The Whistleblower & Anti-Fraud Blog
Former Yakima employee to receive $500k False Claims Act whistleblower reward.
Yakima Products, a maker of automobile accessories such as hitches and roof racks, will pay $3 million to resolve a whistleblower lawsuit alleging it knowingly underdeclared its customs duties and misdeclared the country-of-origin of its imports.
The qui tam whistleblower, a former director of operations at Yakima, filed the False Claims Act lawsuit on behalf of the U.S. government, which intervened in the case. He will receive 17% of the recovery—or more than $500,000—as a reward, and $75,000 in attorney’s fees to be paid by Yakima, according to the U.S. Department of Justice.
Falsely certified review
Yakima routinely imports extruded aluminum components from China to make its products. That merchandise is subject to antidumping and countervailing duties—trade remedies, known as AD/CVDs, which protect U.S. manufacturers from unfair competition by foreign manufacturers exporting products to the United States at below fair value.
While importers are required to declare and pay all their import-duty obligations—including any applicable AD/CVDs—on their customs entry documents, Yakima failed to do so for more than six years, according to the whistleblower lawsuit.
Yakima allegedly discovered this customs-compliance lapse while conducting a “Prior Disclosure” review but allegedly failed to inform U.S. Customs and Border Protection of it as required. Instead, it allegedly falsely certified to CBP that its review was complete without including the unpaid AD/CVD duties.
Under CBP’s “Prior Disclosure” procedure, importers who self-report customs violations can have otherwise applicable penalties reduced or eliminated.
Transshipment & COO fraud
In addition to failing to pay AD/CVD duties, Yakima allegedly evaded Section 301 tariffs, which apply to a broad swath of Chinese-made goods and involve additional import duties of up to 25%.
Yakima allegedly transshipped Chinese-manufactured merchandise through Taiwan before importing it into the United States. It then allegedly misdeclared their country of origin or “COO” as Taiwan on customs entry documents, despite that only “light assembly and packaging” occurred in Taiwan rather than the “substantial transformation” required to change the COO from China to Taiwan.
As covered previously in this blog, importers frequently conduct minor processing or finishing operations in third countries as a pretext for misdeclaring the COOs of their merchandise and thereby evading or paying less in duties or tariffs. Transshipment/false COO schemes to evade Section 301 tariffs on Chinese goods are common, with Vietnam, Thailand, Malaysia and Taiwan being significant “hubs” for the transshipment.
In the Yakima case, the whistleblower alleged that the company concocted its Taiwan-transshipment/false-COO scheme immediately after the Section 301 tariffs took effect, despite making no material changes to its supply-chain arrangements. The whistleblower discovered the fraud in the course of his employment when he observed the operations of the relevant plants in China and Taiwan, he alleged.
Customs fraud & the False Claims Act
Customs fraud violates the False Claims Act, a federal statute under which parties that knowingly overcharge or underpay the U.S. government or its agencies can be sued and held liable for “trebled” or three times the government’s damages, plus penalties. Under the Act’s whistleblower or qui tam provisions, individuals and other private parties with evidence of violations can bring lawsuits on the government’s behalf and receive 15%-30% of the proceeds of the case as a reward.
The Justice Department has the right to intervene in and undertake the prosecution of the matter.
While import duties and tariffs are among the most significant sources of government revenue, fraud by importers is understood to be rampant, and fighting customs fraud is a high priority of the Justice Department. Given because it is impossible for CBP to monitor the compliance of each customs entry, parties with evidence of customs fraud are strongly encouraged to step forward and become False Claims Act whistleblowers.
Customs-fraud whistleblower cases generally involve the undervaluation of the goods being imported, typically through the use of false or fabricated commercial invoices. But customs whistleblowers also frequently expose other types of misconduct, including the knowing use of incorrect harmonized tariff schedule or “HTS” classifications, misdeclared COOs, or undisclosed “related party” relationships between importers and their foreign sellers.
To avoid detection, importers cheating on their customs duties often operate through undercapitalized shell or front companies rather than transacting in their own names. Their schemes often aim to skirt AD/CVD duties or Section 301 tariffs, which carry the highest duty rates.
Contact a customs-fraud whistleblower attorney
If you are aware of an importer knowingly evading customs tariffs or duties, it is imperative to talk with an experienced customs-fraud whistleblower attorney about your rights as a potential False Claims Act whistleblower. Merely reporting customs fraud to CBP will not entitle you to a False Claims Act whistleblower reward. You must file a qui tam lawsuit, which requires that you be represented by legal counsel.
Reach out to experienced customs-fraud whistleblower lawyer Mark A. Strauss for a free and confidential consultation. All communications are protected by the attorney-client privilege.