Importer Hit with False Claims Act Liability

Mar. 22, 2022

In the United States the False Claims Act gives whistleblowers a powerful incentive to report false claims made by companies against the United States. Namely, under the right circumstances, whistleblowers can receive between 15% and 25% of the recovery made by the United States in these actions. The recent settlement of a claim by an importer of chain saw chains and blades makes clear how importers can also be vulnerable to False Claims Act reports and highlights the value of the prior disclosures of Customs violations.

Importers of Chinese chain saw chains and blades, TriLink Saw Chain, LLC, and TriLink Global, LLC (TriLink), will pay $525,000 to resolve allegations that they violated the False Claims Act (FCA). The government alleged that from September 24, 2018, though June 10, 2019, TriLink classified imported chain saw chains and blades under inappropriate HTSUS subheadings. The government further claimed that during this period, due to TriLink’s misclassification, the appropriate Section 301 duties were not paid on merchandise.

Most importers know that misclassification of merchandise can be considered a material false statement and that Customs has statutory authority under 19 U.S.C. § 1592 to assess civil penalties for making a false statement or omission with respect to the entry of merchandise into the United States. Penalties for violations of § 1592 range from the value of the domestic merchandise to twenty percent of the dutiable value of the merchandise, depending on the level of culpability. However, this TriLink settlement arose from civil matter in an action brought under the whistleblower provisions of the False Claims Act. Under the FCA and the settlement agreement, the whistleblower in this case shares in the United States’ financial recovery.

The FCA, 31 U.S.C. §§ 3729 - 3733 provides that any person who knowingly submitted false claims to the government is liable for treble damages and penalties from $5,000 to $10,000 per violation. The FCA allows private persons to file suit for violations of the FCA on behalf of the government. A suit filed by an individual on behalf of the government is known as a “qui tam” action, and the person bringing the action is referred to as a “relator.” If the government intervenes in the qui tam action, the relator is entitled to receive between 15% to 25% of the amount recovered by the government in the case.

Importers that discover errors made in entry documents may consider filing a prior disclosure with Customs. Not only can a prior disclosure limit penalty liability for most importers to the interest on the amount of revenue lost (plus paying the lost revenue), but a prior disclosure generally will also prevent a FCA claim. On the other hand, choosing to ignore an error and continue importing with the error creates the potential that a whistleblower could report the issue.

There was no admission of liability in this case, and the claims against TriLink are only allegations. However, the FCA settlement may not be the final chapter in this case. Companies facing False Claims Act civil cases may still encounter additional legal consequences under 19 U.S.C. § 1592.  

If you have any questions concerning the classification of merchandise or related to a potential error in the information reported to Customs, do not hesitate to contact an attorney at Barnes, Richardson & Colburn LLP.