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Customs and Tariff Fraud

False Claims Act qui tam lawsuits have become an increasingly common way for whistleblowers to report customs and tariff fraud and to obtain rewards for doing so. In fiscal year 2021, United States Customs and Border Patrol (CBP) processed over 36.9 million entries with a reported value of over $2.8 trillion, so there is considerable temptation for importers to engage in fraud. Under the False Claims Act, a successful whistleblower is entitled to 15 to 30 percent of the amount recovered by the government in a qui tam suit involving customs fraud or other fraud against the government.

Types of Customs Fraud

Some common forms of customs and tariff fraud include:

  • Underreporting the prices paid for products imported into the United States. In this classic form of fraud, the importer often maintains two sets of books: one showing the real prices it paid for goods imported into the United States, and another with much lower prices that it shows to CBP. Gregg Shapiro recently handled such a case involving RGE Motor Direct, an importer of Chinese furniture and other merchandise. According to the qui tam suit Gregg filed in federal court in Los Angeles, RGE started falsifying the prices it paid in order to evade the 25 percent tariffs President Trump imposed on Chinese imports. RGE ultimately paid $3.25 million to resolve those allegations, and Gregg’s client, a Hong Kong national, received an award of nearly $900,000 from the settlement.
  • Transshipments through a third country to evade higher tariffs imposed on goods from the real country of origin. Especially after the 25 percent Trump tariffs on Chinese merchandise started taking effect in 2019, many unscrupulous importers arranged to import Chinese merchandise through a third country, like Mexico or Canada, whose products may not be subject to any tariffs at all when they enter the United States. The importers then falsely claim that the products were actually manufactured in the third country, even though that country was just a waypoint for products made in China.
  • Misclassifying the imported goods. Every importer is responsible for using the Harmonized Tariff Schedule (HTS) to classify each type of merchandise it imports into the United States. Since products with different HTS codes may face different tariff rates, an importer can engage in customs fraud by misclassifying a product in order to pay a lower tariff rate.

How to Report Customs Fraud

Because CBP cannot possibly inspect all of the merchandise that comes into the United States, CBP relies on importers to report honestly on the nature and cost of the merchandise they import. When that fails, the government relies on whistleblowers to report customs and tariff fraud. A whistleblower can report customs fraud directly to CBP via an e-allegation, but CBP will pay an award of no more than $250,000 in the event the fraud report results in a government recovery. By contrast, if a whistleblower files a qui tam lawsuit under the False Claims Act, the whistleblower is entitled to 15 to 30 percent of the government’s recovery, without any limit on the total amount of the award.

In order to file a qui tam lawsuit, a whistleblower must retain an attorney to prepare the suit and to file it in federal court. The case will be filed under seal, and the government will have at least 60 days – but often as long as a year or more – to investigate the whistleblower’s allegations. For more details, see How Whistleblower Cases Work – How Qui Tam Cases Work.

Gregg Shapiro has substantial experience filing customs fraud qui tam lawsuits, including the successful RGE case described above. He knows how to navigate the complexities of the customs regulations and the HTS, and he can advise on whether you may have a potentially viable case. If you are aware of a recent or ongoing customs fraud, or have questions about how qui tam cases work, call Gregg at 617-582-3875 for a free and confidential consultation, or use our confidential case evaluation form, and we will get back to you soon.