The United States imposes tariffs on certain products from certain countries, and companies that import goods into the United States must pay duties on those products. The incidence of customs fraud has grown substantially since 2018, when the Trump Administration imposed new tariffs on thousands of products imported from China. 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.
The attorneys at Newman & Shapiro are well-versed in U.S. customs laws and the whistleblower provisions of the False Claims Act, and we are dedicated to combating customs fraud. To be a customs fraud whistleblower, it is not necessary to work for an entity that fraudulently evaded tariffs; anyone with knowledge of fraudulent customs activity can be rewarded for acting as a whistleblower. We can help you to determine whether you have actionable evidence of customs fraud. We will also explain all of your rights, and, if you have a viable case, help you to file a qui tam action that may result in a whistleblower reward.
Common Types of Customs and Tariff Fraud
Companies seeking to evade or reduce their customs duty obligations typically engage in 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 one the product actually 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, whose products face lower U.S. tariffs, and then falsely claiming that one of those countries is the source of the products.
- Undervaluation of goods — Companies seeking to avoid 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.
In addition to depriving the government of revenue, customs fraud gives companies an unfair advantage over competitors and undermines the nation’s trade policy. Unfortunately, of the millions of shipping containers that arrive at U.S. ports every year, customs inspectors are only capable of inspecting a tiny fraction. As a result, the government has come increasingly to rely on whistleblowers to expose customs fraud.
For example, Newman & Shapiro recently represented a Hong Kong national in a False Claims Act qui tam case against a California-based importer, RGE Motor Direct, that allegedly evaded tariffs on furniture and other merchandise it imported from China after the United States imposed 25% tariffs on many Chinese goods. According to the complaint we filed on the whistleblower’s behalf, the scheme was simple: RGE and its Hong Kong affiliate shifted much of the real price of the imported merchandise to bogus invoices for “testing” or “certification” of the merchandise. At the same time, RGE’s Hong Kong affiliate provided RGE with fake commercial invoices showing reduced merchandise prices that, in most cases, more than offset the additional tariffs. Then, RGE provided the fake commercial invoices to United States Customs authorities and paid duties only on the fraudulently reduced prices. As time went on and RGE and its Hong Kong affiliate realized how much money they could save on tariff payments by creating fake commercial invoices, the companies allegedly shifted ever larger portions of the real prices to the bogus testing or certification prices, so that the reduction in RGE’s duty obligations far exceeded the costs RGE incurred from the new tariffs that the United States had imposed. In November 2022, RGE agreed to pay $3.25 million to resolve the case, and the whistleblower received a 27.5% share of the recovery.
Previously, Newman & Shapiro 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:
- 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.
- Basco Manufacturing Co. paid $1.1 million to settle allegations it engaged in transshipping by declaring Malaysia the country of origin in order to avoid duties on goods imported from China.
- Toyo Ink paid $45 million to settle allegations that it evaded paying duties on products containing carbazole violet pigment 23 from China and India, declaring the country of origin as Japan or Mexico. The whistleblower case was brought by a competitor that became aware of the scheme.
- 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.
I Have Evidence of Customs Fraud. Now What?
There’s no requirement for a whistleblower to be an American citizen to submit a claim and be eligible for a reward. Nor does the whistleblower need to be an insider; 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 file a complaint on behalf of the 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.
Those with knowledge about customs fraud should speak with an experienced whistleblower attorney. The right attorney will know how to comply with the technical requirements of qui tam lawsuits and will help protect the whistleblower against retaliation. A knowledgeable attorney will also understand customs law and how to draft a complaint that will explain the fraud clearly and get the government’s attention.
Contact Our Customs and Tariff Fraud Attorneys
Tariff and customs fraud cheats the government, hurts honest companies, and unnecessarily costs consumers. Newman & Shapiro helps expose it and protects the rights and interests of whistleblowers. If you have evidence that someone is violating U.S. tariff laws and wish to speak with a whistleblower lawyer, contact us today to get started on your case.