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Reporting Customs Fraud Under the False Claims Act
Custom fraud is a serious threat to the United States that undermines global trade and economic stability. As these companies are cheating the United States government out of revenue using complex schemes, catching these instances of wrongdoing typically requires individuals known as whistleblowers. Whistleblowers are eligible for up to 30% of what the government recovers, and with over $300 billion in tariffs each year if even 1% is false billing that’s $3.5 billion in fraud and roughly $1 billion available for Customs Fraud whistleblower rewards.
In order to effectively protect the rights of whistleblowers in customs fraud cases, an individual should consult with a customs fraud whistleblower law firm that is both knowledgeable and experienced in this area. A qualified customs fraud lawyer can file a customs fraud lawsuit properly under the False Claims Act and guide you through what to expect during the process.
What is Customs Fraud?
Customs fraud is a form of illegal activity that involves the deliberate evasion of customs duties and taxes. This type of fraud is typically the misrepresentation of the value, quantity, or nature of goods imported or exported, or the circumvention of trade policies and restrictions related to those goods.
Customs fraud not only results in significant revenue losses for the government but also poses a threat to national security, public health, and the competitive advantage of legally operating businesses. It undermines fair trade practices, distorts market competition, and can be linked to other forms of organized crime. Governments and international organizations work to combat customs fraud through enforcement actions, audits, and cooperation with trading partners, while businesses often rely on compliance programs and due diligence to mitigate risks associated with customs fraud. However, most of the time for customs fraud to become unearthed it depends on whistleblowers stepping forward.
What are Different Types of Customs Fraud?
Some examples of customs fraud schemes include:
- Under-valuation of Goods: Declaring goods at a lower value than their actual market value to reduce duty and tax payments.
- Misclassification of Goods: Incorrectly classifying goods under a customs tariff code that carries a lower duty rate to pay less tax.
- Country of Origin Fraud: Falsely declaring the country of origin of goods to evade anti-dumping duties or to qualify for preferential duty rates under trade agreements.
- Over-valuation of Goods: Inflating the value of goods to claim higher refunds on export incentives.
- False Description of Goods: Providing a false description of goods to evade restrictions or bans on certain products.
- Transshipment: Shipping goods through one or more countries to change their country of origin, often to evade anti-dumping duties or sanctions.
- Smuggling: Moving goods across borders illegally to avoid taxes and duties, often by bypassing customs checkpoints or using false documentation.
- Ghost Shipments: Claiming the import or export of goods that never actually cross borders, often done to launder money or exploit VAT refund schemes.
Customs Fraud Under the False Claims Act
The False Claims Act plays a crucial role in combating customs fraud in the United States. Originally enacted during the Civil War to fight fraud by suppliers of the Union Army, the False Claims Act has evolved into a powerful tool against fraud involving federal funds and property–including customs fraud.
The False Claims Act combats customs fraud by imposing severe penalties on those who knowingly engage in deceptive practices to evade customs duties and taxes. Each type of fraud constitutes a violation of the law because they involve knowingly making false statements or records to reduce or avoid customs duties, thereby defrauding the federal government of revenue.
The False Claims Act is unique in that it includes a “qui tam” provision, which allows private individuals (known as “relators” or “whistleblowers”) to file lawsuits on behalf of the U.S. government against entities committing fraud. If the lawsuit results in the recovery of government funds, the whistleblower can receive a portion of the recovered amount as a reward up to 30%. The False Claims Act allows for “treble damages,” where the government can recover three times the amount lost due to fraud, and imposes penalties for each false claim, further increasing potential recovery amounts of whistleblowers. The potential recovery for whistleblowers incentivizes individuals with knowledge of customs fraud to come forward, significantly enhancing the government’s ability to detect and prosecute fraudulent activities.
Customs Fraud Whistleblower Reward
The amount a whistleblower can recover is influenced by several factors, including, but not limited to, the whistleblower’s role in the case, the government’s decision to intervene, the quality of the evidence provided, and the knowledge of the customs fraud law firm. Those who actively participate and significantly contribute to the success of the case may receive a higher share of the recovery. Whistleblowers in customs fraud cases can receive a portion of the recovered damages, typically between 15% and 30% under the False Claims Act, depending on the government’s decision in its involvement.
When the government decides to intervene in a customs fraud whistleblower case, the whistleblower’s potential recovery under the False Claims Act typically ranges between 15% and 25% of the recovered damages. If the government opts not to intervene, the whistleblower may be able to proceed with the case independently and can be entitled to a higher share of the recovery, ranging from 25% to 30%. To pursue a case without government intervention successfully, whistleblowers often turn to customs fraud lawyers and customs fraud whistleblower law firms to present the strongest case possible on their behalf.
How to Report Customs Fraud
To report customs fraud effectively, an individual should first speak with a whistleblower law firm to learn the right way to lawfully gather evidence related to the fraudulent activities, such as documents, emails, and any other relevant information that can substantiate the claim. Since qui tam cases technically represent the interest of the United States, not the relator, whistleblowers are not allowed to file qui tam cases “pro se,” or without a lawyer. As such, it is necessary to work with a customs fraud lawyer who can evaluate the strength of the evidence and advise customs fraud whistleblowers on the best course of action.
A customs fraud lawyer will ensure all procedural requirements are met. Their strategic management of the case, including deciding the optimal location to file the lawsuit and how to negotiate with the government and defendants, plays a critical role in the success of the case. Additionally, their experience handling similar cases provides valuable insight into effective strategies, enhancing the chances of a favorable outcome.
Whistleblowers may face risks, such as retaliation from their employers, but the False Claims Act offers protections–including reinstatement and compensation–for any damages suffered and since the case is initially filed confidentially under seal, you will have time to plan your exit strategy. If you have information about customs fraud you should speak with a customs fraud whistleblower law firm for a free, confidential consultation to learn your rights.
Recent Customs Fraud Case
King Kong Tool Customs Fraud Settlement under the False Claims Act – Transshipping
The company purportedly evaded higher Chinese tariffs by shipping tools from China to Germany for superficial processing, then relabeling them as “Made in Germany” before importing to the U.S. which is a scheme known as transshipping. By appropriately invoking the False Claims Act, the whistleblower became eligible for a customs fraud whistleblower reward of up to $6.9 million.