Ninth Circuit Rules Against Importer in False Claims Act Case Over Antidumping Duty Evasion

In a significant ruling that could reshape import compliance practices, the Ninth Circuit Court of Appeals has delivered a decisive blow to an importer in a False Claims Act (FCA) case centered on the deliberate evasion of antidumping duties.

The court’s decision highlights the increasingly aggressive stance federal authorities are taking against duty evasion tactics, sending a clear message to importers that knowingly avoiding trade remedies carries substantial legal risks.

The case, which involves allegations that the importer intentionally misclassified goods to circumvent antidumping duties, underscores the government’s expanding use of the False Claims Act as an enforcement mechanism in customs matters. Legal experts note this represents a concerning trend for importers who may face not only traditional customs penalties but also the FCA’s potentially ruinous treble damages and per-violation penalties.

“This ruling significantly raises the stakes for importers,” said Daniel Wendt, a trade compliance attorney not involved in the case. “The Ninth Circuit is effectively saying that willful blindness to duty obligations can constitute fraud under the FCA, which dramatically expands potential liability.”

Antidumping duties, designed to protect domestic industries from unfairly priced foreign imports, have become a focal point in U.S. trade enforcement in recent years. These duties are particularly prevalent in sectors such as steel, aluminum, solar panels, and various consumer goods, where the Commerce Department has determined that foreign producers are selling products at less than fair value.

The importer in this case reportedly engaged in a pattern of misclassifying merchandise under Harmonized Tariff Schedule codes not subject to antidumping orders, despite having knowledge that the goods should have been properly classified under categories carrying substantial duty rates.

Court documents revealed internal communications suggesting company executives were aware of the proper classifications but deliberately chose alternative codes to avoid the financial impact of the duties, which in some cases exceeded 200 percent of the merchandise value.

The Ninth Circuit was particularly critical of what it described as “knowing avoidance” – a legal standard that doesn’t require direct proof of fraudulent intent but can be established through evidence that a party deliberately avoided learning facts that would confirm suspicions of wrongdoing.

This standard is particularly significant for importers who rely on third-party customs brokers or foreign suppliers for classification guidance, as it suggests companies cannot shield themselves from liability by claiming they were unaware of proper classifications if evidence shows they avoided investigating suspicions.

Trade data indicates that antidumping and countervailing duty evasion costs the U.S. government billions in revenue annually. Customs and Border Protection has increased enforcement efforts through initiatives like the Enforce and Protect Act (EAPA) investigations, but the addition of FCA cases represents a powerful new enforcement approach.

The False Claims Act, originally enacted during the Civil War to combat defense contractor fraud, allows for private whistleblowers to bring suits on behalf of the government and share in any recovery. These “qui tam” provisions create powerful incentives for insiders with knowledge of duty evasion to come forward, potentially turning employees, competitors, or business partners into enforcers.

Industry associations representing importers have expressed concern about the ruling, arguing that tariff classification is often subjective and that applying FCA standards to these determinations creates unreasonable compliance burdens.

“There’s a significant difference between negligent misclassification and fraud,” said Catherine Miller, president of the American Import Association. “This ruling risks blurring that line in ways that could criminalize good-faith disagreements about proper classification.”

For businesses involved in international trade, the ruling signals an urgent need to review compliance programs, particularly regarding product classification and country of origin determinations. Legal advisors recommend implementing robust documentation practices, regular training, and potentially seeking binding rulings from customs authorities on questionable classifications.

The case now returns to the district court for further proceedings, but the Ninth Circuit’s clear stance suggests the importer faces significant legal challenges ahead, with potential financial penalties that could reach into the millions.