Companies that engage in conduct designed to avoid paying custom duties and charges are committing fraud against the federal government. And whistleblowers are often the only people who can alert the government that these types of frauds are happening and how they operate.
The government has recovered more than $220 million over the past 12 years in settling 43 False Claims Act cases alleging customs fraud, according to the The Anti-Fraud Coalition. Of those 43 cases, initiated by internal whistleblowers, industry experts, or competitors, the government intervened in 42. This high rate of government intervention makes customs fraud cases brought by whistleblowers more viable. Keller Grover represented a whistleblower in a customs fraud case the government settled for $500,000 in 2015.
What is customs fraud?
Customs fraud typically involves companies using two sets of books to prevent or reduce the amount of customs duties paid to the federal government.
As recent cases show, whistleblowers don’t always come from inside the company. Sometimes competitors initiate False Claims Act cases.
Types of customs fraud
Undervaluation of goods upon entry into a customs territory: These types of customs frauds seek to underpay the government for customs duties by underreporting the stated weight of the imported goods to avoid customs duties or understating the value of the imported goods by maintaining separate books, one for the customs agents and another for the business. Two recent settlements reflect this type of scheme.
In December, Noble Brand Holdings, a Chinese manufacturer, paid $500,000 to settle FCA claims that it avoided paying customs duties on products sold to USP, a New Jersey-based company. According to the settlement, Noble and USP underpaid customs duties by giving USP invoices showing the amount actually paid and sent false invoices to a freight forwarding company that then gave those false invoices to USP’s customs broker, triggering the underpayment.
Last August, men’s apparel company Luchiano Visconti and its manager paid $3.64 million to settle a FCA lawsuit that alleged they falsely reported the value of imported apparel to avoid paying more than $1.8 million in customs duties owed on the goods. According to the settlement, the defendants provided customs brokers with invoices that understated the true value of the imported menswear and the price actually paid for the apparel. They also allegedly changed invoices provided by a foreign manufacturer before providing them to a customs broker
Inaccurate country of origin marking: In November, A German company and its American subsidiary, King Kong Tools, paid $1.9 million to settle allegations of customs fraud under the False Claims Act that it avoided paying a 25% tariff by falsely labeling its tools as “made in Germany” when they were actually made in China.
According to the Department of Justice, the case began when a competitor of King Kong filed a whistleblower complaint alleging that King Kong was manufacturing cutting tools in a Chinese factory before shipping them to Germany and then the United States. Because this False Claims Act case resulted in a successful fraud recovery, the whistleblower was eligible to receive a reward between 15% and 30% of the government’s recovery. In this case, the whistleblower received $286,861.
Misclassification of goods: The Harmonized Tariff Schedule sets tariff rates for and categorizes all merchandise entering the United States. A common customs scheme, as illustrated in a $22.8 million settlement of a FCA lawsuit announced last year, is to miscategorize imported goods as “duty free.” According to the settlement, International Vitamins Corporation misclassified more than 30 of its products under the HTS to avoid paying customs duties and didn’t pay back duties even correcting HTS classifications.
Failure to pay anti-dumping or countervailing duties: These types of customs frauds deal with importers manipulating the origin of the product by shipping the goods through another country (like in the King Kong case) and claiming that other country as the origin of the products to avoid antidumping and customs duties.
What to do if you see customs fraud
If you believe someone has knowingly committed customs fraud and you would like to learn more about or would like to bring a whistleblower lawsuit, contact Keller Grover for a free and confidential consultation. Our whistleblower lawyers understand False Claims Act litigation, including the whistleblower protection provisions, and strive to achieve the best possible results for their clients.