from China. The importers, which sell shower doors and shower enclosures, were accused of evading antidumping (AD) and countervailing (CVD) duties on imports of Chinese aluminum extrusions by falsely declaring Malaysia as the country of origin, when the goods were manufactured in China and merely transshipped through Malaysia.  Imports of aluminum extrusions from China have been subject to AD/CVD duties since 2010, while there are no such duties in place against aluminum extrusions from Malaysia.  The companies also allegedly purchased Chinese aluminum extrusions imported by other domestic companies and caused or conspired with those importers to make false declarations to the U.S. Customs and Border Protection (CBP) to evade duties.  In addition, a purportedly Malaysian subsidiary of the Chinese producer allegedly undervalued the imported aluminum, causing the amount of declared duties to be lower.

The suit was originally filed in April 2013 by an individual, who helped U.S. companies find foreign sources of aluminum extrusions, under the qui tam provisions of the False Claims Act (also known as the whistleblower provision).  The government intervened six months later and took over the suit. This recent case demonstrates the growing use of the False Claims Act to combat the fraudulent circumvention of Customs duties. 

The False Claims Act prohibits the submission of false or fraudulent claims for payment to the U.S. government and permits private parties acting on behalf of the government to bring a civil action on such claims against U.S. importers (and their co-conspirators) based on their knowledge of fraud committed against the government.  Although the FCA is primarily used to pursue fraud in federal procurement, there has been an increasing trend in the number of FCA cases involving trade and customs violations.  A major factor contributing to the growing use of the FCA is the financial incentive for bringing FCA actions.  Violators may be assessed civil penalties of up to $11,000 per false claim (e.g., per customs entry) and treble damages based on the government’s actual loss of revenue. In addition, a provision added to the FCA in 1986 allows whistleblowers who file the case to receive as much as 30 percent of any penalties awarded.  In the recent aluminum extrusion case, for example, the whistleblower received $555,100 as his share of the settlement.

There have been several other FCA cases involving Customs violations in recent years that have resulted in some success.  For example, in December 2012, a Japanese company and its affiliates paid $45 million to settle allegations that they violated the FCA by misrepresenting the country of origin of pigment (CVP-23) to avoid AD and CVD duties.  In addition, in November 2013, another importer of aluminum extrusions agreed to pay $1.1 million to settle claims that it violated the FCA by submitting inaccurate country of origin and import value information to Customs.  In March 2014, an importer of computer cable assemblies agreed to pay $1.2 million to settle FCA allegations that it underpaid customs duties owed on Chinese goods.  In April 2014, a protective electronics case maker, Otterbox, paid $4.3 million to settle allegations that it violated the FCA by knowingly underpaying Customs duties by allegedly omitting the value of “assists” from the dutiable value declared on documents submitted to Customs. Also in April 2014, two U.S. importers of women’s apparel agreed to pay $10 million to settle charges that over a nine-year period they evaded millions of dollars of Customs duties by undervaluing their shipments.