In Brief
Customs fraud continues to be a significant concern as U.S. imports reach record levels. In 2022 alone, $3 trillion in goods entered the country, creating ample opportunity for undervaluation, misclassification, and other fraudulent practices. Whistleblowers played a critical role in uncovering these violations, helping the government recover millions while enforcing the False Claims Act. High-profile cases demonstrate that reporting fraudulent import activity can yield substantial recoveries and reinforce fair trade enforcement.
As we move into 2023, customs fraud remains an issue that the U.S. combats every single year. With the total import value of goods continuing to rise on a yearly basis, the unfortunate reality remains that opportunity for fraud still exists.
Customs Fraud, Recent History
According to the U.S. Customs and Border Protection, between fiscal years 2018 to 2022, with the sole exception of FY 2020, annual total import value for goods increased every year, from FY 2018’s $2.64 trillion to FY 2022’s $3.35 trillion. As the world slowly recovers from the global pandemic, imports are back on the rise as well, and in 2022, a total of $3 trillion dollars in goods were imported into the United States, compared to $2.83 trillion in 2021, and $2.33 trillion in 2020.
Whistleblowers Play a Critical Role
With such rising numbers and potential for customs fraud, it becomes more important than ever for whistleblowers to step forward and identify fraud where they see it. As CBP themselves stated, “Trade enforcement is a priority for CBP,” and by enforcing trade laws, it aims to “protect a fair and competitive trade environment [that] is vital to facilitating lawful trade.”
Looking back at 2022, the year saw multiple major customs fraud cases reach a resolution—all of which brought forth by whistleblowers—that ultimately led to major recoveries for the government.
Notable cases include:
- U.S. v. Sono International LLC, where two companies took part in a scheme in which they gave the Department of Defense Chinese-made containers despite an agreement to provide American-made materials or materials made by allied countries ($904,000 recovery)
- U.S. v. Luchiano Visconti Loutie LLC, where a menswear company significantly underreported the value of goods by manipulating and modifying invoices ($3.64 million recovery)
- U.S. v. Eos Energy Storage, where a battery company failed to declare the value of the components that it provided to an overseas manufacturer and also failed to declare transportation and packing costs on over 60 occasions ($1.02 million recovery)
- U.S. v. Ellab Inc., where a thermal validation equipment company classified all of its products under one code with a lower rate of duty under the Harmonized Tariff Schedule to avoid paying higher tariffs ($728,910 recovery)
- U.S. v. United Silica Products Inc., where United Silica Products took part in a “double invoicing” scheme where the manufacturer generated two sets of invoices for USP, one set that showed the actual amount paid by USP for the merchandise, and another invoice that fraudulently undervalued the products to be utilized in customs declarations ($555,000 recovery).
Conduct such as underreporting the value of imported goods or misclassification of imported products constitutes customs fraud and is in violation of the False Claims Act. These cases above highlight the importance for whistleblowers to speak up and report fraudulent activity when they observe companies evade customs and tariffs.
As imports rise, fraud still remains, but whistleblowers can help us correct the path as much as we can.
Sanford Heisler Sharp McKnight consists of experienced and passionate attorneys with extensive experience representing whistleblowers trying to expose fraud, such as these customs fraud cases. We advocate for whistleblowers and provide our support and counsel as they navigate through the complicated process. Contact us to learn more.
Key Takeaways
- Rising imports, rising risk: With U.S. imports increasing annually, fraud opportunities also grow. Underreporting, double invoicing, and misclassification remain common tactics.
- Major 2022 recoveries: Notable cases include Sono International ($904,000), Luchiano Visconti Loutie ($3.64 million), Eos Energy Storage ($1.02 million), Ellab Inc. ($728,910), and United Silica Products ($555,000).
- Whistleblower impact: All of these recoveries stemmed from whistleblower reports, highlighting the importance of third-party enforcement in customs law.
- Legal framework: Under the False Claims Act, knowingly misreporting the value or classification of imported goods constitutes actionable fraud.
- Practical advice: Individuals with knowledge of fraudulent customs practices should contact an experienced qui tam attorney to explore reporting options, protections, and potential rewards.
