In a lesser-known area of False Claims Act liability, importers can face exposure for failing to adequately report the value of goods arriving in the U.S. from abroad.
In a recent settlement under the False Claims Act, two individuals have agreed to pay $435,000 to resolve allegations they “skirted” their obligation to pay duties on aluminum extrusions imported from Chinese aluminum manufacturer Tai Shan Golden Gain Aluminum Products. The defendants, who hail from New Jersey and Texas, will split liability in the matter, with one paying $385,000 and the other paying just $50,000.
The case was originally brought to light by a sales representative for Tai Shan, who filed a whistleblower lawsuit in April, 2013, against a number of defendants.[1. Koenig, Bryan, “Importers Settle FCA Suit Over China Aluminum Duties.” September 4, 2015. http://www.law360.com/articles/699822/importers-settle-fca-suit-over-china-aluminum-duties] The government opted to intervene on some of the counts, and later dropped some of the defendants from the litigation. In exchange for his willingness to come forward, the whistleblower is expected to receive $79,000.
Details of the False Claims Act allegations against the importers
U.S. customs laws, which cover the payment of duties on international imports, impose certain fees for the import of aluminum from specific countries. However, aluminum imports from other countries are not necessary taxed – or may not be taxed as high – prompting importers to report fraudulent nations of origin on shipments arriving in the U.S. These laws were originally put in place to avoid the “dumping” of certain manufactured goods from nations with historically rock bottom prices (e.g., China), and are designed to encourage domestic production.
According to the allegations, the defendants actually created a sham company in Malaysia – imports from which are not assessed a duty tax – known as Northeastern Aluminum Corp. In so doing, the defendants routed shipments of aluminum from China through Malaysia using an illegal method known as “transshipping.”[2. McDaniel, Mike, “Two agree to pay $435,000 to settle allegations of evading customs duties.” September 8, 2015. http://www.wdam.com/story/29978582/two-agree-to-pay-435000-to-settle-allegations-of-evading-customs-duties] In other words, the aluminum did not actually derive from Malaysia in any way, and the shipments were merely being routed through the nation’s ports to claim Malaysia as the nation of origin. Over time, the individuals were able to gain a significant and unfair advantage in the American aluminum market by avoiding duty taxes on shipments from China – a tax imposed in 2010 by the U.S. Department of Commerce.
Principal Deputy Assistant Attorney General Benjamin C. Mizer, who is head of the Justice Department’s Civil Division, said in a statement, “The nation’s customs laws are designed to protect domestic manufacturers from unfair competition abroad….These settlements show that the Department of Justice is committed to pursuing claims against anyone involved in a scheme to seek an unfair advantage in U.S.markets by evading duties on imported goods, including individuals who make such evasion possible by the businesses that import the goods.”[3. Department of Justice Press Release: “Two Individuals Agree to Pay $435,000 to Settle False Claims Act Suit Alleging Evaded Customs Duties.” September 4, 2015. http://www.justice.gov/opa/pr/two-individuals-agree-pay-435000-settle-false-claims-act-suit-alleging-evaded-customs-duties]
The U.S. Attorney’s Office also commented, stating, “When businesses and individuals fraudulently evade import duties designed to foster fair competition, consumers lose….We will hold accountable those involved in illegal schemes that place businesses in our district at an unfair disadvantage.”
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