Understanding Customs Fraud and Its Legal Consequences

The False Claims Act holds people and corporations responsible for submitting false claims to the government, including false customs declarations. To assist in preventing and prosecuting fraud, the False Claims Act allows whistleblowers, typically employees, competitors, or industry insiders, to file qui tam cases and offers these individuals up to 30% of the recovered amount as a reward. In high-value cases, this percentage can amount to millions of dollars.

Common False Claims Act violations related to customs fraud include:

• Undervaluation of goods: Importers declare a lower value for their goods in an effort to reduce the duties owed.
• Misclassification of products: Companies label products with improper Harmonized Tariff Schedule codes, which allows them to benefit from lower tariffs.
• Transshipment fraud: Products are transshipped through a third country and relabeled to conceal their true country of origin, often to circumvent anti-dumping or countervailing charges.
• False country of origin declarations: Importers provide false information to claim preferential duty treatment under free trade agreements.
• Wildlife importation fraud: These violations include illegal trade in protected and endangered species, misbranding of wildlife products, and counterfeiting of documents for evading environmental law such as the Lacey Act and the Endangered Species Act.

Under the False Claims Act, customs fraud can lead to severe financial and legal penalties, such as:

• Treble damages – Companies may be liable for triple the amount of lost revenue due to fraudulent customs declarations.
• Civil penalties – As of January 15, 2025, fines range from $14,308 to $28,619 per false claim.

For example, in U.S. v. American Dawn, Inc., a company paid $2.3 million to settle False Claims Act allegations for falsely declaring its textiles were covered under a free trade agreement that allowed for duty-free imports. The whistleblower received a substantial portion of the recovered amount.

While the False Claims Act is the most powerful law for whistleblowers, other statutes also govern customs fraud enforcement:

• The Tariff Act of 1930 (19 U.S.C. § 1592) – Prohibits false statements, omissions, and fraudulent practices related to customs declarations.
• The Enforce and Protect Act (EAPA) (19 U.S.C. § 1517) – Strengthens investigations into duty evasion, particularly for anti-dumping and countervailing duties.
• The Trade Facilitation and Trade Enforcement Act (TFTEA) (Pub. L. 114-125) – Enhances the ability of U.S. Customs and Border Protection (CBP) to combat customs fraud and imposes higher penalties.
• The Lacey Act (16 U.S.C. §§ 3371-3378) – Targets fraudulent declarations of illegally sourced timber, plants, and wildlife.
• The Anti-Dumping Act (19 U.S.C. §§ 1673 et seq.) – Prevents businesses from “dumping” goods at prices lower than their normal value and protects domestic industries by imposing import duties to offset any unfair price advantage.

Those who have inside information about customs fraud can report it to federal agencies such as CBP, the Department of Homeland Security, or the Department of Justice. Whistleblowers who want to bring a case under the False Claims Act are required to retain an attorney who has experience in qui tam litigation.

The government depends on whistleblowers to expose fraud, allowing them to recapture significant funds and deter future misconduct. To incentivize whistleblowers to come forward, the False Claim Act allows whistleblowers to share in awarded funds. Moreover, recognizing that stepping forward to expose fraud comes with significant risks, the False Claims Act provides confidentiality measures and anti-retaliation provisions to shield and protect whistleblowers.

Customs fraud creates an uneven playing field in the trade law arena. Honest companies can be pushed out of business by fraudulent actors gaining unfair price benefits through evading taxes and duties. In addition, fraudulent imports can include counterfeit or dangerous products that can inflict harm on consumers.

By enforcing customs law and calling upon whistleblowers to expose fraud, the government helps ensure fair trade practices and prevent illicit financial transactions, like money laundering, via trade. If you suspect a business has been engaging in customs fraud, the best way to defend your interests is to take action and report it.