May 21, 2014 False Claims Act Legal News
Clothing Manufacturers Pay $10 Million to Settle False Claims Act Customs Fraud Case
Late last month, several clothing manufacturers agreed to settle claims with the federal government following allegations of intentional undervaluing of goods to avoid tariffs at the border. The lawsuit arose pursuant to a False Claims Act whistleblower complaint filed over four years ago by a relator, who works as a garment cutter for defendant Dana Kay and is set to receive 23 percent of the settlement amount. The garments were sold regularly in well-known retail establishments including Lord & Taylor, Nordstrom, and Belk.
Details of Fraud Scheme
According to the allegations, several garment manufacturers, including Danny & Nicole and Dana Kay, ripped off American taxpayers by significantly undervaluing the worth of their garments when importing the goods into the United States from overseas. For a period ranging from 2003 through 2012, defendants consistently undervalued each unit by approximately $2.50 per item. The average tariff for garment imports is around 22 percent of the claimed value, meaning the defendants defrauded the U.S. government out of 55 cents per item – for a total fraud value in the tens of millions of dollars.
The Complaint provides specific details as to several fraudulent transactions, including one occurring in January, 2009. At that time, defendant Dana Kay paid a commercial invoice for $61,085 for the importation of ladies’ apparel from Vietnam. The invoice contained an itemized list of garments, including information relating to their style numbers and quantities. At the same time, Dana Kay submitted an identical list of goods to a Customs Broker for the preparation of an Entry Package – the same set of clothing was listed as valued at $16,083. This fraud resulted in a $3,700 underpayment to the U.S. government.
According to the language of the stipulation between the federal government and the defendants, defendants maintained a system of two separate invoices – one for their department store clients and another for U.S. Customs officials. The resulting settlement between the defendant and federal government amounted to $10 million with no admission of liability.
The defendants were importing millions of articles of clothing each year, including dresses, skirts, blouses, and other women’s apparel. Brand names associated with the transactions include Studio 1, Taylor Dresses, Julian Taylor, DN Design, Just Taylor, Zarr Collection, LeBos, and Gabby Skye, as well as private label clothing produced for Chico’s, Cache, Ann Taylor, and Dress Barn.
How You Can Help
Perhaps you are unsure how you can help curtail fraud at the U.S. border. While this type of fraud does not pervade the average American lifestyle each day, you can be on the lookout for other, more common types of fraud. Today, healthcare fraud accounts for nearly $3 billion in FCA recoveries and is the most prevalent type of government fraud in existence. If you have information about healthcare, defense contracting, mortgage lending, or any other type of fraud involving federal taxpayers, we encourage you to contact Berger Montague today. Like the whistleblower in today’s case, you could receive up to 30 percent of any total amount recovered either through a settlement or court judgment.