Ninth Circuit Ruling Paves Way for Stronger Customs Fraud Enforcement Under False Claims Act

In a landmark ruling on June 25, 2025, the Ninth Circuit Court of Appeals upheld a nearly $26 million verdict against an importer for submitting false customs declarations to avoid paying antidumping duties. This significant decision confirms that private parties can use the False Claims Act (FCA) as an enforcement tool to combat customs fraud, alongside the government’s traditionally relied-upon Tariff Act provisions.

The ruling comes at a time when tariffs have become a key policy priority for the U.S. government, opening the door to increased scrutiny of importers by private qui tam (whistleblower) relators. It also makes it substantially easier for competitors to bring cases against importers they suspect of illegally avoiding tariffs.

Under the FCA, private parties can file qui tam lawsuits on behalf of the government against entities that knowingly submit false claims for payment or make fraudulent statements to avoid financial obligations to the government. The Island Industries, Inc. v. Sigma Corp. decision specifically clarified that relators may pursue “reverse false claims” actions based on the underpayment of customs duties.

The case involved Sigma Corporation, which imported welded outlets from China between 2010 and 2018. These products were subject to antidumping duties, but Sigma declared them on customs documents as steel couplings, which aren’t subject to such duties. A competitor, Island Industries, filed a qui tam complaint alleging Sigma falsely claimed its products were exempt from antidumping duties and deliberately misclassified them.

Although the United States declined to intervene, a jury found Sigma liable under the FCA, imposing an $8 million verdict for unpaid duties. With the FCA’s treble damages and statutory penalties for each false claim, the final judgment against Sigma ballooned to nearly $26 million.

In its appeal, Sigma argued that the Tariff Act, not the FCA, should govern such disputes, that it had no “obligation” to pay antidumping duties on its products, and that it lacked the required scienter (knowledge of wrongdoing) under the FCA.

The Ninth Circuit first addressed the jurisdictional question, determining that federal courts retain jurisdiction over FCA qui tam lawsuits seeking to recover money owed to the government for false representations involving customs duties. The court concluded that while the Court of International Trade has exclusive jurisdiction over actions commenced by the United States to recover customs duties, a relator is not considered “the United States” for jurisdictional purposes.

On the substantive issues, the court held that the Tariff Act’s penalty provisions are not the sole enforcement tool to recover fraudulently avoided customs duties. The Ninth Circuit ruled that the Tariff Act and FCA may operate concurrently—with the Tariff Act enforceable only by the government, while the FCA allows private parties to file lawsuits when the government fails to act.

Regarding Sigma’s argument about having no “obligation” to pay, the court found that Sigma’s duty to properly declare and pay antidumping duties arose at the moment its imports entered the United States. Sigma’s failure to do so deprived the government of money, violating the FCA.

The Ninth Circuit also rejected Sigma’s “objective reasonableness” defense, relying on the Supreme Court’s 2023 decision in United States ex rel. Schutte v. SuperValu Inc., which established that FCA scienter is based on a defendant’s actual knowledge and belief—their “subjective point of view.” Even if the antidumping order was ambiguous, Sigma could still be liable if it acted with deliberate ignorance or reckless disregard for the truth.

Industry observers predict this ruling will usher in a new era of trade enforcement with private parties taking action against competitors in the import market. The potential for large whistleblower awards—ranging from 15% to 30% of the government’s recovery—combined with the FCA’s treble damages and penalties, creates strong financial incentives for competitors to bring qui tam actions against companies they suspect of evading tariffs.

For importers, the message is clear: they face increased FCA scrutiny from qui tam lawsuits, and they cannot avoid liability by failing to investigate their tariff obligations. Meanwhile, competitors who believe rivals are illegally avoiding tariffs now have a stronger legal pathway to take action through the FCA.

This decision’s implications extend across industries involved in international trade, potentially reshaping compliance practices and competitive dynamics in the U.S. import market for years to come.