Customs Duties Avoidance the Subject of $500,000 False Claims Act Suit Brought by Whistleblower

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Whistleblowers can pursue False Claims Act cases against importers for avoiding payment of customs duties to the United States. In this recent settlement, a whistleblower alleged that an importer kept two sets of books in order to perpetrate customs duty fraud.

Greene LLP: False Claims Act Attorneys

“Our investigation suggests that many companies use a variety of techniques to either improperly reduce the customs duties they pay, or to avoid paying them altogether.”

The law firms of Greene LLP and Keller Grover LLP announce an agreement with Green Bag, Co. to settle allegations that it underpaid customs duties on designer bags it imported from China. The suit was filed in 2012 after nine months of investigation by the qui tam relator and Greene LLP attorneys Thomas M. Greene, Michael Tabb and Ryan P. Morrison. It alleged that Green Bag underreported cost of goods in order to pay correspondingly low customs duties. The False Claims Act settlement provides for $500,000 to the United States, and the whistleblower will receive a 20% relator’s share of that recovery. In addition, the defendant agreed to pay statutory fees and a significant breach of contract settlement to the relator.

Kathleen Scanlan of Keller Grover LLP was instrumental in the filing of the case in the Northern District of California, and in the investigation that followed. Once the case was filed, Assistant United States Attorney Sara Winslow spearheaded a multi-agency investigation into the alleged fraud. The case, brought in United States District Court for the Northern District of California (Case No. C 12-3803 DMR), was recently dismissed pursuant to the settlement agreement.

“We believe fraud on the government through avoidance of customs duties is a lot more pervasive than people realize,” said Thomas M. Greene. “Our investigation suggests that many companies use a variety of techniques to either improperly reduce the customs duties they pay, or to avoid paying them altogether.” In the case against Green Bag, the False Claims Act whistleblower alleged that the defendant essentially kept two sets of books. One set tracked the company’s true cost of goods overseas so that its manufacturers could be paid, and in order to claim the proper business deductions. The second was fabricated solely for the purpose of underreporting cost of goods to United States Customs and Border Protection personnel.

Although relatively few customs cases have been successfully pursued under the False Claims Act, several types of fraud in avoiding tariffs have been the subject of whistleblower cases. “Falsely stating the country of origin to avoid paying duties can be actionable,” said Ryan P. Morrison. “Misclassifying goods to get a lower duty rate can also lead to False Claims Act recoveries for the government and qui tam whistleblowers.”

In some ways, underreporting cost of goods may be the easiest way for a company importing goods to avoid paying the correct customs duties. As the Green Bag case revealed, there are export entities in China that stand willing to provide United States companies with two sets of invoices. With seemingly complete documentation, Customs and Border Protection has no way to determine directly that the importer actually paid more for the goods abroad. Whistleblowers, therefore, will play a key role in curbing customs fraud.

“With the proliferation of government spending, there is really no limit to the number of ways that the government can be defrauded,” said Greene. “With new kinds of fraud comes new kinds of False Claims Act cases, and we think customs fraud will become an important way to recover money owed to the government.”

Greene LLP is a complex civil litigation firm that specializes in representing qui tam whistleblowers in False Claims Act litigation. Its partners each have over twenty years of experience in False Claims Act litigation, with a track record of successes in defense and health care industry cases.

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