Last week, the DOJ announced two separate False Claims Act (FCA) settlements alleging the avoidance of import duties. Both were the result of qui tam whistleblower lawsuits.
First, on August 8, 2024, the United States Attorney’s Office for the Eastern District of Wisconsin announced that two local companies—Precision Cable Assemblies, Inc. and Global Engineered Products, Inc.—agreed to pay over $10 Million to resolve allegations that the companies failed to pay millions of dollars in customs duties on goods important from China.
The DOJ alleged that the companies submitted and caused to be submitted false commercial invoices to Customs & Border Protection (CBP) that significantly undervalued the goods being imported from China. According to the press release, after Chinese suppliers sent the companies invoices in electronic spreadsheet format with the full, actual price of the goods imported, the companies falsified the invoices by altering the spreadsheets to reduce the prices, generally by 70%, and then provided those altered invoices to its custom broker which, in turn, unknowingly submitted the false invoices to CBP.
The whistleblower, a former employee of one of the companies, received $1,260,000 as a whistleblower reward for filing the case.
The following day, August 9, 2024, the United States Attorney’s Office for the Southern District of Florida announced that Alexis, LLC, a womenswear company, agreed to pay $7.6 Million to resolve allegations that it violated the FCA by underpaying customs duties on imported apparel.
According to the DOJ’s press release, for a period of 7 years, Alexis LLC violated the FCA by “materially misreporting” to CBP “the value of imported apparel and thereby avoided paying the full amount of customs duties and fees owed on the imported merchandise.”
The Harmonized Tariff Schedule of the United States (HTSUS) provides the applicable classifications and duty rates for all merchandise imported into the United States. As part of the importation process, an importer must accurately classify imported merchandise pursuant to the HTSUS and correctly calculate its value. As part of the settlement, Alexis LLC admitted and acknowledged that it failed to apportion the value of certain items and that it misclassified some of its imported items.
The press release notes that, as part of the settlement, Alexis LLC worked with expert trade counsel “to implement a robust set of internal and external procedures and corrective actions to prevent any future violations, ensure accurate reporting moving forward, and apply vigorous discipline to its important controls.” Presumably this fact was important in allowing Alexis LLC to continue to import merchandise into the United States despite the issues identified in the settlement.
These are not the first FCA settlements involving the avoidance of import duties. Late last year, for example, a furniture importer agreed to pay nearly $800,000 to resolve allegations that it misrepresented Chinese furniture on import forms in order to avoid customs duties. In April 2023, a pharmaceutical company agreed to pay $765,000 to resolve allegations that it misrepresented certain pharmaceutical products in order to avoid a 10% ad valorem duty.
The attorneys at Chilivis Grubman represent companies across various industries in connection with government investigations, including False Claims Act investigations. If you need assistance with such a matter, please contact us today.