We are writing to let you know about the settlement of a False Claims Act (“FCA”) case, involving country of origin claims for products sold to the U.S. government.
Earlier this week, the U.S. Attorney’s Office for the District of Maryland announced that a U.S. division of a Korean electronics manufacturing giant agreed to pay $2.3 million to settle allegations that it knowingly provided inaccurate country of origin information to the authorized resellers of its products. This settlement stems from a qui tam suit filed in 2011 by a former employee. A copy of the USAO’s press release if available here.
The underlying complaint alleged that from 2005 to 2013, the Company caused authorized resellers to resell certain products to the U.S. government under General Service Administration (“GSA”) Multiple Award Schedule (“MAS”) contracts in violation of the Trade Agreements Act (19 U.S.C. § 2501, et. seq.) (“TAA”). More specifically, the complaint alleged that the Company knowingly provided its resellers with false certifications regarding the origin of its products (i.e., certifications that its products were made in TAA-complaint countries, when in fact many of the products were produced in non-TAA countries, such as China). The resellers relied on the Company’s certifications in making sales to the U.S. government under the MAS contracts.
There are a couple of key takeaways from this settlement.
First, this settlement underscores the Dept. of Justice’s interest in prosecuting government procurement rule of origin violations. In announcing this settlement, Assistant Attorney General Stuart F. Delery reiterated that it “upholds important trade priorities by ensuring that the United States only uses its buying power to purchase from countries that trade fairly with us.” Thus, while the FCA has evolved to address a variety of trade compliance violations, the importance of “guarding against abuse of federal procurement programs” has not fallen from the Dept. of Justice’s focus.
Second, given the increasing number of FCA-related trade cases being initiated by current/former employees (here the former employee who brought the case will be entitled to receive up to 30% of the $2.3 million), it is more important than ever that companies have documented controls over their government sales (whether direct, or indirect, as was the case). The government procurement rules of origin can be confusing (to say the least) and, if this is a meaningful part of your business, steps should be taken to ensure that the certifications are being done correctly. In addition, it is important that companies have:
(1) a reporting structure for employees to report potential trade compliance issues to management;
(2) procedures for management to review, investigate and address credible trade compliance issues; and
(3) periodic audits to review the effectiveness of the substantive controls, as well as the employee reporting and management review procedures.
With good internal controls, most companies will be able to protect themselves from these types of costly enforcement actions.
We hope this is helpful. If you have any questions, or if you would like to discuss these issues further, please let us know.