We are writing to let you know about the settlement of a False Claims Act (FCA) case involving customs valuation issue that we first brought to your attention back in October of 2013.
The U.S. Attorney’s Office for the District of Colorado and U.S. Customs and Border Protection (CBP) announced yesterday that OtterBox, a U.S.-based importer of protective cases for smartphones, tablets, and computers, agreed to pay $4.3 million to settle allegations that it knowingly undervalued imported merchandise and underpaid customs duties. The underlying complaint alleged that from January 1, 2006 to December 31, 2011 OtterBox knowingly omitted the value of “assists” from the dutiable value declared upon entry and knowingly made other false statements in documents submitted to CBP. A copy of the press release announcing the settlement is available here.
This case is interesting for several reasons.
First, the case was brought be a former employee who was responsible for the Company’s international trade compliance. The complaint alleged that this employee brought the assist issue to management’s attention, but was ignored. The complaint followed.
Second, the case presented an interesting legal issue that had not been previously addressed – namely, whether the filing of a valid prior disclosure bars a subsequent qui tam claim filed under the FCA. Although the court did not have the opportunity to decide the issue, a sizeable settlement was reached, and approved, despite the fact that OtterBox had voluntarily disclosed the same violation to CBP almost a year before the complaint was filed. This suggests that a voluntarily self-disclosure filed after the initiation of an FCA action does not bar that action from proceeding.
Third, this settlement highlights the growing trend in prosecuting trade compliance violations under the FCA. In announcing this settlement, the U.S. Attorney stated that “Customs duties are a significant source of revenue for the United States” and this settlement demonstrated that “the Department of Justice will zealously enforce their lawful collection.” The combination of the financial incentives provided by the FCA (e.g. the private party bringing the complaint, known as the relator, is entitled to a portion of the recovery; here the relator received $830,000), reduced resources for CBP / 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. CBP appears to have been more involved in this action than in others, so it will be interesting to see if CBP devotes more resources to enforcement based on these FCA actions.
Finally, this rise of private party-initiated trade compliance actions should incentivize all companies to review their internal controls over this area and ensure that they are working effectively. Otherwise, companies may find themselves embroiled in expensive enforcement actions, like those described above and below.
We hope that this is helpful. We have significant experience advising clients on how to test (and improve, when necessary) trade-related internal controls. We also are advising several clients on how best to address potential non-compliance by competitors/others. If you have any questions, or if you would like to discuss these issues further, please let us know.