TheCorporateCounsel.net

Most corporate lawyers know that the False Claims Act is a formidable weapon for asserting claims against contractors who allegedly overcharge the federal government, but what many may not appreciate is that it also applies to efforts to evade customs duties and tariffs.  This Nixon Peabody memo discusses this aspect of the FCA and other federal statutes that companies need to pay close attention to in light of the Trump administration’s dramatic changes to U.S. tariff policy. This excerpt addresses the application of the FCA to duties and tariffs:

The FCA both imposes liability for knowingly submitting false claims for payment to the government and knowingly avoiding obligations to pay money to the government (known as “reverse false claims”). In recent decades, DOJ and qui tam relators have leveraged the FCA primarily to pursue recoveries for noncompliance with federal healthcare program requirements. That enforcement trend, however, should not obscure the fact that the FCA is a multipurpose enforcement mechanism that is regularly employed by both DOJ and whistleblowers to target conduct across every economic sector. This includes defense, government procurement, and customs noncompliance, which triggers the FCA’s “reverse false claims” provision.

US importers must declare, among other things, their goods’ country of origin and value, whether the goods are covered by antidumping duties (i.e., tariffs on imported goods priced below their fair market value in the exporting country) or countervailing duties (i.e., tariffs that offset the effects of foreign government subsidies on exports), and the amount of duties owed. CBP relies on these representations to determine the correct amount of any duties.

Thus, importers bear an affirmative duty to use “reasonable care” to ensure that such information is accurate. Importers who fall short and knowingly provide false information to CBP risk FCA liability. Critically, because the FCA’s knowledge standard embraces not just actual knowledge but also deliberate ignorance or reckless disregard, taking affirmative measures to ensure reporting accuracy when goods cross US borders is essential to minimizing potential FCA exposure.

The memo notes that there have recently been significant financial settlements involving FCA actions based on avoidance of customs duties. Like the more familiar provisions of the FCA, these “reverse false claims” actions may be brought through qui tam lawsuits filed by third party plaintiffs as well as by the federal government.

– John Jenkins