Aggressive FCA Enforcement in Customs Calls for Compliance Review

The US Department of Justice intends to “aggressively” enforce the False Claims Act, Deputy Assistant Attorney General Michael Granston said in a speech at the Federal Bar Association’s annual qui tam conference earlier this year. He added that the agency particularly would focus on “illegal foreign trade practices” in conjunction with the Trump administration’s sweeping tariffs.

There has been a rise in the number of FCA cases alleging that an importer evaded customs duties by undervaluing imported products, misclassifying imports, or misrepresenting a product’s country of origin. This trend shows no signs of waning, and Granston’s comments foreshadow increased use of the FCA in customs cases. But importing companies can take several steps to reduce their exposure.

FCA Framework

Most FCA cases arise under 31 USC Section 3729(a)(1)(A) of the FCA, which creates liability for knowingly presenting a false claim for payment to fraudulently obtain money from the government. The FCA also contains a “reverse false claim” provision, which creates liability for the wrongful retention of payments owed to the government. Customs cases arise under the latter provision.

FCA liability presents a significant financial risk because the statute allows for treble damages plus penalties for each violation. Further, the statute includes a whistleblower provision incentivizing private citizens to file qui tam lawsuits on behalf of the government by affording them up to a 30% share of the money recovered. In fiscal year 2024 alone, FCA settlements and judgments exceeded $2.9 billion, $2.4 billion of which arose from whistleblower lawsuits.

Customs Fraud Enforcement

The most common customs FCA enforcement actions include cases in which the DOJ or a whistleblower alleges that a defendant avoided paying customs duties owed to US Customs and Border Protection by: undervaluing imported products, misclassifying imported products, or failing to correctly mark the product’s country of origin.

When importing products into the US, the importer must file an entry form that requires the importer to list the value of the products. The idea of valuation is simple—a dollar value of the imported merchandise to which CBP will apply the applicable duty rate must be determined. The government and whistleblowers often pursue enforcement against defendants who undervalue their products to avoid paying higher customs duties.

The DOJ and whistleblowers also have used the FCA in cases involving allegations of misclassification, where imported products are misclassified under the Harmonized Tariff Schedule of the United States to evade customs duties. Classification determines the duty rate applicable to imported products and whether the goods are subject to quotas, restraints, or other restrictions.

A third type of customs FCA case involves importers who allegedly misrepresented the country of origin on imports to evade tariffs. COO determinations are important because CBP uses COO to determine duty rates, free trade agreement eligibility, and the applicability of measures such as antidumping and countervailing duties.

Customs laws also require that every article of foreign origin—or its container, as applicable—imported into the US be permanently and conspicuously marked to indicate its COO. Importers that fail to mark their products are subject to a 10% ad valorem duty. Both the government and whistleblowers have pursued actions alleging that an importer knowingly avoided paying the marking duties owed to the US.

Additional Enforcement Risks

In addition to liability under the FCA, importers could be subject to other civil and criminal enforcement risks. CBP has authority to impose penalties against any party who attempts to enter goods into the US by means of a materially false statement or omission. Moreover, CBP can impose civil penalties on any party who aids the unlawful importation of merchandise. Several federal laws criminalize customs violations, such as 18 USC Section 542, which criminalizes the entry of goods by means of false statements.

Minimizing Risk

Given the government’s focus on foreign trade practices, importers should expect heightened scrutiny from the DOJ and CBP. To minimize risk, companies should consider taking the following steps:

• Assess current trade compliance programs, including valuation and HTSUS classification practices
• Strengthen existing compliance procedures and employee reporting mechanisms to proactively prevent and detect conduct that could expose the company to FCA liability
• Review recent documentation submitted to CBP for potential exposure to liability, with a focus on the common customs FCA enforcement areas
• For companies who have already identified risk, consider a potential voluntary self-disclosure to both the DOJ and CBP to mitigate exposure and seek a global resolution of FCA claims as well as Section 1592 penalties

Minimizing risk requires a proactive approach, and prompt action is of paramount importance where foreign trade practices are under the DOJ’s microscope.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Agustin D. Orozco and Jason M. Crawford are partners, and Katherine Quinn is an associate at Crowell & Moring.

Crowell & Moring associate David H. Favre III and counsel Simeon Yerokun contributed to this article.

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