Ensure a Fairer Marketplace by Partnering With Our Customs and Trade Fraud Attorneys

Customs and trade fraud occurs when importers avoid paying duties on goods imported into the United States, or when companies or individuals unlawfully export controlled goods, technology, or services without the required licenses or authorizations. Because these violations can be difficult to identify, whistleblowers with insider information often prove crucial in exposing them.

• Common methods of customs fraud include undervaluing goods, misrepresenting country of origin, misclassifying products, and splitting shipments.
• Export control violations include unlicensed exports of controlled goods or technology, exports to sanctioned countries or parties, and falsifying export documentation.
• Whistleblowers can file lawsuits under the False Claims Act, report customs fraud directly to Customs and Border Protection (CBP) via the e-Allegations system, or report export control violations to the DOJ Criminal Division Corporate Whistleblower Awards Pilot Program.
• Anyone with knowledge of customs, trade, and export control fraud, including employees of importers/exporters or competitors, can report fraud and potentially earn financial rewards.

If you have witnessed or discovered customs, trade, or export control fraud, you do not have to stand up for justice on your own. Reach out to our experienced attorneys at Whistleblower Partners LLP for comprehensive guidance on how to blow the whistle on these illegal practices.

Understanding Customs, Trade, and Export Control Fraud

Goods imported into the United States from other countries are subject to customs tariffs (also known as “duties”). The duty amount an importer has to pay when importing a good depends on the type of product and its country of origin.

Customs and trade fraud exposes U.S. companies to unfair competition by giving dishonest importers a pricing advantage over their law-abiding competitors. Customs and trade fraud also cheats U.S. taxpayers out of much-needed revenue owed to their government.

The United States Customs and Border Protection (CBP), the federal agency responsible for collecting customs duties, works hard to stop customs and trade fraud. But customs and trade fraud can be very hard to detect. CBP processes tens of millions of import entries each year, with trillions of dollars of reported value. What’s more, the customs process effectively operates as an honor system. That leaves a lot of room for unscrupulous importers to cheat.

Export control violations pose a different but equally serious threat. Federal export control laws, including the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR), restrict the export of certain goods, software, and technology that could be used for military purposes or that pose national security risks. Violations can involve exporting controlled items without required licenses, exporting to sanctioned countries or prohibited end users, falsifying export documentation, or using front companies to disguise the ultimate destination or end use of controlled goods. These violations can have serious national security consequences and are an active enforcement priority for the Department of Justice, the Department of Commerce, and the Department of State.

That’s why the government encourages whistleblowers to come forward to report customs, trade and export control fraud. Whistleblowers who do so by filing a False Claims Act lawsuit can obtain rewards that range from 15 to 30 percent of the money the government collects. Whistleblowers who report export control violations through the DOJ Criminal Division Corporate Whistleblower Awards Pilot Program may also be eligible for a financial award. Well-placed whistleblowers who have brought successful cases have received millions of dollars for their efforts.

What Kinds of Customs, Trade, and Export Control Violations Can Whistleblowers Report?

Some of the most common kinds of customs and trade fraud include:

• Undervaluing imported goods. The most common type of customs and trade fraud is the undervaluation of imported goods. Most customs duties are charged on an ad valorem basis, meaning they are calculated as a percentage of a good’s value. There are many ways importers may improperly undervalue goods.
  • First, importers may falsify the quantity or price of goods. Such cases often involve “double invoicing,” in which an importer has one invoice with lower values that the importer presents to CBP to calculate duties, and a second invoice with higher values that the importer uses to pay the overseas seller. If an importer conspires with an overseas seller to create fake or altered invoices, both the importer and the seller may be liable.
  • Second, importers may undervalue goods bought from related parties by failing to set sales prices at arm’s length. Even when a U.S. importer and an overseas seller are under common control or part of the same corporate group, they must value a good based on an objective, market-based sales price. An importer unlawfully undervalues a good by basing it on the price paid to a related overseas seller that is not set at arm’s length.
  • Third, importers may make improper claims under the “first sale rule,” which applies to certain multi-tiered transactions. The rule generally allows the value of a good to be based on the lower-priced sale of the good from the overseas manufacturer to an overseas middleman or vendor, rather than the higher-priced sale from the overseas middleman or vendor to the U.S. importer. To use the lower first sale value, though, the first sale rule requires that importers meet several strict conditions. Importers may not use the first sale value to undervalue goods when a transaction does not meet the required conditions.
• Misrepresenting the country of origin of imported goods. The country in which a good is made or grown determines whether the good may be imported into the U.S., the normal duty rate applied to it, and whether any additional trade-remedy duties, like anti-dumping duties (ADD), countervailing duties (CVD), and Section 301 or Section 232 duties, apply. All imported goods are “marked” to indicate their country of origin. Unscrupulous importers misrepresent the country of origin of goods to evade duty payments in a few ways.
  • First, importers may simply mislabel goods, either by marking the wrong country of origin in documentation provided to CBP, applying fraudulent country of origin labels on the goods themselves, or both.
  • Second, bad actors may engage in “transshipping” goods to misrepresent their country of origin. “Transshipping” means deliberately shipping goods from their actual country of origin to a second country before the goods arrive in the United States, and then misrepresenting the second country as the country of origin.
  • Third, importers may “structure” the country of origin of a good by moving immaterial or non-value-added parts of the supply chain from one country into a second country, and then claiming the good’s country of origin is the second country.
• Misclassifying imported goods. The U.S. government uses the Harmonized Tariff Schedule (HTS) to classify every good imported from abroad. The duty rate for a good depends on its HTS code, as well as the good’s country of origin.  Dishonest importers may “misclassify” or falsely describe a product to evade the duty amount owed.
• Splitting shipments. Imported goods that are valued below a certain amount are not subject to customs duties. Dishonest importers may “structure” or split a single shipment of goods into multiple shipments to stay below the dollar threshold, improperly avoiding customs duties.

Export control violations that whistleblowers can report include:

• Unlicensed exports of controlled goods or technology. The EAR and ITAR restrict the export of a wide range of items (including dual-use goods, defense articles, and sensitive technologies) without the required export licenses. Companies and individuals that export controlled items without obtaining required licenses, or that obtain licenses through false or misleading applications, violate federal export control laws.
• Exports to sanctioned countries or prohibited end users. Export control laws prohibit exports to certain countries, entities, and individuals that have been designated as posing national security or foreign policy risks. Violations can include direct exports to prohibited destinations, as well as indirect exports routed through third countries to obscure the true end user or end use.
• Falsification of export documentation. Exporters may falsify shipping documents, end-user certificates, or other export records to conceal the true nature, destination, or end use of controlled goods. This is especially problematic when the true destination would trigger licensing requirements or outright prohibitions.
• Use of front companies and transshipment schemes. Bad actors may use networks of front companies or transshipment hubs to disguise the ultimate destination of controlled goods, making it appear that exports are going to permitted countries or end users when in fact they are destined for sanctioned or prohibited parties.

Can a Whistleblower Get an Award For Exposing Customs, Trade, and Export Control Fraud?

Customs fraud violates the False Claims Act. An importer or exporter who knowingly fails to pay customs duties may be liable for making false statements to avoid or decrease payments it owes to the government. The False Claims Act exposes importers or exporters to liability for three times the actual amount of the fraud, plus penalties for every individual false claim or statement.

Whistleblowers who file a False Claims Act lawsuit can obtain rewards that range from 15 to 30 percent of the money the government collects. Well-placed whistleblowers who have brought successful cases to stop customs and trade fraud have received millions of dollars for their efforts.

Whistleblowers also can report customs and trade fraud directly to CBP via a so-called Moiety claim by using e-Allegations, CBP’s online trade violation reporting system. Unfortunately, CBP cannot pay a whistleblower more than $250,000 for a Moiety claim. By contrast, there is no limit on the amount of the award a whistleblower who reports customs and trade fraud may receive under the False Claims Act.

Whistleblowers with knowledge of export control violations may also be eligible for a financial award through the DOJ Criminal Division Corporate Whistleblower Awards Pilot Program, launched in August 2024. The DOJ program covers, among other things, trade, tariff, customs, and export control violations. Under the program, whistleblowers may receive a discretionary award based on a percentage of any forfeiture exceeding $1 million imposed as part of a criminal penalty.

Who Can Blow the Whistle on Customs and Trade Fraud?

Whistleblowers who know of customs and trade fraud, anywhere in the world, can be whistleblowers and may be eligible for an award. That includes employees of importers and exporters, who often have information and evidence of these violations that could lead to a claim and financial reward under the False Claims Act or the DOJ Corporate Whistleblower Awards Pilot Program.

It also includes businesses that know of fraudulent conduct by their competitors. Successful False Claims Act cases involving customs and trade fraud are often brought by companies to stop unscrupulous competitors who break the law to get an unfair business advantage. Honest companies that expose these violations by their competitors not only help to level the playing field but also earn a substantial award that goes directly to their bottom line.

Whistleblower Partners are Experienced Fraud Attorneys with a Strong Track Record in Customs, Trade, and Export Control Cases

The attorneys at Whistleblower Partners have deep experience representing whistleblowers exposing customs, trade, and export control fraud. Our clients have successfully exposed duty misclassification, duty evasion through structuring, double invoicing schemes, and more. And we are handling many other confidential matters that allege the other customs and trade fraud schemes described above.

We are False Claims Act experts. But we also have technical expertise with customs, trade, and export control requirements. And we have strong working relationships with government enforcers who investigate and prosecute these violations through the False Claims Act or through the DOJ Criminal Division Corporate Whistleblower Awards Pilot Program.

Representative Cases

• Centric: Whistleblower Partners’ attorneys represented a whistleblower who reported a long-running scheme by his former employer to misclassify brake pads imported from Asia to avoid duties, resulting in an $8 million settlement.
• Pure Collection: Whistleblower Partners’ attorneys represented a whistleblower who reported that his former employer routinely split US-bound orders into separate shipments to avoid duties by artificially keeping the shipment value below a dollar threshold. The company and its CEO paid $908,000, and the whistleblower received 18 percent of that settlement as a reward.
• Alexis LLC: Whistleblower Partners’ attorneys represented a whistleblower in a $7.6 million False Claims Act settlement against luxury womenswear importer Alexis LLC, in which the government intervened and settled claims that Alexis had knowingly underreported the value of its garments.

If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.