The False Claims Act can be radioactive
I and the other international trade lawyers at my firm will sometimes get asked by US importers about their obligations to make sure that the product they get from overseas truly comes from the country listed on the shipping documents. The short answer is that US importers are required to make sure the products they import are truly from the country listed on the import documents and a failure to fulfill this duty can lead to jail time, especially under the Trump administration.
The examples below are illustrative.
- A US importer receives an e-mail from a Chinese chemical producer/exporter seeking to get the American company to buy the Chinese company’s chemical products, which are covered by a US antidumping (“AD”) order. The Chinese producer tells the US importer not to worry about the AD duties because the Chinese company will ship the product through Taiwan and list them as Taiwan products. The importer should decline this offer because if it imports this product knowing it is from China and not Taiwan, it will be criminally liable under U.S. customs law and subject to potentially massive damages under the U.S. False Claims Act.
- A US importer suspects its Vietnamese “producer” is not actually making anything, but rather simply transshipping product that comes from the Chinese company that owns it. The company visits the Vietnam facility and it does not appear anything is actually being produced there. The US importer then decides to be the consignee of the products and not the importer of record because US antidumping laws make the importer of record liable for AD duties and not the consignee. The Vietnamese government later closes down the Vietnamese facility for transshipping Chinese products and that leads the US government to prosecute the US consignee company for conspiracy to defraud the US government to avoid AD duties. The owner of the US consignee company is found guilty and sent to prison.
Chinese companies and their US importers can have very different interests when it comes to importing product into the United States. The Chinese company wants to ship product to the US above all else and the US importer should above all else want to avoid Customs trouble and avoid liability and stay out of jail.
The US government is very serious about hunting down and prosecuting those who illegally transship products and, not surprisingly, the Trump Administration has made known its desire to vigorously pursue illegal transshipment claims.
What few realize is that there is a way for companies and individuals to profit from the illegal transshipping of others. Title 31 of the United States Code, Section 3729 (G) (commonly known as the False Claims Act) provides that any person or company that “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government” faces triple damages and an $11,000 penalty per claim.
Now here is where it gets interesting and where any of you readers can profit. Section 3730 of the False Claims Act provides a private right of action that allows anyone to sue on behalf of the US government for anyone else’s violation of section 3729. This private party merely need file a complaint and written disclosure of material evidence and information under seal in the Federal District Court to show that certain US importers and foreign producers/exporters committed fraud on the US government by transshipping products covered by antidumping and other trade orders so as to avoid the duties. This complaint and the evidence supporting the complaint are not served on the defendants. They are instead served on the US government, which has 60 days to decide whether or not to intervene in the case.
If the government decides to intervene and prosecute the action, the private party is entitled to 15 to 25 percent of any recovery. If the government decides not to prosecute the case and the private party goes forward, the private party is entitled to 25 to 30 percent of any recovery.
The remedy in a False Claims Act case is triple damages and in many AD and countervailing duty (“CVD”) cases, especially against China, the missing AD or CVD duties can be well over 100 to 300% on imports over the last 5 to 6 years. By way of example, if total annual imports from the transshipment country are over $15 million, the total damages could be close to $200 million, with the party that spurred on the claim getting 30 to 40 million dollars of the government’s recovery.
If you are doing business with a person or company using transshipments to minimize US customs duties, you could be in very big trouble and you should contact a lawyer immediately. If you are aware of such transshipments by a company with which you are not doing business, you should consider contacting a lawyer to determine whether you might profit from your information.
UPDATE: A number of companies retained our law firm on an illegal transshipping case which the defendant settled with the U.S. government for $62.5 million, of which our clients got a very nice chunk.