Customs Fraud: What Whistleblowers Need to Know

by | July 11, 2018 | Whistleblower Law

The False Claims Act is one of the government’s most powerful tools to fight fraud. Under the Act a whistleblower, called a “relator,” can provide the government with information about the ways in which it is being defrauded. If the government subsequently recovers money as a result of the relator’s tip, the relator receives a share of the government’s recovery along with attorney’s fees and costs.

Recently, courts and the government have shown an increasing interest in cases related to customs fraud, i.e. the failure to pay customs duties required under the nation’s import tariff regulations. Three cases are instructive on the kinds of allegations that courts and the Justice Department are looking at:

  • In 2011, the Justice Department settled allegations that jeweler Noble Jewelry avoided paying more than $1 million in customs duties by intentionally understanding the value of jewelry imported in to the United States. The defendants agreed to pay $3.85 million in restitution and penalties. The relator, a former manager, received $727,000 of the Government’s recovery.
  • In 2016, the United States Court of Appeals for the Third Circuit determined that the failure to mark merchandise with its country of origin incurred a 10% mismarking duty, which could be recovered under the False Claims Act. The relator in that case, a Limited Liability Corporation, studied pipefittings for sale on eBay and determined that the fittings, despite originating overseas, had not been properly marked with their country of origin.
  • In June 2017, in a case brought by Sanford Heisler, the Justice Department settled allegations that fine jewelry manufacturer Temple St. Clair, LLC skirted obligations to pay customs duties in three ways. According to the Justice Department’s Complaint:
    • (1) from 2011 through 2016, Defendant underreported the actual value of the goods imported from Italy, Sri Lanka and Thailand in order to pay a lower customs duty or obtain duty-free status;
    • (2) from 2011 through 2016, Defendant’s senior leadership brought jewelry into the United States for commercial purposes without declaring it to United States Customs and Border Protection (“CBP”), thus unlawfully avoiding payment of customs duties; and
    • (3) in 2017, Defendant failed to affix jewelry manufactured in Sri Lanka or Thailand with permanent markings, as required by law, that identified the jewelry’s country of origin at the time it entered the United States, and then sold the jewelry to retailers or consumers in the United States without markings identifying the country of origin, giving rise to a ten percent marking duty

These cases stand for three clear points: First, customs fraud is actionable under the False Claims Act. Second, the failure to declare goods at all, the failure to declare the true value of goods, and the failure to mark goods with their country of origin all constitute actionable fraud under the Act. And, third, the Government is interested in whistleblowers who have knowledge of any of the foregoing practices.

The last case is also near and dear to my heart for another reason: My partners, Ross Brooks, David Sanford, and I were the New York whistleblower lawyers for the relator, a former inventory manager for Temple St. Clair.

If you believe that you may have knowledge of customs fraud, contact a qui tam attorney in New York. The U.S. Attorney’s Office has demonstrated an interest in these kinds of cases, and appears poised to pursue credible allegations.