October 6, 2023
The federal government investigates and prosecutes customs fraud cases involving the alleged violations of customs duties by importers. The U.S. Department of Homeland Security, and specifically the U.S. Customs and Border Protection (CBP), are charged with enforcing customs duty laws and investigating violations of said laws, while the Department of Justice prosecutes such alleged violations.
Because customs duty violations are often difficult to detect, the federal government also relies on private individuals with knowledge of such fraud to come forward with whistleblower claims alleging customs fraud, for which a whistleblower is eligible to receive between 15% and 30% of the total penalties imposed on FCA customs fraud defendants.
Customs Duties Generally
Customs duties refer to tariffs or taxes imposed on goods transported across international borders. According to the CBP, the purpose of customs duties “is to protect each country’s economy, residents, jobs, environment, etc., by controlling the flow of goods, especially restrictive and prohibited goods, into and out of the country.”
Customs duties are often enacted by the federal government for the purpose of preventing “dumping” by which a foreign country or industry places products in the US economy at an artificially low price for the purpose of damaging US providers of those goods, as well as countervailing the effect of foreign subsidies by which a foreign government subsidizes goods at the expense of US providers.
Types of Customs Fraud
Common types of customs fraud that can result in an FCA whistleblower lawsuit and/or investigation or prosecution by federal authorities include:
- Valuation Fraud: Valuation fraud refers to the fraudulent act of misstating and/or concealing the value of imported goods to the CBP for the purpose of lowering the amount of customs duties to be paid, as customs duties are determined as a percentage of the imported goods’ value. In some cases, such fraud is perpetrated by a company creating “double invoices” by which one set of invoices reflecting the actual costs of goods for the purchaser is created, while a separate fraudulent set of invoices reflecting an incorrect lower price is submitted to the CBP in order to pay lower customs duties.
- Misclassification of Imported Goods Fraud: Misclassification of imported goods fraud overlaps with the concept of valuation fraud, in that importers may attempt to lower their customs duties by improperly classifying products as a type of product other than what they actually are in order to obtain a lower customs duty rate, or no customs duty at all. A common example of this is to fraudulently classify goods for sale as “sample goods” (for which no customs duty would apply) in order to avoid the payment of customs duties.
- Country-of-Origin Fraud: Country of origin fraud, also referred to as “transshipment”, refers to a situation where an importer routes goods from the country of origin through a second, intermediate country before importing to the United States in order to avoid customs duties that would apply to the country of origin.
- Structuring/Splitting of Shipments Fraud: Structuring or splitting fraud occurs where an importer divides shipments of goods into smaller portions in order to avoid customs duties, for example where there is a “de minimus” exception for imports of goods below a certain value, and the importer thus breaks up a larger shipment into several smaller shipments which each fall within the de minimus exception.
Whistleblower Rewards for Providing Evidence of Customs Fraud
Again, while the CBP and Department of Justice regularly pursue customs fraud cases investigations and prosecutions, the sheer amount of daily importations into the United States compared to the number of federal officials policing customs fraud means that the federal government frequently relies on private citizens with knowledge of customs fraud to come forward with evidence of said fraud. Such private citizens could include employees of customs fraud violators, competitor importers, shipping employees, or any other private individual with sufficient knowledge of the fraud.
Pursuant to the False Claims Act (FCA), a private individual can work with counsel to collect evidence of customs fraud and file a complaint alleging such fraud under seal in federal district court (meaning the contents and existence of the complaint will remain confidential for some period of time). While the complaint is under seal, the U.S. Attorney’s Office will review the complaint and determine whether or not to intervene as a party in the case. If the USAO does indeed intervene in the case, this is a positive sign as the federal government will assist in prosecuting the case, and its involvement is indicia of the compelling nature of the complaint. But even if the government does not join the case, a private plaintiff may pursue the FCA claim.
If successful, a private FCA whistleblower can collect between 15% and 30% of the total financial penalties imposed on the defendant(s). FCA financial penalties can be quite significant, as each violation of the FCA (i.e. each false document submitted to customs authorities) can result in a fine between $13,508 and $27,018. Additionally, the government is eligible to recover three times the damages incurred by the government due to the customs fraud, i.e. three times the difference between the total customs duties that were paid and what was actually paid.
Work With Experienced California Custom Frauds Counsel
Our attorneys have the experience necessary to work with clients of all sizes in providing comprehensive defense counsel in defending against federal investigations into alleged customs fraud as well as federal enforcement actions. Our attorneys also serve as plaintiff’s counsel to whistleblowers with knowledge of customs fraud seeking to pursue an FCA claim. Contact us today to schedule a consultation with an attorney to discuss your customs fraud issue.