The False Claims Act Has Been A Successful Tool For Combatting Customs Fraud, Mostly Thanks To Whistleblowers

The False Claims Act has become an increasingly important tool in the government’s fight against evasions of customs duties and tariffs.  And qui tam lawsuits are fundamental to that effort.  As demonstrated by a recently-published study of settlements of customs-related False Claims Act cases, the government has recovered more than $220 million over the past dozen years through such lawsuits. 

But before we get to those numbers, a quick review of some of the types of customs-related issues that might give rise to a False Claims Act case:

Undervaluation:  Duties are calculated as a percentage of the value of the imported goods, so a common form of evasion is undervaluation.  This frequently involves “double invoicing” schemes, whereby an importer pays one price for the goods, but then also receives or manufactures a second set of fake invoices, showing lower prices, which are then used as the justification for the values reported to U.S. Customs and Border Protection (CBP).

Anti-Dumping and Countervailing Duties, and Section 301 Tariffs:  Tariffs imposed by anti-dumping and countervailing duty orders (AD/CVD orders), and Section 301 tariffs are both forms of tariffs that are specific to particular goods made in particular countries.  Evasion of these tariffs can involve misclassification of the goods under the Harmonized Tariff Schedule (HTS), or transshipment of the goods in an attempt to mask the true country-of-origin.

Marking Duties:  These are additional 10% duties imposed on good that are imported without proper country-of-origin marks.

So, does the federal government actually recover money for these types of violations under the False Claims Act?

Yes!  Over a 12-year period between 2011 and 2023, the government settled 43 False Claims Act cases alleging customs evasion.  The total amount of those settlements: $220,219,814.  And of the 43 cases, 42 of them – almost 98% — were qui tam cases into which the government intervened, initiated by internal whistleblowers, industry experts, or competitors. 

The three largest settlements in that group were all the result of qui tam cases: a $45 million settling in 2012, a $22,865,955 settlement in 2023, and a $22,200,000 settlement in 2017.

Relator’s shares—the amount that is received by the relator in successful qui tam cases—were not publicly reported in all of these cases.  But they were in 38 of them, and in those 38 cases alone the government awarded a total of $20,805,000 to the relators, for an average of $547,500 per case.  Measured as a percentage of the amount recovered by the government, the average relator’s share was 18%.  (Note that the cases in this sample were all intervened cases; in non-intervened cases that whistleblowers pursue, the relator’s shares are automatically higher, in the 25-30% range.)

And these settlements covered all the varieties of potential customs fraud.  Of the 43 settlements, 23 involved allegations of undervaluation.  Twelve involved allegations of AD/CVD tariff evasion.  Nine involved other types of misclassification under the HTS.  And two involved country-of-origin marking violations giving rise to an importer’s liability for marking duties.  (Yes, this adds up to more than 43, but that’s because some cases alleged more than one type of wrongdoing.)

The data on these settlements also demonstrate that government customs enforcement is connected to the ongoing trade wars with China.  The vast majority of the fraud alleged in these cases involved Chinese-made goods.  In 32 of the 43 settlements (74%), the products at issued had been exported from China to the United States. The three largest settlements (listed above) all involved products exported from China.  And the settlements involving Chinese exports totaled $200,667,924, more than 91% of the total dollar value of the 43 settlements.

The upshot of these statistics:  the False Claims Act is a crucial tool in the government’s enforcement efforts in the realm of customs duties and tariffs, and the whistleblowers who bring qui tam cases account for almost all of the government’s recoveries in such cases.

Jonathan Tycko is a Partner at Tycko & Zavareei LLP