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. But did you know that if the government recovers money as a result of a whistleblower tip, the whistleblower can receive up to 30% of that money—which can be in the millions?
In January 2023, Sanford Heisler Sharp and the government reached one of the largest-ever settlements of a customs fraud whistleblower case: International Vitamin Corporation, the “No. 1 manufacturer of store brand vitamin and nutritional supplements in the U.S.,” agreed to pay nearly $23 million to resolve allegations that it avoided customs duties on products shipped from China. Our client, who blew the whistle on the company’s fraudulent reporting of tariff classifications, received $4.5 million. This is thought to be the largest-ever customs fraud recovery.
The most common forms of customs fraud that the government has pursued include:
- Undervaluation of imports: 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, the defendant companies, which were based in China, produced 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.
- Incorrect Classification: In September 2020, a multinational corporation headquartered in Germany agreed to pay $22 million to settle claims that it avoided customs duties by misrepresenting the nature, classification, and value of imported merchandise to invoke lower tariff rates and avoid anti-dumping duties. The whistleblower who revealed this fraud to the United States received $3.7 million as a reward for the information she provided.
- Failure to mark: 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 country of origin. Such failure to mark merchandise invokes a 10% marking duty, which is recoverable under the False Claims Act.
These cases make three things clear: First, customs fraud is actionable under the False Claims Act. Second, the intentional misclassification of goods, 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. Third, the government is interested in whistleblowers who have knowledge of these practices. If you believe that you may have knowledge of customs fraud, contact a qui tam attorney. The U.S. Attorney’s Office has demonstrated an interest in these kinds of cases, and appears poised to pursue credible allegations.