The Premier Law Firm For Customs And Tariff Fraud Qui Tam Actions
Our law firm has represented qui tam relators in a number of cutting-edge customs and tariff matters. Mr. Tycko was the lead attorney in the case of United States ex rel. Customs Fraud Investigations v. Victaulic Company. In that groundbreaking case, a U.S. Court of Appeals ruled for the first time that “marking duties” — a particular type of duty owed when an importer fails to mark imported goods with a truthful country of origin — are covered by the False Claims Act, thereby opening the door for whistleblowers to file qui tam lawsuits arising out of false country of origin marking. He was also the lead attorney for the relator in the case of United States ex rel. Stover v. Ceratizit USA, LLC, which resulted in the then-largest-ever settlement of a customs evasion qui tam case; Ceratizit agreed to pay $54,400,000 and the relator received an award of $9,750,000. In addition to those high-profile results, our firm has represented relators in dozens of other qui tam cases, including cases that involved “double invoicing” and other undervaluation schemes, misclassification schemes, knowing failures to declare “assists,” transshipping and other “origin washing” schemes, and various types of schemes intended to evade antidumping and countervailing duty orders (AD/CVD orders).
Within the legal profession, Mr. Tycko is a frequent writer and invited speaker on the intersection of the False Claims Act and customs and tariffs. He has spoken on these issues, to audiences of other attorneys, at conferences hosted by the American Bar Association, the American Association for Justice, and The Anti-Fraud Coalition. You can also hear Mr. Tycko talk about customs and tariff qui tam actions as a guest on various podcasts, including The BITE Pod and Fraud in America.
The Benefits Of Qui Tam Lawsuits To Combat Customs And Tariff Fraud
If your goal is to alert the government to customs evasion, and to stop that evasion from continuing, then a qui tam case under the False Claims Act offers two primary advantages. First, qui tam cases are the best way to trigger an active government investigation of the evasion, which will always be a necessary first step to government action. Second, by bringing a qui tam case, you can earn substantial monetary rewards if the government recovers the unpaid duties.
Qui Tam Lawsuits Provide Lines Of Communication To The Government, And In Almost All Cases Result In A Serious Government Investigation
When you file a qui tam lawsuit, that lawsuit is assigned to one or more attorneys at the U.S. Department of Justice. The job of those attorneys is to organize and lead an investigation into the allegations made in the qui tam lawsuit. In cases involving customs or tariffs, those lawyers often work with additional attorneys and investigators from Customs and Border Protection (CBP) or Homeland Security Investigations (HSI). One of the first steps that the team of government lawyers and investigators assigned to your case will take is to conduct a “relator interview.” This is an off-the-record meeting with the relator—the technical name for the party that has brought the qui tam action—during which you will be given a chance to answer their questions, and supply information about your case. This gives you an important opportunity to interact directly with the government lawyers and investigators, and to assist them in deciding how best to investigate and pursue your case.
As that investigation proceeds, your lawyer will be able to periodically communicate with the Department of Justice lawyers to get updates about the status of the investigation, and to provide any additional information that would be helpful to that investigation.
A qui tam lawsuit under the False Claims Act is the only procedure that provides that level of access to, and communication with, the government about the customs evasion you are trying to stop. Although you can report customs fraud to CBP or other government agencies without also filing a qui tam lawsuit, if you do that, you are not likely to ever have direct communications with the government about your allegations, and you likely will never know what (if anything) the government did with the information you supplied. Thus, a qui tam lawsuit offers you the best chance to interact, in a more transparent way, with the government about your case, and to assure that the government is, in fact, investigating your allegations.
Successful Qui Tam Relators Earn Large Rewards
The second advantage of bringing a qui tam lawsuit is the ability to earn a monetary reward. If you file a qui tam action, and the government then recovers money as a result, you are entitled to an award of between 15% and 30% of the amount that the government records. This is not discretionary with the government. The False Claims Act itself requires those rewards, subject to certain statutory exceptions, and if you are not satisfied with the amount of the reward offered by the government, you have the right to have a judge make that determination. Qui tam relators in customs and tariff evasions cases routinely receive awards worth hundreds-of-thousand or millions of dollars. Some examples of those cases are listed below.
Although the government does sometimes publicize other “whistleblower programs” that promise rewards, those other programs are typically discretionary, and not subject to judicial oversight. Only qui tam cases under the False Claims Act guarantee those rewards in successful cases.
Types Of Customs And Tariff Fraud
The ways in which importers and other participants in international trade attempt to evade payment of customs duties are multiple and varied. However, the vast majority fall into three main categories of fraud: (1) misrepresentations about the type of products being imported; (2) misrepresentations about the country of origin of the products; or (3) misrepresentation about the value of the imported products.
Misclassification And Other Product Identification Fraud
Duty rates vary widely based upon the type of product being imported. Some products enter the country with no or very low duties, while others enter with duty rates of 100% or more. Accordingly, one way to cheat on duties is to lie about what products are being imported. This is often accompanied by misclassification of the products under the Harmonized Tariff Schedule of the United States (the HTSUS).
Country of Origin Fraud
Duty rates for the same product can vary depending on the “country of origin” of the product. Country of origin does not mean the country from which the product was exported to the United States. Rather, it means where the product itself originated. In cases involving a product that is itself made from multiple components or other inputs, the country of origin analysis can become very technical and complicated, involving what is known as “substantial transformation” analysis. Plus, the legal standard for country of origin determinations can itself depend on the product and where it is coming from.
Despite those technical complications, in many cases the country of origin of a product is obvious and easily determined, and yet the importer will provide false country of origin declarations to CBP. These cases often involve either transshipment, where a product is simply moved through an intervening country in an attempt to disguise the true country of origin. But they can also involve more complex forms of “origin washing,” such as performing some additional—but non-transformative—work on the product in the intervening country. These include what are sometimes referred to as “assembly schemes,” where the component parts are all made in Country A, but then merely screwed together in Country B, in an attempt to evade duties that would be owed if Country A is the true country of origin. Many successful qui tam cases have been brought as a result of those types of country of origin frauds.
Cases involving false country of origin declarations also often involve claims for “marking duties.” These are additional duties that become owed on products that are imported into the United States without proper country of origin marks.
Valuation Fraud
Duty rates are determined primary by the type of product being imported and the country of origin of that product. Those duty rates, however, are then applied to the “value” of the imported product. And so, another way to evade payment of duties, is to lie about those “values.”
In most cases, “value” simply means what the importer in the United States has paid to the foreign vendor for the products. In some cases, primarily involving intra-company transfers of products, “value” can be determined through other methods that attempt to determine what an “arms length” price for the products would have been.
False valuation frauds are often accompanied by “double invoicing.” This means that the importer is paying one price pursuant to a “true” invoice, but then receiving or creating a second “fake” invoice showing a lower price. The importer then uses the fake invoice as the back-up to the value declared to CBP. Another common type of valuation fraud is an intentional failure by an importer to declare “assists.”
Valuation fraud is among the most common form of customs evasion. Many successful qui tam cases have resulted from blowing the whistle on double-invoicing or other valuation frauds.
Examples Of Successful Customs And Tariffs Qui Tam Actions
Here are some examples of successful qui tam cases, involving customs and tariffs, in which the relators received large awards:
- United States ex rel. Stover v. Ceratizit USA, LLC involved misclassification and country of origin fraud, intended to evade Section 301 duties, relating to importation of tungsten carbide rods. The case also alleged marking duties owed as a result of a failure to mark the imported products with country of origin. It resulted in the largest-ever settlement of a customs evasion qui tam case; Ceratizit agreed to pay $54,400,000 and the relator received an award of $9,750,000.
- United States ex rel. Dhala v. Royal Canadian Steel Inc. involved country of origin fraud and evasion of duties owed under AD/CVD orders applicable to flat-rolled steel. This case resulted in a $19 million settlement; the relator’s award was approximately $3.6 million.
- United States ex rel. Jesrel Mitre v. Harman International Industries, Inc., involved evasion of AD/CVD duties owed on imported aluminum “heat sinks,” components commonly used in electronics. The case ended with a settlement of approximately $11.8 million, and a relator’s award of approximately $2.3 million.
- United States ex rel. Melinda Hemphill v. Allied Stone Inc. involved misclassification of quartz surface product (QSP), a material commonly used in kitchen and bathroom countertops. It resulted in a $12.4 million settlement. The relator received approximately $2.2 million.
- United States ex rel. Zachary Welin v. International Vitamin Corp., involved misclassification and false valuation schemes relating to importation of vitamins and nutritional supplements. The case settled for approximately $22.8 million, with the relator receiving an award of $4.5 million.
- United States ex rel. John Doe v. Stargate Apparel, Inc. alleged a double-invoicing, false valuation scheme relating to imports of clothing. It settled for $6 million; the relator’s award was $1.2 million.
- United States ex rel. Wells v. Bassett Mirror Company, involved misclassification of wooden bedroom furniture to evade AD/CVD duties, and resulted in a series of settlements totaling $25,500,000 and relator awards of $4.3 million.
- United States ex rel. Dickson v. Toyo Ink Manufacturing Co. alleged a misclassification and transshipment scheme intended to evade AD/CVD duties on ink pigments. The case settled for $45 million; the relator’s award was approximately $7.8 million.
If You Have Information About Customs Or Tariff Evasion, Contact Us Now
Anyone with non-public information about fraudulent activity effecting the payment of duties can file a customs fraud qui tam case. You might be someone working for the importing company who is now ready to blow the whistle. You might be a customs broker or logistics specialist who has been asked to participate in or otherwise learned about an illegal fraud scheme, such as transshipping to avoid AD/CVD tariffs. You might be an American manufacturing company that believes a competitor is gaining an unfair advantage in your market by evading duties on imported products that compete with yours.
The lawyers at Tycko & Zavareei LLP have substantial experience in customs fraud qui tam cases brought under the False Claims Act. If you have information about customs fraud, or simply want more information about the qui tam process, please complete our confidential case evaluation form, and someone from our firm will be in touch soon. Or reach out directly to Jonathan Tycko.
