CUSTOMS FRAUD WHISTLEBLOWERS

Customs fraud whistleblowers with knowledge of false entires, misclassification, or a failure to pay duties, can report the fraud and earn a reward.

Our whistleblower attorneys have successfully represented clients in whistleblower matters across the United States. Our firm has offices in Atlanta GA, Alexandria VA, and Washington DC, and we frequently travel to other federal courts to help whistleblowers recover rewards.

Learn the 7 steps to a whistleblower reward

The United States imports more than $2 trillion worth of goods into the country every year. For many of these goods, importers are required to pay hefty tariffs or duties. When importers avoid paying these duties, entire industries can be harmed, and in turn, the country’s economy suffers.

To combat this, the United States incentivizes individuals who are aware of Customs fraud to blow the whistle by filing lawsuits under the False Claims Act. The False Claims Act allows whistleblowers to earn significant awards for helping to expose Customs fraud.

Customs fraud occurs when a company evades paying duties on goods that are imported into the United States. For every shipment into the United States, importers are required to submit forms to the U.S. Customs and Border Protection explaining what the shipment contains and whether antidumping duties or countervailing duties are owed on the shipment (the most common is a Form 7501). If a company lies on these forms in order to evade payment of the duties, it has committed customs fraud.

Antidumping duties are imposed on imports that the Department of Commerce believes are priced below fair market value. In other words, this duty is put into place when a foreign manufacturer floods America’s marketplace with a cheap good. An antidumping duty is meant to create a more equal playing field so that American manufacturers and businesses can compete.

Countervailing duties are imposed on imports when foreign countries subsidize their manufacturers. These subsidies allow foreign manufacturers to undercut American businesses by selling their goods at a lower price. The purpose of countervailing duties is to offset these subsidies which can harm American businesses.

Antidumping duties and countervailing duties are put into place by the U.S. Department of Commerce to protect American manufacturers and businesses. Without these duties, American manufacturers and businesses would not be able to compete with manufacturers in other countries that can produce and sell the same or similar goods for much less.

Customs fraud can occur in a variety of ways. The following list explains the four most common forms of Customs fraud that we have seen.

• Misrepresenting the Country of Origin: Customs duties are specific to the country which exports the good. For instance, the Department of Commerce has placed duties on wooden bedroom furniture from China. To evade these duties, an importer may lie on Customs forms about where the wooden bedroom furniture came from. In many cases, however, this type of fraud is easy to spot. As a result, some importers have engaged in a more sophisticated form of misrepresenting the country of origin called ‘transshipping.’Transshipping occurs when a where a product is made in a country with an assigned anti-dumping duty, but the product is then shipped to a second country, which does not have any anti-dumping duty, before ultimately being sent to the United States.  When the product arrives in the United States, customs officials may mistakenly believe that the product originated in the second country and assess no anti-dumping duties.
• Misclassifying Goods: Customs uses a system called the Harmonized Tariff Schedule (referred to as the HTS) to assess duties.  This means that each good imported into the United States has a corresponding HTS number.  If an importer assigns a shipment the wrong HTS number, the importer can evade paying the requisite duties. Unless Customs actually opens and looks into the shipping box, it will never know that the importer has lied.While using the wrong HTS code is often an indicator of fraud, there are times when an importer can use the correct HTS number and still commit fraud. This is because, in some cases, the correct HTS number may include different types of a good, some of which require payment of a duty. What matters most is whether a particular good being imported is subject to duties and whether the importer alerted Customs that duties were owed.
• Undervaluation of Imports: The amount of duties that an importer owes is dependent on the value of the goods being imported. To escape paying the entire amount of duties owed, an importer can simply undervalue the goods being imported on Customs forms. Unless Customs conducts a thorough investigation, this type of fraud will often go undetected.
• Structuring: This type of fraud occurs when an importer splits a shipment up into several different shipments of a lesser value. In some cases, duties do not apply unless the value of the goods being imported meets a certain threshold. By splitting up the shipments, an importer can falsely claim that the shipments fall below that threshold amount.

If a whistleblower wants to file a False Claims Act lawsuit against a company committing Customs fraud, there are several steps that the whistleblower should take. We find the following steps are helpful in evaluating and preparing customs fraud cases.

1. Identify the type of fraud: Is the importer misrepresenting where the goods are coming from?  Is the importer misclassifying the goods? The type of fraud will help focus the investigation.
2. Identify specific shipments: Once you’ve determined the type of fraud involved, it is helpful to be able to show specific shipments coming into the country that were misclassified. Sometimes this can be accomplished by simply looking at publicly accessible shipping databases such as Panjiva and PIERS. If you can point to a large number of shipments over a long period of time, it is much more likely that the offending company was engaging in fraud and that the misrepresentations made to Customs were not simply accidental.
3. Gather documents and evidence: In any False Claims Act case, documents can be invaluable. In Customs fraud cases, we often see emails from employees of the offending company discussing the misclassification of goods or questioning why good have been classified a certain way. Documents may also be the actual Customs forms that were submitted to Customs which show the fraud (this will often be a Form 7501). Documents may also consist of advertising material showing that the company classified the goods one way by marketed the goods another way.
4. Determine the responsible parties: While it is true that the importer of record is responsible for the payment of duties, experience has taught us that wholesalers and retailers can be just as culpable if they are aware of and encouraged the fraud.
5. Contact a False Claims Act attorney experienced in customs fraud cases: Customs law is a unique area of the law. Duties often change over time as do the Department of Commerce’s rules. An attorney who has handled this type of case before can help you navigate these difficult waters and build the strongest case possible against the offending company.
6. Meet with the Government: After your attorney has helped you conduct a thorough investigation, he or she will typically meet with federal prosecutors as well as law enforcement officers that work for Customs. These meetings are referred to as “disclosure meetings.” The purpose of a disclosure meeting is not only to alert the Government to the fraud, but it is also to convince the Government that your Customs fraud case is worth pursuing. Because of its vast resources, convincing the Government to pursue and litigate your False Claims Act case can often mean the difference between your case getting dismissed and a large award.
7. File your whistleblower lawsuit: After meeting with the Government, your attorney will determine if filing a lawsuit under the False Claim Act is in your best interest. If your attorney believes that your lawsuit has a good chance of being successful, he or she will file a whistleblower lawsuit under seal in federal court. The filing of the lawsuit will spark a Government investigation into the Customs fraud. If successful, a whistleblower can earn 15 to 30 percent of the amount of money recovered by the Government.

Our firm has obtained more than $25 million in settlements from companies that misclassified goods on Customs forms. One of the settlements that our firm achieved was the largest False Claims Act settlement in the Southern District of Georgia.

One case concerned the importation of wooden bedroom furniture from China by Bassett Mirror Company, a North Carolina furniture importer and manufacturer. The U.S. Department of Commerce found that China was dumping cheap wooden bedroom furniture into the U.S. marketplace, and as a result, imposed stiff antidumping duties. Instead of paying the duties, Bassett began assigning non-bedroom names to furniture that was clearly bedroom furniture. For instance, dressers became “hall chests” and nightstands became “end tables.” By doing so, Bassett was able to evade paying antidumping duties until our client – a small furniture retailer – recognized why Bassett had changed the names and blew the whistle.

Not only were we able to hold Bassett accountable, but we were also able to hold two of Bassett’s retailers, Z Gallerie and Macy’s, accountable for knowing about Bassett’s deception and encouraging it. As a result of our firm’s efforts, our client received more than $4 million as a reward for blowing the whistle.

If you think you may have personal knowledge of an importer, freight-forwarder or customs broker committing fraud to avoid paying anti-dumping duties or other tariffs, contact our office now and speak with an experienced whistleblower attorney. There is no cost or obligation, and the call is completely confidential.

We have successfully represented clients in whistleblower claims and litigation in districts across the United States. Our firm has offices in Atlanta GA, Brunswick GA, Alexandria VA, and Washington DC, and we frequently travel to other cities and states to help whistleblowers file claims and recover rewards. Contact our firm and we will let you know if we can help. 

There have been relatively few False Claims Act cases involving Customs fraud when compared to False Claims Act cases involving healthcare fraud, but this trend is changing. Last year, for example, we saw one of the largest Customs fraud settlements to date. In September 2020, the Department of Justice announced that Linde GmbH and its U.S. subsidiary had agreed to pay $22.2 million for misrepresenting the classification and valuation of imported materials used in the construction of natural gas plants. The whistleblower was awarded $3.7 million.

The Linde settlement also came on the heels of an $8 million settlement against Centric Parts. Centric Parts, which sold aftermarket brake components for vehicles, falsely claimed on Customs forms that imported mounted brake pads (which carried a duty) were unmounted brake pads (which carry no duty). In that case, the Department of Justice paid out nearly $1.5 million to two whistleblowers.

We expect to see the number of Customs fraud cases grow in the coming years as companies become more savvy on how to evade duties (and as individuals become more aware of their right to file whistleblower lawsuits against these companies). This is especially true with regard to misrepresenting the country of origin. One area to keep an eye on is the recent exemption of Mexico and Canada from steel and aluminum duties. It will be interesting to see how many importers are tempted to ship Chinese steel and aluminum through Mexico and Canada and then falsely claim on Customs forms that the products originated in Mexico or Canada.