In addition to navigating the Trump Administration’s ever-changing international trade policy through the use of existing (e.g., Section 301, Section 232, etc.) and novel (e.g., International Emergency Economic Powers Act, reciprocal) tariffs, US importers now must also be cognizant of the increased use of the False Claims Act (FCA) to enforce against customs fraud.
Recent public statements from US Department of Justice (DOJ) officials confirm that the Administration plans to enforce the FCA “aggressively.” To that end, importers should brace for greater scrutiny by the US Customs and Border Protection (CBP) and ensure that information provided to CBP, including value, country of origin, and US Harmonized Tariff Schedule (HTS) codes are accurate.
What is the FCA?
The FCA is the single-most powerful tool for rooting out fraud against the US government. The FCA provides that any person who knowingly submits, or causes to submit, false claims to the government may be liable for three times the government’s damages (i.e., treble damages), plus a penalty of $14,308-$28,619 per false claim. As a result of FCA enforcement, the government has reclaimed more than $78 billion dollars since 1978, and nearly $3 billion in fiscal year 2024 alone. Any direct recipient of government funds, or anyone who indirectly receives government funds (e.g., anyone who provides services or products that are reimbursed by government funds) could be subject to a FCA investigation.
Is the government using the FCA to target customs and import fraud?
Absolutely. Customs fraud has traditionally been a less common area of FCA enforcement but is likely to grow significantly over the next year, particularly in light of President Trump’s new tariffs on imports. In a speech at the Federal Bar Association’s annual qui tam conference on February 20, Michael Granston, deputy assistant attorney general in the DOJ Civil Division’s Commercial Litigation Branch, emphasized that the use of the FCA to combat evasion of customs and duties on imported goods will be a strong focus under the Trump Administration.
What types of foreign trade practices warrant FCA scrutiny?
FCA liability in the context of foreign trade practices typically involves:
- Undervaluing imported goods.
- Misclassification of the type of imported goods.
- Misrepresentation of the country of origin of the imported goods.
In recent years, the government has obtained high-dollar settlements in connection with customs fraud. For example:
- In August 2024, Precision Cable Assemblies Inc. (PCA) and Global Engineered Products, Inc. (GEP) agreed to settle FCA claims for $10 million. The government alleged that the companies engaged in a scheme to cause the submission of false commercial invoices to CBP that undervalued goods imported from China. The government further alleged that PCA and GEP falsified invoices to reduce the prices of the goods generally by 70%, and provided those falsified invoices to a broker who in turn submitted them to CBP.
- In August 2024, Alexis, LLC, a womenswear company, agreed to pay $7.6 million to settle FCA claims that it was underpaying customs duties on imported apparel. The government alleged that the company was materially misreporting the value of the imported apparel to CBP for a period of seven years in order to avoid paying the full amount of customs duties and fees owed on the merchandise.
Given the Trump Administration’s prioritizing of new tariffs and the DOJ’s focus on using the FCA to fight customs fraud, conducting import diligence should be a priority, especially for companies with high-risk supply chains. This includes, for example, reviewing and updating import compliance policies, procedures, and manuals to ensure they are aligned with customs laws and regulations; reviewing and updating the HTS classification of imported goods, especially those that may be subject to special duties (e.g., Section 301, Section 232); reviewing your supply chain to detect potential risks for forced labor; and training relevant employees on customs laws and regulations, with a particular emphasis on value, origin, and classification.
If you believe you may have exposure to the FCA, receive an internal complaint, audit request, subpoena, or Civil Investigation Demand, or want to ensure your import compliance policies and procedures are aligned with all applicable laws, including the FCA, contact counsel immediately.
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