What is customs fraud?
Customs fraud is the act of intentionally evading customs duties / tariffs or regulations in order to import goods into a country illegally or to falsely classify the goods to pay lower duties / tariffs.
The United States imposes tariffs on certain products from certain countries, and companies that import goods into the United States must pay the duties imposed on those products. The amount of duties owed on a particular imported good may depend on the classification of the good, its value, and the country of origin.
Duties and tariffs are generally designed to support domestic industries and protect U.S. industries from unfair pricing by foreign competitors. They are often imposed to offset foreign government subsidies that some foreign manufacturers receive (sometimes referred to as “countervailing duties”) or combat countries dumping products into the U.S. market at prices below cost (sometimes referred to as “anti-dumping duties” or “anti-dumping tariffs”).
Importers have a legal obligation to pay the correct amount of import duties when importing goods into a country. Companies that engage in fraud to evade duty obligations may be liable under the False Claims Act, a federal law that creates the possibility of significant financial awards to whistleblowers who bring customs fraud to the attention of the government.
Customs fraud violates what is known as the “reverse false claims” provision of the law.
Tariff and customs fraud cheats the government, hurts honest companies, and unnecessarily costs consumers. Jeff Newman Law helps expose it and protects the rights and interests of whistleblowers.
Contact us for a free confidential assessment of whether you might have a potential customs fraud lawsuit that could result in a whistleblower award:
- Contact us for a free confidential consultation
- Call us at (617) 823-3217
Common Types of Customs and Tariff Fraud
There are many ways foreign exporters and unscrupulous importers in the U.S. can engage in customs fraud.
Often, customs fraud involves companies evading or reducing their customs duty obligations through one of the following types of fraudulent schemes:
- Transshipment and misrepresenting the country of origin — Tariffs are based in part on a product’s country of origin. Many goods from China, for example, now face an additional duty of 25 percent. Claiming that a product was produced in a country with a lower tariff rate than the actual country the product hails from enables companies to avoid paying duties. Some companies do this by shipping the product to the United States via a country like Vietnam or Mexico (an “intermediate country”), whose products face lower U.S. tariffs, and then falsely claiming that one of those countries is the source of the products. As a result, they fraudulently pay lower customs duties.
- Undervaluation of goods — Companies seeking to avoid customs duties on imported goods may claim that they paid less for the products than they actually paid. To do this, the companies may conspire with the exporters to create two sets of invoices, one with the real price that the importer pays to the seller in the country of origin, and the second with a fake lower price that the importer shows to U.S. customs authorities. Sometimes, the importer may falsely claim that the difference is the result of payment for an “assist,” such as third-party testing or a royalty fee.
- Misclassification of goods — The tariffs for a particular country may vary depending on the type of product at issue. Importers seeking to reduce their tariff obligations may falsely describe their products on customs forms to escape the duties that actually apply to those products.
- Structuring or Split Shipments — Because duties may not apply to imports with a very low value, companies may try to “structure” their imports by splitting larger shipments into many smaller parts that, on their own, would not be subject to duty.
Examples of Customs & Tariffs Fraud Cases
Jeff Newman Law has represented customs fraud whistleblowers in numerous customs fraud cases. They include the following:
For example, Jeff Newman Law recently represented a Hong Kong national in a False Claims Act qui tam case against a California-based importer, RGE Motor Direct. RGE allegedly evaded tariffs on furniture and other merchandise it imported from China after the United States imposed 25% tariffs on many Chinese goods.
Their scheme involved submitting false invoices that shifted much of the real price of the imported merchandise to bogus invoices for “testing” or “certification” of the merchandise. This resulted in RGE underpaying customs duties owed on its merchandise (see the complaint we filed). In November 2022, RGE agreed to pay $3.25 million to resolve the case, and the whistleblower received an $893,750 reward.
In another qui tam case, Jeff Newman Law attorney Jeffrey Newman represented Alan Robins, the former controller of jewelry importer Roman & Sunstone (R&S), in a False Claims Act qui tam action alleging that R&S underpaid customs duties on sterling silver earrings it imported from China.
R&S imported display cards of the earrings for resale at department stores. While the display cards often included multiple pairs of earrings, R&S allegedly concealed the number and value of the earrings by describing on import records the number of display cards imported, rather than the number of individual earrings. The case resulted in settlements totaling over $1.26 million with R&S, its affiliates, and its prior owner. The whistleblower’s share was over $220,000.
Other recent customs fraud settlements include the following:
- International Vitamins Corporation to pay $22.8 million to settle allegations that it evaded customs duties by misclassifying the Harmonized Tariff Schedule (“HTS”) code of more than 30 of its vitamins and nutritional supplements from China.
- Basset Mirror Co. paid $10.5 million to settle allegations that it evaded duties owed on wooden bedroom furniture that the company imported from China by knowingly misclassifying the furniture as non-bedroom furniture on its official import documents.
- Linde Engineering paid $22 million to settle allegations that it evaded US customs duties by falsely identifying imported goods by using incorrect HTS codes and by failing to report the raw materials and components, known as “assists,” that it provided to manufacturers to make the imported goods.
- Luchiano Visconti paid $3.64 million to settle allegations that it evaded US customs duties by falsely reporting the value of the apparel brought into this country.
- Otterbox paid $4.3 million to settle allegations that it omitted the value of “assists” from the dutiable value OtterBox declared to the U.S. Customs and Border Protection on entry documents for products it imported.
Have evidence of customs fraud? Contact a customs fraud lawyer.
There’s no requirement for a whistleblower to be an American citizen to bring claims and be eligible for a reward. Nor does the whistleblower need to be an insider. Rather, the whistleblower may be a competitor or consumer who became aware of the tariff evasion. The most important thing is to build a convincing case.
If you have evidence that a company is violating U.S. customs laws, you may be able to report customs fraud by filing a complaint on behalf of the federal government under the False Claims Act.
These complaints are known as qui tam lawsuits. These complaints entitle the whistleblower, also known as a “relator,” to an award of between 15% and 30% of any funds that the government recovers from the wrongdoer.
Qui tam claims are also not like ordinary lawsuits. There are unique substantive and procedural requirements that, if not followed, could invalidate your claim and your ability to recover a reward.
Some whistleblowers worry that exposing tariff and customs fraud could jeopardize their jobs or careers. Fortunately, the False Claims Act provides strong protections against employer retaliation. These protections make it illegal to terminate, demote, harass, or otherwise punish relators.
Qui tam cases are also filed under seal, meaning that they are not generally made public until the government has had an opportunity to investigate the allegations. If the government decides to intervene in the case and join as a plaintiff, the case will then be unsealed and proceed to litigation.
If you have knowledge of customs fraud and are considering bringing a qui tam lawsuit, Jeff Newman Law can provide you with the legal representation and guidance you need.
Contact us today for a free confidential assessment of your case and learn more about how we can help you to protect your rights and hold wrongdoers accountable for their actions.