Customs Fraud: Recent Developments Present Opportunities for Whistleblowers

by | August 5, 2021 | Whistleblower Law

Customs fraud continues to be a focus of False Claims Act enforcement. Customs fraud comes in a variety of forms, a few of which we’ve looked at in the past on this blog, including the undervaluing of merchandise, the incorrect classification of merchandise to invoke a lower duty rate, or the failure to mark goods with their country of originCompanies sometimes conceal this fraud through the use of fabricated invoices.

Over the past year, whistleblowers and their lawyers in New York and across the country have resolved several cases reflecting these and similar fact patterns.

  • In July 2021, two clothing manufacturers and their former owner and CEO agreed to pay $6 million to settle customs fraud claims. According to the U.S. Attorney’s Office for the Southern District of New York (which covers Manhattan), the defendant companies, who were based in China, would produce two invoices for goods exported to the United States: a true invoice reflecting the true purchase price for the goods and a second, fraudulent invoice, reflecting a lower price, which the importer would use as the basis to calculate the customs duties due. Under the second scheme, the defendants would again create two invoices, one for the goods being imported and a second reflecting other charges, such as testing costs, which they fraudulently concealed from the government. In each case, the underreporting of the value of the goods imported to the United States was fraudulent, and the whistleblower helped the United States recover the customs duties that were fraudulently withheld. And the whistleblower received a reward.
  • In January 2021, a Florida-based manufacturer and importer of commercial roofing materials agreed to pay $160,933 to resolve claims that it failed to mark its Chinese-manufactured roofing products with their Chinese country of origin. Such failure to mark merchandise invokes a 10% marking duty, which is recoverable under the False Claims Act. Again, thanks to a whistleblower, the government recovered the fraudulently withheld duties and the whistleblower received a share.
  • In October 2020, a Puerto Rico company agreed to pay $817,927.58 to resolve allegations that it submitted 51 entries to U.S. Customs and Border Protection with fraudulent tariff classifications in order to reduce the amount of customs duties paid.
  • In September 2020, a multinational corporation headquartered in Germany agreed to pay $22 million to settle claims that it avoided customs duties owed to the United States by misrepresenting the nature, classification, and value of imported merchandise. The duties allegedly skirted included antidumping and countervailing duties, which are typically levied when a company is selling foreign goods below cost. The whistleblower who revealed this fraud to the United States received $3.7 million as a reward for the information she provided.

These decisions indicate an uptick in enforcement directed at a variety of schemes aimed at skirting U.S. customs enforcement. Whistleblowers play a key role in assisting the government in the enforcement of U.S. Customs law and, in many cases, may seek and receive substantial rewards for doing so.  If you believe that you may have knowledge of customs fraud, contact a qui tam attorney in New York. The government has demonstrated an interest in these kinds of cases and appears poised to pursue credible allegations.