The victory after a jury trial is believed to be one of the largest recoveries in a qui tam False Claims Act lawsuit involving import duty evasion and customs fraud.
A federal court in California has awarded $24 million damages—and an additional $2.7 million in attorney’s fees—to a corporate qui tam whistleblower that successfully sued a rival company rival under the False Claims Act claiming that it unlawfully evaded anti-dumping duties on “welded outlet” imports from China. The whistleblower—Tennessee-based Island Industries, Inc.—accused importer Sigma Corp. of being able to undersell law-abiding competitors like Island only by cheating U.S. Customs and Border Protection (CBP) on the tariffs.
Jury rules in favor of whistleblower
The jury found that Sigma—a waterworks and fire protection company—had knowingly misdeclared its imports as “steel couplings” when in fact they consisted of “welded outlets” subject to 182.9% antidumping duties under an order issued by the U.S. Department of Commerce in 1992. Sigma had misclassified the goods under an incorrect Harmonized Tariff Schedule (HTS) subheading which was duty free, misleading CBP.
The jury awarded Island damages of $8 million in August, which the court tripled to $25 million under the False Claims Act’s treble-damages provision. In addition, earlier this month, the court awarded Island’s qui tam counsel $2.7 million in attorney’s fees and more than $200,000 in expenses.
Island’s recovery is believed to be one of the largest after trial in a False Claims Act qui tam lawsuit involving import duty evasion and customs fraud. Misdeclaring imports under the wrong HTS subheading is one of three major types of customs fraud. The other two types consist of valuation fraud, which involves underdeclaring the dutiable value of imported goods, and country-of-origin fraud, which involves transshipping goods through third countries in order to conceal their real origin.
The U.S. Department of Commerce issues orders imposing anti-dumping and countervailing (AC/CVD) duties on imports to level the playing field for domestic industries when overseas competitors receive subsidies or other benefits from their home countries.
Example of a competitor whistleblower
Notably, most qui tam whistleblowers (or “relators,” as they are called) are employees or former employees of the violator—folks with access to inside information. For example, customs fraud whistleblowers typically work or worked for the importer in question in a compliance, logistics, sourcing, supply chain, procurement, sales, or financial reporting function.
Island, however, is a prime example of an ever more present type of customs fraud whistleblower—namely, the honest importer and business competitor placed at an unfair disadvantage by a rival cheating on its tariffs. For competitor-relators like Island, False Claims Act lawsuits are a potential means of leveling the business playing field and fighting unfair competition. While generally not having access inside information, competitor-relators often do have access to market and industry intelligence, familiarity with pricing, and the ability to investigate suspected fraud through contacts in the industry.
Speak to whistleblower lawyer Mark A. Strauss
Mark A. Strauss Law PLLC, a whistleblower law firm, encourages potential customs fraud whistleblowers to contact whistleblower attorney Mark A. Strauss for a free consultation if they have information regarding the knowing evasion of import duties or tariffs, including Section 301 tariffs on Chinese goods.