Ninth Circuit Ruling Highlights Surge in Import Fraud Enforcement and Litigation

In a significant shift in enforcement priorities, the Department of Justice has designated trade and customs fraud as a “high-impact” enforcement priority, signaling increased criminal scrutiny for importers and their business partners. The move, announced in a May 12, 2025 memorandum titled “Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime,” represents a notable change from historical practices where such matters were typically handled by U.S. Customs and Border Protection (CBP) and the DOJ’s Civil Division.

The DOJ has simultaneously expanded its Corporate Whistleblowers Awards Pilot Program to include “trade, tariff, and customs fraud,” creating additional incentives for whistleblowers to report potential violations. These developments, coupled with a recent Ninth Circuit decision, substantially increase legal risks for companies involved in import activities.

The enforcement focus appears to target foreign companies, particularly those from China, as indicated by references to the “America First Investment Policy” in the DOJ’s memorandum. This heightened scrutiny places greater importance on trade compliance for U.S. importers of record and companies in their supply chains.

CBP has echoed this emphasis on duty evasion in recent public statements. In a May 22 press release, the agency warned that declaring incorrect values on customs forms constitutes trade evasion and pledged to “pursue any violations to the fullest extent possible.” A LinkedIn post the following day reiterated CBP’s commitment to targeting “duty evasion at every level” and punishing violators “to the fullest extent of the law.”

The enforcement landscape has been further shaped by a recent Ninth Circuit decision in the case of Island Industries Inc. v. Sigma Corporation. The case began in 2017 when Island Industries filed a sealed complaint under the False Claims Act (FCA) alleging that its competitor, Sigma, had made false statements on customs forms to avoid antidumping duties on welded outlets imported from China. Island claimed these actions deprived the U.S. government of approximately $200 million since 2004.

The FCA allows private parties, known as “relators,” to sue on behalf of the United States to recover money owed to the government through fraud. These “qui tam” actions incentivize whistleblowers by awarding them up to 30 percent of damages from successful suits. Cases are often filed under seal, meaning companies may not immediately know they are targets of an investigation.

In 2021, a jury ruled in favor of Island Industries, finding that Sigma violated the FCA by falsely declaring its imported products were not subject to antidumping duties. The court ultimately ordered Sigma to pay $24.2 million in damages and $1.8 million in civil penalties.

The Ninth Circuit’s June 23, 2025 opinion affirmed the district court’s decision and clarified several important legal questions. The court held that qui tam actions related to import transactions can proceed in U.S. district courts, rejecting Sigma’s argument that such cases must be brought exclusively in the Court of International Trade. The panel also found that the customs penalty provisions in the Tariff Act overlap with, rather than displace, the FCA.

Crucially, the court determined that importers become liable for antidumping duties as soon as foreign merchandise arrives in the United States, creating an “obligation” under the FCA at that moment, even if the exact amount is not yet determined through the liquidation process.

The court also rejected Sigma’s defense that a reasonable person could have believed no duties were owed, clarifying that the FCA may be triggered by either knowledge or subjective beliefs about fraudulent acts, regardless of what a reasonable person would have known.

These developments create a more challenging compliance environment for companies involved in importing activity. The combination of the DOJ’s criminal enforcement focus, CBP’s heightened vigilance, and the Ninth Circuit’s decision will likely lead to increased trade-related FCA investigations and litigation.

Companies both downstream and upstream from U.S. importers now face greater risks, especially given the sealed filing provisions of qui tam actions that may keep them unaware of potential liability until well into an investigation.

In response, businesses should examine and strengthen their trade compliance programs, revisit voluntary self-disclosure policies, and be prepared to engage counsel immediately if they receive inquiries from the DOJ’s Civil Frauds section or U.S. Attorneys’ Offices, which could indicate a sealed FCA action has been filed.