Importers are facing potential additional liability for actions
they take in connection with importing items into the United
States. In addition to administrative penalties imposed by U.S.
Customs and Border Protection ("CBP"), private litigants
and the U.S. Department of Justice ("DOJ") have been
bringing cases under the False Claims Act ("FCA") to
penalize false and fraudulent statements allegedly made during the
import process. The FCA is a particularly powerful enforcement tool
as it allows for treble damages and penalties, and because FCA
claims can be initiated by private qui tam plaintiffs,
known as relators. To avoid these actions, companies importing
merchandise into the United States must establish procedures and
practices to ensure that declarations made to CBP in connection
with those activities, whether by the company itself or its customs
broker, are accurate and complete.
The FCA prohibits knowingly making false or fraudulent claims for
payment from the U.S. government. It also allows claims for
so-called "reverse" false claims, which seek to recover
damages resulting from false or fraudulent conduct that causes a
person or company to conceal, avoid, or reduce payments due to the
government. Under this theory, a person may institute a reverse
false claims action against an importer alleging that false or
fraudulent statements by that importer caused it to pay less duties
than it should have paid.
The FCA is a popular enforcement statute for several reasons. As
mentioned above, it allows for damages in the amount of three times
the actual amount of damages caused by any false claims. It also
calls for civil penalties of between $5,500 and $11,000 for each
claim submitted—and claims can be broadly defined, allowing
for stacking of this penalty. For example, a single invoice that
itemizes the amounts due by contract line item may result in
allegations that several, or all, of the individual line items
comprise an independent false statement count. Similarly, the
transmittal email or letter with the seemingly banal statement that
the amount on the enclosed improper invoice is due and payable can
be alleged to constitute an independent false statement. The
statute also provides that violators must pay attorneys' fees,
which can be substantial.
Other features of the FCA are designed to encourage claims under
the statute. The most important of these are the qui tam
provisions, which allow individuals to initiate an FCA lawsuit on
behalf of the U.S. government. A relator can file an FCA suit under
seal and send the case to the DOJ. The DOJ then investigates the
matter while it is under seal, often in coordination with the
affected U.S. agency (here, CBP). After investigating, the DOJ can
decide to intervene in the case and take it over. In the
alternative, even if the DOJ declines the case, the relator can
continue to pursue the action. If there is any recovery (whether
the DOJ intervenes or not), the statute provides that the relator
is entitled to receive a percentage of the amount recovered in most
circumstances. In addition to these provisions, the FCA also has a
statute of limitations provision that goes beyond the standard
period of limitations. As such, even though the time period may
have run on administrative penalties, it could remain alive for FCA
claims. These provisions are designed to entice potential
whistleblowers into bringing FCA actions.
Reverse false claims in the import context have played out in
several different scenarios. The most commonly alleged type of
action involves allegations that an importer has misrepresented the
country of origin of imported items to avoid paying antidumping or
countervailing duties. These types of claims are likely the most
popular because antidumping and countervailing duties can be quite
large—in some cases as much as 300 percent of the value of
imported merchandise. As a result, treble damages under the FCA can
result in importers paying millions of dollars to resolve these
actions.
FCA claimants have also brought cases alleging that an importer has
used two sets of invoices (known as "double invoicing"),
where one set of invoices reflects actual prices and a second set
contains reduced prices to lower the amount of duties paid. An
additional type of claim in the growing trend of customs-based FCA
cases is one in which a claimant argues that an importer knowingly
misclassified imported merchandise to avoid paying duties or to
reduce the amount of duties paid to CBP (i.e., classifying
merchandise under a tariff classification subject to 2.5 percent
duties rather than the actual tariff classification of the
merchandise, which is subject to 7.5 percent duties).
Recent customs-based FCA enforcement actions provide evidence of
the incentives individuals have to bring these claims. For example,
an importer recently paid $45 million (plus interest) and the
relator received more than $7.875 million for allegations that the
importer knowingly declared Japan and Mexico as the country of
origin of merchandise when they actually were sourced from China
and India. Chinese- and Indian-origin products of this particular
type were subject to antidumping and countervailing duties. In
addition, a U.S.-based importer paid $4.3 million and the relator
received $830,000 for allegations that the importer knowingly
undervalued imported merchandise into the United States and made
other false statements in documents submitted to CBP. Also, a third
importer paid $1.2 million and the relator received $252,000 for
allegations that the importer knowingly engaged in a double
invoicing scheme, pursuant to which imports were undervalued and
incorrectly described, resulting in the importer paying less than
10 percent of the duties and fees payable to CBP.
All signs point to the trend of customs-based FCA claims
continuing. As a result, importers are likely to continue to face
additional liability for violations of the U.S. import laws.
Companies importing merchandise into the United States should
evaluate and, as necessary, update their existing compliance
policies and procedures to avoid potentially massive exposure by
making sure that declarations made by or on behalf of those
companies are accurate and complete.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
