Importers are obligated to provide U.S. Customs and Border Protection (CBP) with accurate reporting information so the government can assess and collect the appropriate duties and tariffs on the importation of goods. These duties and tariffs help protect domestic U.S. companies and prevent unfair pricing from foreign competitors. The government collects billions in duties and tariffs every year from goods imported into the United States. In fact, CBP’s collections are the second-largest revenue source for the United States after taxes.
A company that evades tariffs or duties may be subject to liability under the False Claims Act (FCA). The United States has recently prioritized prosecuting customs fraud. For example, in 2020 the government resolved a whistleblower customs fraud case for over $22 million paid by a company that falsified invoices and incorrectly described imported good on customs documents.
Due to the amount of goods coming into the country, and CBP’s need to rely on a company’s truthful representations, customs fraud can be difficult to catch without information from whistleblowers who have inside, first-hand knowledge of the fraud.
Anyone in the world with knowledge about customs fraud can blow the whistle by bringing a claim under the FCA – and those who report customs fraud may be rewarded between 15%-30% of the amount recovered.
A company agreed to pay $8 million to resolve FCA allegations it avoided paying tariffs on brake parts. The company had falsified import documentation stating the brakes were unmounted (no tariff), when they were actually mounted (a 2.5% tariff). The whistleblowers, an automotive controller and a supply logistics and development manager, received $1,480,000 for uncovering the scheme.
What is Customs Fraud?
To bring goods into the United States, an importer must declare, among other things, the country of origin of the goods, the value of the goods, whether the goods are covered by anti-dumping or countervailing duties, and the amount of duties owed. CBP relies on these representations to determine the correct amount of any duties or tariffs owed. Every importer has an affirmative duty to use “reasonable care” to make sure it provides accurate information so that CBP can assess the proper duties or tariffs.
Customs fraud includes a variety of schemes companies use to avoid paying required duties or tariffs.
What are Different Types of Customs Fraud?
Undervaluing Imported Goods
The amount an importer owes as a tariff or duty is determined by the declared value of the goods stated in the CPB import declaration form. Importers avoid paying, or pay less than they should, by falsely undervaluing the goods, that is stating their value as less than the actual cost. Importers may also use forged or altered invoices to falsely state the quantity or weight of the goods being imported.
An apparel company paid $1.5 million to resolve allegations brought by a former employee that the company was undervaluing shipments to the United States and therefore paying lower duties on the shipments than required.
Misclassifying Imported Goods
Import duties are determined by the classification of the imported products according to the Harmonized Tariff Schedule (HTS). Importers sometimes falsely describe or classify a product to evade or reduce the proper amount owed. By altering the tariff code that should be applied from the HTS, an importer can fraudulently declare goods under a different code that has a lower tariff – or no tariff at all.
A textile importer agreed to pay $2.3 million to resolve FCA allegations that it misclassified bath towels as “polishing cloths” in order to pay a lower tariff rate. The whistleblower who uncovered the conduct was an employee of the textile importer.
Misrepresenting or Omitting Country of Origin
Tariffs and duties are based on a good’s declared country of origin. All products and shipping containers imported into the U.S. must be marked with the country of origin. If unmarked or inadequately marked goods are released into commerce, the importer is liable for a “marking duty” of 10% of the value of the goods. Not only do basic tariff rates vary from country to country, but certain countries are also subject to anti-dumping tariffs imposed when a country imports goods below fair market value or countervailing tariffs imposed when a country imports goods for which it received subsidies from its government, enabling it to undercut American prices.
A home furnishings company agreed to pay $10,500,000 in an FCA lawsuit after falsifying customs declarations to avoid paying anti-dumping duties on wooden bedroom furniture from China. The whistleblower, who received approximately $1,900,000, was an independent retailer who purchased furniture from the home furnishings company and observed marketing materials, invoices, shipping crates, and emails.
Splitting or Structuring Shipments
Often, imported goods below a certain value are not subject to customs duties. CBP has raised that threshold from $200 to $800. Nefarious importers may take advantage of this exception by splitting up or “structuring” their shipments into multiple shipments to stay below the dollar threshold where customs duties would apply.
A textile company based in the United Kingdom agreed to pay over $900,000 to resolve a False Claims Act case alleging the company avoided duties by splitting shipments that were being sent to the U.S. The whistleblower, a citizen of England, worked for the company as a sales representative.
Wildlife Importation
Several federal laws include whistleblower provisions for the protection of wildlife. Under these laws, including the Lacey Act and the Endangered Species Act, the Fish and Wildlife Service, the National Marine Fisheries Service, and the Interior, Commerce, Treasury, and Agriculture Departments can pay monetary rewards to individuals who disclose original information concerning wildlife crimes that result in a successful enforcement action. Besides wildlife whistleblower laws, whistleblowers may also qualify for rewards under the False Claims Act, the Foreign Corrupt Practices Act, and the Act to Prevent Pollution from Ships/MARPOL Protocol.
Contact Halunen Law Customs Fraud Lawyers
If you know about a customs fraud scheme or any other form of fraud against the government, the whistleblower attorneys at Halunen Law stand ready to support you as you consider whether and how to report the misconduct. We’ve recovered billions of dollars working with whistleblowers who had the courage to do the right thing and millions of dollars in compensation for individuals who experienced retaliation.
