Alexis LLC (“Alexis”), a company that imports high-end womenswear from China, agreed to pay a $7.6M settlement to resolve allegations originally raised in a False Claims Act complaint filed by Whistleblower Partners attorneys and our whistleblower client. The settlement resolves allegations, as articulated in the Government’s Complaint-in-Intervention, that Alexis violated the False Claims Act by misclassifying under the Harmonized Tariff Schedule and understating the value of certain women’s apparel it imported into the U.S. during the 7-year period from 2015 through 2022.
In order to avoid paying the full amount of the customs duties and fees owed on its imported merchandise, which at one point included an additional duty known as a Section 301 tariff of 7.5% for wearing apparel from China, Alexis, the Government alleges, resorted to the tactic of double invoicing, whereby one set of invoices reflects the true price of the goods Alexis paid to its overseas garment manufacturers (the true invoice) and the second set of invoices, which is given to U.S. Customs and Border Protection (“CBP”) to calculate duties and tariffs, is an understated price that is a much smaller percent of the actual price (the false customs invoice).
The transaction value of imported goods reported to CBP must also include the value of any assists. Assists are something of value, typically materials or components, the buyer of imported merchandise provides free of charge or at a reduced cost to its foreign vendor for use in the production of the merchandise for export to the U.S. in order to lower the cost of production. The assists in this matter came in the form of fabric and garment trims Alexis provided to its overseas garment manufacturers, known as “cut, make and trim” or CMT vendors. According to the Government’s Complaint-in-Intervention, another part of Alexis’s undervaluation scheme was its failure to include the value of these assists when declaring the transaction value of its imported goods to CBP, thereby avoiding paying the full amount of customs duties and fees owed on its imported merchandise.
Of the $7.6M in settlement proceeds, $1,456,503 went to our whistleblower client as its statutory share of the recovery, also known as a whistleblower reward. The government learned of the alleged customs fraud only after Whistleblower Partners’ client filed a qui tam complaint, highlighting the vital role of whistleblowers in helping the Government to uncover these hard to detect schemes.
Whistleblower Partners attorney Mary Inman was lead counsel for the whistleblower on this case, with assistance from local counsel Jillian Estes of Morgan Verkamp. “All importers have an obligation to play by the rules and pay their fair share of the customs duties that are due. This settlement shows that the government will not tolerate the alleged shortchanging of the customs duties it is owed, which puts law-abiding American businesses at an unfair disadvantage,” said partner Mary Inman.
This settlement is a testament to the Government’s continued commitment to customs enforcement and to deterring importers’ improper efforts to avoid, conceal or reduce U.S. tariffs and customs duties. It is the latest in a long string of DOJ settlements of False Claims Act cases initiated by whistleblower insiders or competitors who have witnessed the undervaluation of a wide array of imported goods from chemicals, vitamins, bedroom furniture, cell phone cases, tools, and cashmere sweaters to cargo vans, footwear, brake pads, earrings and now high-end womenswear.
This is the third in a series of successful customs and import fraud settlements by Whistleblower Partners attorneys on behalf of their whistleblower clients. Previous settlements were an $8M False Claims Act settlement against auto parts distributor Centric Parts for allegedly knowingly misclassifying brake pads imported from Asia to avoid tariffs owed to the U.S. and a $908,100 settlement against British luxury knitwear retailer Pure Collection Ltd. and its CEO to resolve allegations they violated the False Claims Act by improperly avoiding U.S. customs duty owed on goods shipped from the United Kingdom to U.S. customers by splitting up single shipments worth more than $200, the limit below which no customs duties are owed (a limit later raised to $800), into multiple shipments of lesser value to avoid applicable duties.
When it comes to submitting customs entries to CBP, importers in the fashion industry would be wise to heed the old adage “a stitch in time saves nine.” Rather than cutting corners and inventing clever double-invoicing schemes to evade the duties they owe, clothing retailers should listen to the warnings their whistleblower employees are raising internally. Otherwise, they’re destined to lose the thread, become unraveled and expend needless time mending things after the fact. Or, to borrow yet another colorful expression from the fabric and sewing world, DOJ may just conclude, as it has in the present case, that it doesn’t like the cut of your jib.
The attorneys at Whistleblower Partners have significant experience representing qui tam relators in customs and import fraud cases. If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.
