We are writing to let you know about the settlement of (yet) another False Claims Act (FCA) case involving customs valuation issues.
The U.S. Attorney’s Office for the Northern District of California announced yesterday that an importer of cable assemblies, Bizlink Technology, Inc. (BTI), has paid $1.2 million to settle allegations that it violated the FCA by underpaying customs duties on merchandise it imported from China during the period 2006-2008. A copy of the USAO’s press release is available here.
The underlying complaint alleged that BTI engaged in a dual invoicing scheme that both undervalued and mis-described the imported goods so as to pay less than the full amount of customs duties and fees owed upon importation. The complaint alleges that BTI paid less than 10% of the duties and fees that were lawfully owed on the imported merchandise. The case was filed by a former employee who left the company “due to a corporate reorganization which eliminated his position.”
There are a couple of important take away’s from this case.
First, this case is part of the growing trend of private parties (e.g., former employees, competitors, etc.) increasingly turning to the FCA to address trade compliance violations by others (see string below). The combination of the financial incentives provided by the FCA (e.g., relators get a portion of the recovery; here, the relator received $252,000 as his share of the settlement), reduced resources for U.S. Customs and Border Protection/U.S. Immigration and Customs Enforcement in this area, and strong interest in prosecuting these types of cases by many local U.S. Attorney’s Offices means that this trend is going to continue to grow.
Second, since the bar for filing these cases is not high (i.e., anyone can file), all companies should make sure that they have (i) a process for employees to raise potential issues to management and (ii) a process for management to investigate and address credible issues. It is important to remember how these cases work. The relator files the case in U.S. district court under seal (i.e., the target is not made aware of the case). The government is notified and conducts an investigation. If there is merit to the allegations, the government steps in and takes over the prosecution of the case. In most situations where the government steps in, the cases settle shortly thereafter (i.e., the government gets involved in cases with merit, which then settle). The government’s investigation generally involves gathering information from the target, so, if the target can at that stage pull something out of its file that shows it was aware of the allegation, investigated it and either (a) addressed it, or (b) concluded it was unfounded, that will go along way in influencing how the government sees the case and its decision whether to step in or not. So, in short, with good internal controls, most companies will be able to protect themselves from these sorts of cases.
We hope that this is helpful. If you have any questions about this case, or if you would like to discuss the issues raised here further, please let us know.