Customs fraud occurs when a foreign company attempts to dishonestly reduce or avoid paying taxes, otherwise known as tariffs, on goods imported into the United States.

Tariffs fraud is any attempt by a foreign producer or exporter to evade or reduce tax payment on goods being imported into the United States.

A customs duty is any tax imposed on cross-border goods being imported or exported. The tax, or tariff, placed on these goods is collected by the government and used to help protect the country’s economy and local industries while controlling the flow of goods.

The most common types of customs violations are:

• Fraudulent Free Trade Agreement Claims: This occurs when a company attempts to evade tariffs by making dishonest claims about their goods in order to receive a duty exemption. Even if goods are shipped from a country with a free trade agreement, it does not mean that they automatically qualify for a duty exemption. This is why it’s important to read through all requirements before making any Free Trade Agreement claims and ensure that you have the necessary documentation to back up your claim.
• False Declaration: False declarations occur when an organization is dishonest about the country of origin, provides an incorrect description of the goods, or makes any claim which is later discovered to be false. Persons found making false declarations are subject to fines and imprisonment for each offense.
• Valuation: Valuation fraud takes place when a company fails to properly appraise the value of the goods being imported. Failure to include all values when calculating shipments can result in massive penalties and hefty fines, which is why it’s important to alert customs immediately of any discrepancies and make the corrections right away.
• Failing to Claim Anti-Dumping and Countervailing Duties: Anti-dumping and countervailing duties, also known as AC/CVD duties, are tariffs placed on goods sold by a foreign producer or exporter that are intended to help level the playing field for domestic companies. Goods that are subject to AC/CVD duties can be sold below normal value, so the tariff assists in making sure that these foreign goods aren’t radically cheaper than competing domestic goods. AC/CVD fraud occurs when a company fails to pay these tariffs, which can result in penalties that range from thousands to millions of dollars in fines.
• Tariff Classification: Classification fraud occurs when a company misclassifies an imported good. Companies classifying goods have to be especially careful to avoid accidents, as this can result in hefty fines which are often equal to the value of the goods being imported. As soon as the error is made known, it is considered best practice to immediately notify customs and make the appropriate corrections. Companies that intentionally attempt to defraud the government, or who do not catch their errors, are subject to severe penalties.
• Misrepresenting the Country of Origin: Tariffs placed on goods being imported into the U.S. are based upon country of origin. To defraud the government and avoid proper taxation, some companies elect to use fraudulent country of origin markings on their goods in an effort to reap the benefits of cheaper tariffs. This form of fraud often uses what is known as “transshipping,” which occurs when the country of origin transports goods to a country that benefits from lower tariffs before shipping out to its intended destination. By masking the real country of origin, these exporters avoid thousands and potentially millions of dollars in tariffs which are designed to protect domestic companies and the economy at large.

The United States Customs and Border Patrol uses what is known as the “harmonized tariff schedule” to enforce customs duties set in place by the Department of Commerce. The custom duties process works by an honor system of sorts, with importers relaying the classification and valuation of goods to Customs and Border Patrol, who then inspect and verify a small percentage of imports. It is because of this process that whistleblowers play a crucial role in uncovering customs fraud.

It’s difficult for customs authorities to identify fraud for a number of reasons, including:

• Sophisticated and clandestine methods of evasion
• Complexity of products subject to classification tariffs, and AD/CVD duties
• How simple it is to become an importer of record, which lends itself to heavy exploitation by tariff evaders
• Limited to no access when it comes to foreign evidence of tariff evasion
• Limited circumstances in which Customs and Border Patrol can seize goods

Customs fraud penalties are often expressed as fines, imprisonment, forfeiture, or liquidation. These penalties occur when an exporter attempts to defraud the government by evading the appropriate tariffs placed on the goods.

If you have information on customs fraud, it is important to immediately contact a reputable qui tam attorney who can help walk you through the whistleblowing process. By coming forward as a customs fraud whistleblower, you are helping protect the domestic economy and may also be entitled to a whistleblower reward, which is typically 15-30% of the amount recovered.

A qui tam case is a lawsuit brought by a private person on behalf of the government under the federal False Claims Act or similar state laws. Under the False Claims Act, the private person who brings the lawsuit is known as a “relator.” If the government recovers money as a result of the qui tam lawsuit, then the relator is rewarded with a share of the recovered money which is usually between 15% and 30%. The rest goes to the government.

Evasion of tariffs imposed under anti-dumping or countervailing duty orders (AD/CVD orders), either by transshipping the goods through third countries or by misclassifying the goods under the Harmonized Tariff Schedule (HTS) to make U.S. Customs and Border Protection (CBP) believe that the goods are outside the scope of the AD/CVD orders.

Evasion of Section 301 tariffs either through transshipping or misclassification under the HTS.

Falsifying the value or quantity of imported goods, including the use of forged or altered invoices or other documents, leading to underpayment of duties.

Falsification of other information submitted to CBP on the Entry Summary, CBP Form 7501, leading to underpayment of duties.

Failing to properly mark imported goods with the country of origin, either by failing to include any country-of-origin marks, marking using improper methods, or marking with the wrong country of origin. Such failure to properly mark can lead to the imposition of “marking duties,” which a False Claims Act qui tam lawsuit can recover.

The False Claims Act is specifically designed to encourage whistleblowers to come forward and report fraud, as well as pursue qui tam whistleblower cases on behalf of the government.

A successful qui tam whistleblower is entitled to a minimum of 15% of the total recovery and can obtain as much as 30% of the recovery in some circumstances. In many cases, qui tam relators have received awards of millions of dollars as a result of their right to share in the recovery. In addition to the potential monetary reward, many qui tam whistleblowers are motivated by patriotism and a strong desire for fairness and justice. These whistleblowers are true heroes who take on risks and burdens for the good of their country and fellow taxpayers.

Generally, anyone who has information that a company or individual has violated the False Claims Act may blow the whistle by bringing a qui tam lawsuit. Claims have been brought by employees, former employees, customers, competitors, and others who have obtained independent information about fraud against the government.

If you learn of customs fraud from the news, media, or other public sources of information, you generally cannot bring a qui tam lawsuit based on that information. This is because of the “public disclosure bar” that is part of the False Claims Act. However, under the case law interpreting the public disclosure bar, a whistleblower who uses publicly-available data or information as part of a broader effect to uncover a fraud may still be able to bring a successful case, as long as the fraud itself has not previously been made public.

When a qui tam lawsuit is filed by a customs fraud whistleblower, it is initially kept “under seal.” This means that only the government is informed of the lawsuit. During the time that the lawsuit is “under seal,” the government has an opportunity to investigate the qui tam whistleblower’s allegations. The government, if it chooses, can then “intervene” in the lawsuit. This means that the government’s own attorneys from the Department of Justice will become involved in litigating the claims. Generally, intervention is a positive development for the whistleblower, because intervention brings all of the resources and prestige of the government to the case. If the government decides not to intervene, however, the qui tam relator may still choose to continue the case without the government’s assistance.

Yes. A group of whistleblowers may jointly bring a False Claims Act qui tam case. In some cases, this may be beneficial because different people may have different information that, when combined, powerfully prove the allegations of customs fraud.

The False Claims Act has a “first to file” rule. This means that only the first qui tam relator (or group of relators acting together) to bring a lawsuit arising out of a particular customs fraud scheme will be entitled to share in the monetary reward. For this reason, once you decide to move forward with a qui tam case under the False Claims Act, it can be important to prepare and file the lawsuit quickly.

Yes. Subject to some exceptions, a qui tam case under the False Claims Act must be brought within six (6) years of when the customs fraud occurred. But if you have knowledge of fraud against the government and are considering a qui tam action, you should not delay. If you wait too long, you may lose your right to obtain a whistleblower’s award. If someone else discloses the fraud or brings another qui tam action before you do, then you may lose your chance for an award.

Not initially. When a qui tam lawsuit is filed in court, it is put “under seal.” This means that it is not public or disclosed to the defendants. Instead, only the government learns of the filing. The government will then investigate the customs fraud claims and decide whether to intervene. If the government intervenes, then the complaint will be served on the defendants and will become public. If the government does not intervene, then the qui tam relator can choose to pursue the case without the government’s assistance, and at that time, the complaint would be served and become public. Either way, in most cases, the defendants you are accusing of fraud will eventually learn of your allegations. The time from filing the complaint until the case comes out from “under seal” is typically a full year and often more, so qui tam relators have anonymity for at least some period of time after they file a whistleblower claim.

The False Claims Act has a whistleblower protection provision. Under that provision, an employer may not discharge, demote, suspend, threaten, harass, or discriminate against an employee for bringing a qui tam case under the False Claims Act. If the employer violates that prohibition, the employee can sue the employer for damages (such as lost wages) and other relief. Thus, the False Claims Act offers protection to an employee who blows the whistle on his or her employer. Most state false claims laws also have these types of anti-retaliation provisions.

For a number of reasons, if you are considering bringing a qui tam lawsuit under the False Claims Act, you should act quickly. If either the government or another qui tam relator discloses the fraud in a lawsuit, you likely will lose your right to a relator’s award. Accordingly, you should consult with a whistleblower attorney to discuss your potential case. An attorney with experience in False Claims Act whistleblower cases can help you through the process of deciding whether to go forward. Your discussions with the attorney will be confidential.

Many attorneys, including the qui tam attorneys at Tycko & Zavareei LLP, will provide you with an initial consultation and advice without requiring you to pay any fees or make any commitments. You should not discuss the matter with anyone other than an attorney, as your discussions with others may not be confidential. Furthermore, you run the risk that someone else will learn of the customs fraud and bring a qui tam lawsuit before you do, thereby undermining your right to a relator’s award.

If you are a current employee of the company or organization that is engaged in customs fraud against the government, you should not communicate with your whistleblower attorney (or anyone else) about the fraud through your office computer, work email, or work telephone. Communications made that way may not be secure and may provide a basis for your employer to take disciplinary action against you. Instead, use a home computer or personal telephone, and if you communicate by email, always use a personal email address.

A customs fraud qui tam lawsuit can take hundreds, or in some cases thousands, of hours of attorneys’ time. If you had to pay the attorneys on an hourly basis, the fees would become prohibitive to most potential qui tam whistleblowers. Fortunately, the qui tam attorneys at Tycko & Zavareei LLP are willing to do so for a “contingency fee,” meaning our attorneys do not charge by the hour for their time. Instead, they agree to accept a percentage of your recovery as their fee and take on the risk that they will not be paid if you do not obtain any recovery. Different whistleblower lawyers may be willing to offer different terms. If you are seriously considering a qui tam lawsuit, you may wish to contact a number of different qui tam law firms and find one that you believe will do excellent work and which will offer you favorable contingency-fee terms.

No. Finding a whistleblower attorney who you believe will effectively and aggressively represent your interests is much more important than finding one who is local. Attorneys who handle False Claims Act qui tam cases routinely work on cases around the country, and not just in the city or state where they have offices. Moreover, for various strategic reasons, the lawsuit might be filed in a city or state other than the one in which you work or live. Where to file the case is an issue that your attorney will analyze. Accordingly, in searching for representation, you should not necessarily limit yourself to lawyers who happen to have offices close to where you work or live. The qui tam attorneys at Tycko & Zavareei LLP routinely represent whistleblowers in cases throughout the United States. For more on how to choose an attorney to represent you in a qui tam case, see our page on Selecting An Attorney.

In almost all jurisdictions, a whistleblower, or qui tam relator, must be represented by an attorney to help him or her bring a False Claims Act case on behalf of the United States.

• Evasion of tariffs imposed under anti-dumping or countervailing duty orders (AD/CVD orders), either by transshipping the goods through third countries or by misclassifying the goods under the Harmonized Tariff Schedule (HTS) to make U.S. Customs and Border Protection (CBP) believe that the goods are outside the scope of the AD/CVD orders.
• Evasion of Section 301 tariffs either through transshipping or misclassification under the HTS.
• Falsifying the value or quantity of imported goods, including the use of forged or altered invoices or other documents, leading to underpayment of duties.
• Falsification of other information submitted to CBP on the Entry Summary, CBP Form 7501, leading to underpayment of duties.
• Failing to properly mark imported goods with the country of origin, either by failing to include any country-of-origin marks, marking using improper methods, or marking with the wrong country of origin. Such failure to properly mark can lead to the imposition of “marking duties,” which a False Claims Act qui tam lawsuit can recover.

Yes. When goods are imported into the United States without country-of-origin marks or with false country-of-origin marks, the importer may be liable for so-called “marking duties.” In a landmark case brought by Tycko & Zavareei LLP, the court ruled that “marking duties” can be recovered under the “reverse false claims” provision of the False Claims Act, and the Department of Justice agreed with that position. Accordingly, if you have information that an importer is failing to mark, or is marking improperly, you may be able to blow the whistle through a qui tam lawsuit under the False Claims Act.