DOJ Settles False Claim Lawsuits Sparked by Whistleblowers

Aug. 23, 2022
By: Chaney A. Finn

The U.S. Department of Justice (DOJ) reached settlement agreements with two importers it accused of defrauding the U.S. by falsely underreporting the value of imports to Customs and thereby evading the payment of legally owed import duties. The settlements resolve the claims against both importers. Importantly, both cases arose because of the actions of whistleblowers within the companies reporting the activity to Customs.

The first case involved a Turkish menswear designer, Luchiano Visconti, whose manager responsible for managing importation and Customs entries used Microsoft Excel spreadsheets to recreate suppliers’ invoices and display a lower price than the actual transaction on imported shipments from December 2013 through August 2019. These invoices with lower-than-actually-paid prices were provided to the Customs Broker to be used for value reporting purposes. Since import duty is based on the entered value of the merchandise, declaring a lower entered value to Customs allowed Luchiano Visconti to avoid paying approximately $1.8 million in import duty.

However, the scheme costs the company $3.64 million to settle the allegations after a whistleblower exposed the company's practices. As part of the settlement, Luchiano Visconti management and the manager, Sasha Hourizadeh, made admissions regarding their conduct of significantly underreporting the actual value of imported menswear on entry documents filed with CBP and routinely underpaid customs duties on the menswear.

The second case involved industrial battery designer and seller, Eos Energy Storage, LLC (EOS), which avoided paying import duties from July 8, 2018 through June 7, 2019 by not declaring assists that were subject to duty. An import includes an assist when an importer provides items directly or indirectly, free or at a reduced cost, for use in the production or sale of merchandise imported into the U.S. EOS purchased battery components from a third party and provided them to the foreign manufacturer to be used in the production of the batteries and imported into the U.S. without declaring the value of components it provided to the foreign manufacturer.

Additionally, EOS failed to declare the cost of packing and transportation of the components to the foreign manufacturer which are also subject to being determined as an assist. EOS failed to declare these assists on over 60 imports which was discovered after being brought forth by another whistleblower. EOS agreed to a $1.02 million settlement, 20% of which goes to the whistleblower under the False Claims Act which allows private parties to share in a portion of the government’s recovery.

Importers evaluating the “risk” of non-compliance should always remain cognizant of the fact that Customs investigations are not the only means by which non-compliant behavior can be uncovered. The whistleblower statute creates a significant opportunity for company employees to share in any recovery derived from the information they pass to the government. This means that companies must ensure that there are appropriate means to report compliance concerns and evaluate and address such concerns.

If you have any questions or would like more information about ensuring compliance concerns are addressed, assists, or import duty, do not hesitate to contact any attorney at Barnes, Richardson & Colburn, LLP.