The U.S. District Court for the Southern District of New York last week ordered importer Delta Uniforms and its owner, George Iloulian, to pay over $1.3 million for avoiding customs duties on medical uniforms, footwear and other apparel. Judge Paul Gardephe said they violated the False Claims Act and must pay triple the amount of the evaded duties and a $557,880 civil penalty.
Customs fraud whistleblowers
Customs fraud includes undervaluation, misclassification, and transshipment to avoid paying customs duties or antidumping fees. Under the False Claims Act of 1863, individual whistleblowers may file lawsuits alleging a company or individual is committing customs fraud, and allow the government to recoup three times the amount in unpaid duties and fees. The whistleblower is entitled to a portion of the damages.
Danco Laboratories, a New York-based pharmaceutical distributor, will pay $765,000 to settle allegations it violated the False Claims Act by failing to pay marking duties on its imports of Mifeprex, the active ingredient for the abortion pill mifepristone, that lacked country of origin markings, DOJ announced April 12.
The U.S. Court of Appeals for the 9th Circuit is "unlikely" to revisit its 2004 decision finding that False Claims Act qui tam cases involving customs duty avoidance belong at the Court of International Trade, law firm Morgan Lewis said in a Feb. 23 blog post. Overturning the decision would require an en banc ruling from the court, something that does not seem probable given that it is a whistleblower action in which the government hasn't intervened, the post said.
A False Claims Act whistleblower received $210,000 from a $1 million customs fraud settlement with global trading and investment firm Samsung C&T America, McInnis Law announced. The U.S. announced it settled the case over charges SCTA violated the FCA by misclassifying footwear imports via false entry documents to avoid paying customs duties (see 2302080008).
Two chainsaw chain and blade importers, TriLink Saw Chain and TriLink Global, agreed to pay $525,000 to settle allegations that the companies misclassified their imports, the U.S. Attorney's Office for the Northern District of Iowa said. The U.S. alleged that the importers purposely classified their chain saw chains and blades from September 2018 through June 2019 under the wrong Harmonized Tariff Schedule subheading to avoid paying Section 301 China tariffs -- a violation of the False Claims Act.
The Department of Justice recently agreed to intervene in a qui tam whistleblower lawsuit against Selective Marketplace Ltd. and the company's alleged use of de minimis exemptions for the expressed reason of avoiding customs duties, the DOJ said in a March 27 filing. The filing was in U.S. District Court for the District of Maine because "a substantial part of the events or omissions giving rise to the claims occurred in this District," the DOJ said. Selective, which is based in England, mostly sells premium womenswear under the Wrap London and Poetry brands, the DOJ said.
Acting Associate Attorney General Jesse Panuccio pointed to the whistleblower provisions in the False Claims Act as an important method for enforcing customs laws. The Justice Department is using the FCA "to prevent companies from flouting our customs laws," he said in a June 14 speech at an American Bar Association event on qui tam enforcement. "Over the last five years, the Department has recovered more than $100 million in settlements involving the evasion or underpayment of import duties for a wide variety of merchandise." Panuccio said DOJ will also use the FCA "against any entities involved in the opioid distribution chain who engage in the abuse and illegal diversion of opioids -- from pharmaceutical manufacturers and distributors, to pharmacies, to pain management clinics and physicians."
A federal court recently dismissed a whistleblower lawsuit filed over pipes imported from China that were allegedly misclassified in order to avoid antidumping and countervailing duties. The May 23 decision in U.S. District Court for the Northern District of Illinois Eastern Division was highlighted in a Hogan Lovells blog post. The False Claims Act (FCA) lawsuit was filed by Roger Schagrin, a lawyer with experience in international trade and the steel industry, in 2014 against LDR Industries. Plaintiffs in successful whistleblower lawsuits involving defrauding the government are allowed to receive a portion of the recovered funds.
A U.K. retailer, and its chief executive, that allegedly split shipments to avoid duties settled a whistleblower lawsuit against the company for about $900,000, the Justice Department said in a news release. The company, Pure Collection, and its CEO Samantha Harrison were said to separate single orders exceeding the de minimis value threshold into multiple smaller parcels in order to evade customs duties on imports over the de minimis level (see 1709080037). "This Settlement Agreement is neither an admission of liability by Pure nor a concession by the United States that its claims are not well founded," the parties said in the court filing.
The Justice Department recently issued a memo detailing circumstances when its attorneys should seek dismissal of False Claims Act whistleblower lawsuits. In addition to the government’s ability to intervene on the whistleblower’s side in False Claims Act suits, the law also gives it the less commonly used ability to end cases, even without the whistleblower’s consent. According to the memo, dated Jan. 10, government lawyers should ask courts to dismiss False Claims Act suits in which the whistleblower’s claims are meritless or frivolous, or when the lawsuit is “parasitic or opportunistic” in that it duplicates an existing government investigation or the suit interferes with an agency’s policies or programs.