The federal False Claims Act, sometimes called the “Lincoln Law,” allows individuals to sue those who commit fraud against the federal government. Customs fraud is one of the many types of fraud that fall under the scope of the False Claims Act.
If you have witnessed or know about customs fraud, you have the right to bring a lawsuit forward, but what does this entail? Learn more about how to report customs fraud and what you can expect from the process.
What Is Customs Fraud?
Customs fraud refers to submitting false information to U.S. Customs and Border Protection regarding the importation of goods. Usually, someone who commits customs fraud is trying to reduce or completely avoid tariffs and duties. This type of fraud can lead to serious revenue loss for the government and can undermine economic policies. Customs fraud could even pose risks to public health and safety.
Examples of Customs Fraud
There are many types of customs fraud. Below are the most common, as well as some recent False Claims Act violation examples.
Misclassification
Misclassification involves classifying goods under tariff codes that have lower duties than the actual codes that should apply.
One of the largest customs duty fraud settlements ($22.8 million) involved Linde Engineering North America, Inc. This company falsified invoices and incorrectly identified imports to avoid tariffs. The whistleblower in the Linde Engineering case received $3.78 million.
Other recent False Claims Act cases include one filed against the International Vitamin Corporation, which had been misclassifying products it imported from China to the U.S. for years. This case, too, settled for $22.8 million.
Underreporting Value
In another type of customs fraud, some companies underreport the value of imported goods in order to pay lower duties or taxes.
There are many False Claims Act examples involving this type of fraud. One was filed against Luchiano Visconti, a menswear company that underreported the goods it brought into the country for years. The company’s owner had to pay $3.64 million in the settlement.
False Country of Origin
Importers may lie about where they are importing goods from to avoid antidumping duties or when they want to benefit from more favorable duty rates. One example involves KingKong-Tools GmbH & Co KG, which claimed its products were made in Germany when they were actually made in China. The settlement was $1.9 million.
Smuggling
Smuggling is the act of moving goods across borders without declaring them to customs. This act allows the importer to avoid all tariffs, duties, and controls.
One smuggling legal action under the False Claims Act is the case of UBS AG. The company faced liability when it smuggled precious metals into the U.S. from countries that were subject to trade restrictions.
Transshipment Deception
Transshipment deception involves rerouting goods through other countries to conceal where they really came from. Mislabeling can also be part of transshipment deception.
Toyo Ink America was charged with transshipment deception when it attempted to avoid antidumping duties on products imported into the U.S. by taking them through a third country first.
How Can I Report Customs Violations?
The defendants in cases involving False Claims Act violations are usually large corporations that import goods into the United States.
A whistleblower can be anyone with information about a violation of any False Claims Act elements. As a private citizen, you can make a False Claims Act complaint if you have knowledge of any failure to pay appropriate duties, misclassification, or other type of customs fraud.
If you are ready to become a customs fraud whistleblower, you can file a trade violation allegation through the U.S. Customs and Border Protection website. You will need to provide your personal information, information about the alleged perpetrator, and any evidence you have of the fraud.
Alternatively, you can contact Immigration and Customs Enforcement (ICE) by phone or using a tip form. The tip form allows you to make an anonymous report, but if you decide to pursue a False Claims Act lawsuit, you will not be able to remain anonymous. However, your identity will be protected while the government investigates the claims.
What Does the False Claims Act Do?
The False Claims Act is a federal anti-fraud law that imposes penalties on those who violate it. The penalties are three times the amount that the individual or business obtained by defrauding the government. The act also allows private citizens to report instances of fraud, which the Department of Justice can choose to pursue in a lawsuit. If a lawsuit is successful, a whistleblower can receive a percentage of the False Claims Act damages.
The act also covers false claims that prevent the government from receiving the money it is owed. These are called “reverse false claims.” Reverse false claims cases usually involve defendants who made false statements or omissions in an attempt to avoid paying what they owe the government.
Who Does the False Claims Act Protect?
The False Claims Act protects and benefits the U.S. government, but it also protects companies that must compete against those that are committing fraud. Not paying tariffs or duties gives a business a huge financial advantage, which can put the entire industry at risk.
Additionally, the False Claims Act protects those who report violations. Whistleblowers cannot be discriminated against or harassed for reporting fraud, and they cannot face retaliation from employers. They also cannot be fired or demoted because of their whistleblowing activities.
People who are involved in False Claims Act cases and experience any form of retaliation have legal recourse.
What Is the Penalty for Violating the False Claims Act?
False Claims Act penalties for customs violations are serious. They can include severe fines, imprisonment, liquidation, or forfeiture.
In order to avoid customs violations penalties, a company can use several defenses. It might claim that the False Claims Act whistleblower did not present enough evidence to show that the fraud took place. Alternatively, since the False Claims Act requires that the plaintiff have evidence that is not available to the public, the company may defend itself by stating that the information is public knowledge.
Another possible defense is claiming that the False Claims Act statute of limitations has passed. The statute of limitations is six years from the date of the violation or three years from the date the material facts are known. And lastly, a defendant may claim that the violation was accidental or due to negligence.
How Can a False Claims Lawyer Help Me?
A False Claims Act attorney can help guide you along the whistleblower process, beginning with crafting a disclosure statement. This statement provides the government with all of the evidence you have. With the help of a False Claims Act law firm, you create a road map for the government to follow in its investigations.
Next, the law firm you hire may file a lawsuit on behalf of the government. You must work with a False Claims Act lawyer during this stage because the government does not want a layperson to handle the proceedings. If the government declines to take on the case, you and your lawyer can still pursue it. A successful outcome would allow you to receive 25% to 30% of the damages. In contrast, whistleblowers can receive between 15% and 25% of False Claims Act settlements when the government intervenes.
Prevent Customs Fraud | How Whistleblowers Play a Role in Detecting Customs Violations
Customs violations put public safety and health at risk while cheating the government out of significant revenue. They also result in unfair competition that leads to significant imbalances across entire industries.
The False Claims Act is a powerful law, but it requires individuals to be vigilant and to take action if they see anything untoward. With the help of a False Claims Act lawyer, you can act on behalf of the government while also protecting your own interests.
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