By Russell Kornblith and Shaun Rosenthal
On March 6, 2025, the U.S. temporarily exempted certain goods from Canada and Mexico from new tariffs. However, imposing and leveraging tariffs remains a key strategy of the Trump administration. To enforce compliance, the U.S. government has aggressively pursued companies that attempt to evade customs duties under the False Claims Act (FCA), including cases handled by our whistleblower lawyers. With increased scrutiny on trade violations, we anticipate a surge in customs-related FCA enforcement in the coming years.
What Is the False Claims Act?
The False Claims Act (FCA) is enforced by the Department of Justice (DOJ). It empowers a private citizen (called a “relator”) to bring a whistleblower claim (or “qui tam”) lawsuit against an individual or organization for defrauding a U.S. governmental entity.
The FCA’s qui tam provisions provide legal protections and financial incentives to whistleblowers. Whistleblowers who file lawsuits on behalf of the government can receive between 15% and 30% of the recovered amount.
In order to bring a False Claims Act case, a relator must be represented by an attorney. Most courts that have considered the issue have held that a whistleblower is not entitled to litigate a False Claims Act matter unless they are represented by an attorney (see U.S. ex rel. Mergent Servs. V. Flaherty).
The False Claims Act and Tariff Violations
Under the FCA’s “reverse” false claims provision, companies that knowingly evade paying customs duties and tariffs may be liable for civil penalties and up to treble damages and penalties. See 31 U.S.C. 3729(g).
Under customs rules and regulations, importers must declare the correct amount of duties owed to Customs and Border Protection (CBP). If a company falsely claims it owes less, it has fraudulently concealed an obligation to pay the government duties and may face FCA liability under the “reverse” false claims provision.
How Companies Evade Tariffs—and Risk FCA Liability
Common tactics companies have engaged in to avoid paying high tariffs include:
- Misclassifying Goods: Importers may misclassify products under the Harmonized Tariff Schedule (HTS) to claim a lower duty rate.
- Undervaluing Imports: Some companies intentionally underreport the value or quantity of their goods to reduce the duty owed.
- Falsifying Country of Origin: To sidestep tariffs, importers may fraudulently claim that their products originate from another country with favorable tariff treatment (e.g. claiming they originate in Malaysia, Vietnam, or Korea, instead of China). Sometimes this is accompanied by a practice known as “transshipping,” where goods transit a third country and the importer then claims they originated there (instead of where they were actually produced).
- Double Invoicing: Some companies generate two invoices, one for paying the supplier and another for reporting a lower price or quantity to CBP.
- Failure to Mark: Goods imported into the United States must, with limited exceptions, be marked with their country of origin. If they are unmarked, the Tariff Act imposes 10% marking duties.
Increased Customs Enforcement Under Trump Administration
During Trump’s first term, tariffs on Chinese goods and other imports led to heightened enforcement by U.S. Customs and Border Protection and the Department of Justice.
In October 2019, our False Claims Act lawyers filed an action on behalf of a whistleblower against International Vitamin Corporation. We alleged that the company had misclassified many imports from China as duty-free and fraudulently withheld millions of dollars in duties even after being warned that the duties were owed. On January 30, 2023, IVC admitted to the wrongdoing and agreed to pay almost $23 million—roughly double its duties liability—to settle the case. This is one of the largest settlements of an FCA case alleging customs fraud. The whistleblower was rewarded with 18% of the settlement—over $4 million.
There has been an uptick in customs-FCA resolutions in the last few years, as Bloomberg Law has reported. The number of actions nearly doubled in 2023. The upward trend should continue as the United States imposes more tariffs, and companies are forced to choose between paying the increased costs or risk being caught.
How Sanford Heisler Sharp McKnight Approaches False Claims Act Cases
Our qui tam lawyers understand that when tariffs increase, importers have an increased incentive to cheat — and whistleblowers, in turn, have an opportunity to be rewarded for doing the right thing by reporting the fraud. We approach each client’s case with the knowledge that comes from representing clients reporting fraud to a variety of government agencies.
Because customs fraud remains a priority for this administration, individuals aware of customs fraud should seek legal counsel. As FCA actions rise, whistleblowers play a crucial role in exposing fraud. If you suspect customs fraud, now is the time to come forward.
If you have questions regarding your potential whistleblower claims and qui tam actions, please fill out our online intake form to contact a whistleblower attorney at Sanford Heisler Sharp McKnight today. Our attorneys understand the complexities of fraud and what may draw regulators’ attention in the startup space.