This article is written by Austin Garcia
The False Claims Act: A Bulwark Against Fraud Involving Public Monies
The False Claims Act (FCA) stands as the U.S. government’s principal instrument for combating fraud perpetrated against public funds. This statute imposes stringent liability upon individuals or entities that knowingly submit, or cause to be submitted, false claims to government programs. Furthermore, the FCA’s “reverse false claims” provision extends liability to those who knowingly evade obligations to remit funds owed to the government. For importers, this often manifests through actions such as the deliberate undervaluation of goods, the misclassification of products under the Harmonized Tariff Schedule of the United States (HTSUS), or the fraudulent misrepresentation of a product’s country of origin.
Liability Under the FCA: Beyond Intent to Reckless Disregard
Liability under the FCA does not necessitate proof of explicit fraudulent intent. The statute also mandates penalties for actions undertaken with reckless disregard or deliberate ignorance of pertinent laws and regulations. Penalties are severe, encompassing treble damages and inflation-adjusted fines ranging from $14,308 to $28,619 per claim.
Escalation of FCA Investigations and Enforcement
FCA investigations have seen a dramatic surge in recent years. The Department of Justice (DOJ) reported a record number of qui tam (whistleblower) actions in 2024, with nearly 1,000 cases filed—a 37% increase over 2023 and a 60% jump compared to 2019. Government-initiated investigations have also risen significantly, reaching 423 cases in 2024, nearly tripling the number from five years prior. Concurrent with this increase in investigations, financial recoveries have also risen, with nearly $3 billion collected in 2024 settlements and judgments, up from $2.8 billion in 2023.
Broad Scope of FCA Enforcement Across Government Funds
While many FCA investigations center on federal healthcare programs, such as Medicare and Medicaid, or government procurements, the statute’s purview is extensive. The U.S. Supreme Court, in Wisconsin Bell, Inc. v. United States ex rel. Heath, affirmed that the FCA applies to any government funds, even if the government provides only a fraction of the funds or disburses them through an intermediary.
Heightened Scrutiny of Customs Violations Under the FCA
Customs violations are increasingly subject to FCA enforcement. Notable cases include a $23 million settlement by International Vitamins Corporation in 2023 for misclassifying products under the HTSUS, and a $22 million settlement by Linde GmbH for misrepresenting imported construction supplies and their tariff eligibility under free trade agreements. Toyo Ink Manufacturing Co. Ltd. paid $45 million to resolve allegations of falsifying country-of-origin documents to evade antidumping and countervailing duties.
Critical Compliance Risks for Importers Under Enhanced Scrutiny
Importers must exercise reasonable care and recognize the enhanced scrutiny of customs duties and tariffs under the FCA. Specific areas of concern include:
- Misclassifying goods: Deliberately altering classification to reduce tariffs or avoid coverage under specific tariffs, including those on aluminum and steel products.
- Declaring a false country of origin: Falsely claiming goods are from a different country to circumvent tariffs, such as those imposed on imports from China, Canada, or Mexico.
- Non-payment of antidumping or countervailing duties: Failing to pay tariffs designed to counteract unfair trade practices.
- Understating the value of goods: Reporting a diminished value to reduce owed duties.
- Excluding assists or royalties: Omitting production aids or royalties from the declared value, which are legally required to be included.
- Avoiding customs transfer pricing studies: Failing to substantiate the accuracy of the declared value of goods from an affiliated company, which can lead to undervaluation.
- Neglecting past errors: Failing to rectify similar prior entries, pay owed duties, and utilize the Post-Summary Corrections Process when Customs identifies an error (e.g., through a Form 28 or 29).
Mandatory Proactive Compliance in a High-Tariff Environment
Given the increasingly intricate tariff landscape and intensified enforcement measures, importers must prioritize customs compliance. Enhanced compliance efforts are now mandatory. Taking proactive measures to ensure accurate tariff payments mitigates the risk of customs penalties and the potential for qui tam lawsuits. In the current environment, rigorous compliance must be an indispensable component of every importer’s risk management strategy. The complexity of tariffs demands enhanced compliance efforts and reasonable care on the part of importers to avoid penalties under the FCA.
Tariff Compliance: Navigate the Complexities with Tradeflex Group
In today’s multifaceted and high-tariff global trade environment, maintaining proactive and rigorous compliance is essential to avoid financial and legal repercussions. At Tradeflex Group, we not only help importers navigate complex tariff landscapes but also ensure adherence to critical regulations such as the False Claims Act. Our expert team and advanced regulatory intelligence provide tailored guidance, ensuring precise payments and safeguarding against costly penalties or violations. By integrating compliance into your overall risk management strategy, Tradeflex Group equips your business to thrive in an ever-evolving climate.
