The United States is currently at war with the People’s Republic of China – a trade war. The False Claims Act has an important role to play in this battle.
Every year foreign countries, but most particularly China, engage in a practice of “dumping” goods into the U.S. market. Generally, this occurs when a foreign country exports goods into the U.S. at a sales price below the producer’s own cost of production. Often, this takes place because the foreign manufacturer is receiving an unfair subsidy from its own country that makes the U.S. sales price extremely low. The bottom line is that Chinese manufacturers can sell goods at prices so cheap that it creates an unfair advantage and materially harms U.S. producers of the same goods.
When the government determines that U.S. domestic industries are being materially injured by this type of “dumping,” the government can impose anti-dumping duties or countervailing duties to offset the unfair advantage enjoyed by the foreign manufacturer. In plain language, this means the importer of these foreign goods must pay an extra fee in order to bring these cheap goods into the United States. The extra fee is designed to make the foreign goods more expensive so that U.S. industry can remain competitive.
As you might imagine, however, foreign manufacturers and their American-based allies come up with all kinds of schemes and artifices to evade these duties. Here are two common schemes.
First, the importer will simply mislabel the goods in the documentation presented to U.S. Customs. The importer will present an invoice, a packing list or a bill of lading that misidentifies the goods inside the cargo container. U.S. Customs does not have the time or resources to open every cargo container entering the country and compare it to the bill of lading. Crooked manufacturers and importers simply lie to U.S. Customs about what is being imported and thereby evade millions upon millions of customs duties.
Next, importers will attempt to change the “country of origin” for the goods. As an example, certain goods manufactured in China might be subject to an anti-dumping duty. The manufacturer or importer will arrange to have the goods shipped to Malaysia first, then transshipped to the United States. The importer will then list the country of origin as Malaysia, not China. This is also an artifice and a fraud not allowed by the rules and regulations that govern customs duties.
The U.S. Department of Justice, working with whistleblowers who come forward to report these types of frauds, has recovered millions of dollars from crooked importers in recent years. In 2016, for example, the U.S. Department of Justice recovered $15 million from Z Gallerie, LLC, a nationwide furniture store. According to the Department of Justice, Z Gallerie, LLC was importing certain Chinese-made wooden bedroom furniture that was subject to anti-dumping duties, but mislabeling the furniture in the paperwork presented to U.S. Customs.
Unfortunately, this type of fraud is all too common. This fraud hurts American businesses and the United States government. If you know about this type of illegal conduct at your workplace, contact one of our lawyers for a free consultation. You may be eligible to become a whistleblower under the False Claims Act and receive a reward.