Customs and Duties Fraud
Effective regulation of imports and exports is essential to the trading economy of the United States and its economic partners. The False Claims Act serves as a crucial check on entities seeking to avoid, decrease, or withhold payment of an obligation to pay money to the United States pursuant to an import or export’s appropriate shipping or customs obligation.
Section 3729(a)(1)(G) of the False Claims Act subjects an individual who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government.” In other words, the act prohibits false statements concerning the value, weight, type, country of origin, or other characteristic and made to reduce or otherwise avoid the full amount owed under an applicable tariff or duty. In addition to liability for affirmatively making a false statement, the act also applies to one who knowingly “conceals” or “improperly avoids or decreases” an obligation owed to the government.
The unique regulation of customs and duties has presented some interesting legal results, though the jurisdictional conflict does not appear to have had any effect on the ability of a qui tam relator (i.e. “whistleblower”) to bring a False Claims Act suit on behalf of the United States in a federal district court.
Generally speaking, a federal court’s exercise of jurisdiction over False Claims Act cases is fully consistent with 28 U.S.C. 1331 which grants district courts subject matter jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” Likewise, section 1345 of that title allows a similar exercise of jurisdiction over civil matters “commenced by the United States” unless congress expressly specifies otherwise. In customs matters, Congress has expressed an intention, pursuant to 28 U.S.C. 1582(3) to confer upon the Court of International Trade (CIT) “jurisdiction of any civil action which arises out of an import transaction and which is commenced by the United States” to, among other things, “recover customs duties.”
Although the distinction has raised some confusion, most False Claims Acts for customs and duties fraud may be brought in a federal district court, rather than the CIT. False Claims Act actions may be brought by the United States government alone, by a qui tam relator in a case in which the government has chosen to intervene, and by a qui tam relator where the government has declined to intervene. Although some courts have considered False Claims Act charges brought solely by the government and without the assistance of a qui tam relator to be actions “commenced by the United States” and thus within Section 1582(3)’s grant of jurisdiction to the CIT, the jurisdictional requirement does not appear to apply to actions brought by a qui tam relator. The distinction does appear odd as it has been well established that the United States government remains “the real party in interest” regardless of whether it initiates a False Claims Act suit, intervenes in one, and even where it declines to intervene in a case.
In April 2014, the U.S. Attorney’s Office for the District of Colorado, the Department of Homeland Security, and the U.S. Customs and Border Protection announced that OtterBox, a Colorado corporation that sells protective cases for smartphones and tablets, agreed to pay $4.3 million in a settlement to resolve allegations that it violated the False Claims Act and the Tariff Act of 1930 by deliberately underpaying customs duties it owed to the government. From 2006 and 2011, OtterBox manufactured its products overseas and imported them into the United States. As such, the company was responsible for paying customs duties owed on those imported products. The government alleged that OtterBox deliberately omitted the value of “assists” from the dutiable value OtterBox declared to Customs on entry documents for imported products. Additionally, the government contended that OtterBox made or caused to be made false statements in other documents submitted to Customs concerning the value of assists, and the customs duties OtterBox owed on the value of those assists, for products it imported between 2006 through 2011. This conduct led OtterBox to knowingly underpay customs duties it owed to the government. The U.S. Attorney in the case noted, “Customs duties are a significant source of revenue for the United States, and this settlement demonstrates that the Department of Justice will zealously enforce their lawful collection.”