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Importers are Now Exposed to Whistleblower Claims under the False Claims Act (FCA)

Customs Law FCA

On February 12, 2015, the Department of Justice (DOJ) announced that three U.S. importers had agreed to pay more than $3 million to settle a lawsuit brought by the United States under the False Claims Act, while alleging that the companies engaged in schemes to evade customs duties on imports of aluminum extrusions from the People’s Republic of China (PRC). The companies sell shower doors and shower enclosures made with the PRC-manufactured aluminum extrusions.

“The nation’s customs laws are designed to protect domestic manufacturers from unfair competition abroad,” said Acting Assistant Attorney General Joyce R. Branda of the Justice Department’s Civil Division. “The Department of Justice will pursue those who seek an unfair advantage in U.S. markets by evading the duties owed on goods imported into this country.”

The government’s complaint alleged that C.R. Laurence, Southeastern and Waterfall made false declarations to the U.S. Department of Homeland Security’s Customs and Border Protection (CBP) to avoid paying antidumping and countervailing duties on aluminum extrusions imported from manufacturer Tai Shan Golden Gain Aluminum Products Ltd. in the PRC. The Department of Commerce assesses, and CBP collects, antidumping and countervailing duties to protect U.S. businesses and level the playing field for domestic products. Antidumping duties protect against foreign companies “dumping” products on U.S. markets at prices below cost, while countervailing duties offset foreign government subsidies. C.R. Laurence, Southeastern, and Waterfall allegedly misrepresented that the “country of origin” of the aluminum extrusions was Malaysia, when the goods were manufactured in the PRC and merely shipped through Malaysia – a practice called “transshipping.” Imports of PRC-manufactured aluminum extrusions have been subject to antidumping and countervailing duties since 2010. No such duties are due on imports of such items from Malaysia.

The government’s complaint also alleged that C.R. Laurence, Southeastern and Waterfall purchased PRC-made aluminum extrusions imported by other domestic companies and caused or conspired with those importers to make false declarations to CBP to evade duties.

“Countervailing and antidumping duties are designed to provide a level playing field between companies that purchase products domestically and those that import products from countries which subsidize their production,” said U.S. Attorney A. Lee Bentley III for the Middle District of Florida. “Importers who use fraud to avoid paying these duties gain an unfair business advantage over competitors who abide by the rules. This settlement reaffirms our commitment to ensuring that business competition remains fair in our district.”

“Antidumping and countervailing duties are critical to ensure fair competition for U.S. manufacturers,” said Commissioner R. Gil Kerlikowske of CBP. “U.S. Customs and Border Protection works diligently with the Department of Justice, U.S. Immigration and Customs Enforcement, Homeland Security Investigations, and the U.S. Department of Commerce to aggressively pursue duty evasion.”

The allegations resolved by the settlements announced today were originally brought by whistleblower James F. Valenti Jr. in the U.S. District Court for the Middle District of Florida under the qui tam provisions of the False Claims Act. The act permits private parties to sue on behalf of the government those who falsely claim federal funds or, as in this case, avoid paying funds owed to the government. The United States may intervene in and take over the lawsuit, as it did in this case. The act allows the whistleblower to receive a share of any funds recovered through the lawsuit. Valenti will receive $555,100 as his share of these settlements.

The case was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Middle District of Florida, CBP, U.S. Immigration and Customs Enforcement and the Department of Commerce’s International Trade Administration.

The claims resolved by the settlements are allegations only; there has been no determination of liability

What does this case mean for the international trade community? Evidently, the federal government has created a big financial incentive for employees to expose their employers for violations of customs or other federal laws.

The whistleblower's half million dollar award will likely encourage many other employees to inform on their employers' failure to comply with U.S. trade laws. As such, Importers, exporters, and other members of the trade community should certainly think twice about evading these laws.

The lawsuit is captioned United States ex rel. Valenti v. Tai Shan Golden Gain Aluminum Products Ltd., et al., Case No. 11-cv-368 (M.D. Fla.). For additional information, please visit DOJ's website.

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