DOJ Intensifies Use of False Claims Act to Target Customs Violations

The US Department of Justice continues to leverage the False Claims Act (FCA) to target customs violations, marking a significant shift in enforcement strategies that importers and customs brokers should closely monitor.

Recent court filings reveal an intensifying focus on customs compliance issues under the FCA, which allows for treble damages and substantial per-violation penalties. This approach represents a departure from traditional customs enforcement methods that typically involved administrative proceedings with more limited financial consequences.

In a notable development last month, the DOJ announced a settlement with an electronics distributor that agreed to pay $1.2 million to resolve allegations of evading anti-dumping and countervailing duties on Chinese-manufactured aluminum extrusions. According to federal prosecutors, the company misrepresented the country of origin on customs documentation to circumvent these trade remedies.

“This settlement demonstrates our commitment to protecting American businesses and workers from unfair trade practices,” said the US Attorney handling the case. “When importers deliberately evade legitimate duties, they not only defraud the government but also gain an illegal competitive advantage over companies that follow the rules.”

The case originated from a whistleblower complaint filed by a former employee under the FCA’s qui tam provisions, which allow private individuals to sue on behalf of the government and receive a portion of any recovery. The whistleblower in this instance will receive approximately $216,000 from the settlement.

Trade law experts note that this enforcement trend began gaining momentum during the Trump administration but has continued unabated under President Biden. The approach reflects a bipartisan consensus on taking a harder line against trade violations, particularly those involving Chinese goods subject to special tariffs or duties.

“The DOJ is increasingly viewing customs violations through the lens of fraud rather than mere regulatory non-compliance,” explained Janet Martinez, a partner at Global Trade Partners LLP who specializes in customs law. “This fundamentally changes the risk calculation for importers.”

The False Claims Act, originally enacted during the Civil War to combat defense contractor fraud, imposes liability on those who knowingly submit false claims to the government. In customs cases, the “false claim” typically involves documentation that misrepresents imported goods’ value, origin, or classification to reduce or avoid duties.

Unlike traditional customs enforcement actions handled administratively by Customs and Border Protection (CBP), FCA cases proceed through federal courts and carry potential penalties of three times the government’s losses plus penalties that can range from $12,537 to $25,076 per violation.

Industry analysts point out that the financial services sector has long dealt with FCA enforcement, but its application to customs matters represents a relatively recent development that has caught many importers by surprise.

“Many companies have robust compliance programs for areas like anti-corruption or sanctions, but customs compliance sometimes receives less attention,” said Michael Thompson, director of global trade compliance at a major multinational corporation. “The DOJ’s approach changes the stakes dramatically.”

The settlement follows several other significant customs-related FCA cases in recent years. In 2022, a furniture importer paid $5.2 million to resolve allegations it misclassified wooden bedroom furniture to avoid antidumping duties. In another case, a steel products company paid $3.3 million to settle claims it falsified country-of-origin information.

Trade associations are advising members to strengthen their customs compliance programs in response to the heightened enforcement environment. Recommended measures include conducting regular audits of customs documentation, implementing stronger supplier verification processes, and establishing clear internal reporting channels for potential compliance issues.

For companies that identify potential customs violations, voluntary disclosure programs remain available through CBP, potentially offering reduced penalties compared to those imposed through FCA actions. However, once a whistleblower has filed an FCA complaint, these disclosure programs may provide limited protection.

As global supply chains grow increasingly complex and trade tensions persist, legal experts predict the DOJ will continue to expand its use of the False Claims Act in the customs arena, targeting not only importers but potentially customs brokers and other intermediaries involved in the import process.