On February 1, 2025, President Trump imposed 25% tariffs on most imports from Canada and Mexico, as well as 10% tariffs on Canadian energy products and imports from China. The primary immediate impact of the new tariffs will be to increase the cost of importing products from these three countries. However, importers also should be mindful of potential enforcement risk should they take steps to circumvent the newly heightened duty rates.
One of the most significant enforcement vehicles the U.S. government may rely upon to pursue companies and individuals that attempt to circumvent the new tariffs is the False Claims Act (“FCA”), which prohibits the knowing and improper avoidance of any obligation to pay money to the federal government. The FCA is a powerful tool in the federal government’s arsenal, as it allows for treble damages (plus penalties) for proven violations and can be enforced not only by the Department of Justice (“DOJ”) but also by private whistleblowers (called relators) who are incentivized by awards of up to 30% of any proceeds their suits generate. Given the heightened duties that just were announced—and the Trump Administration’s focus on tariffs—customs fraud may become a new frontier for FCA enforcement and litigation.
Overview of Tariffs & Customs Duties
Tariffs are taxes levied on imports. Tariffs increase the duty rate that must be paid on an import, which is calculated as a percentage of the value of the item. For example, an importer seeking to import an item into the United States with a value of $100 where the duty rate is 10% must pay $10 in duties to the U.S. government; if a new tariff increases the duty rate to 30%, the duties are increased to $30. Where duties are owed, they are paid to U.S. Customs and Border Protection (“CBP”), the agency within the U.S. Department of Homeland Security primarily responsible for administering U.S. customs laws and regulations.
The new duties announced on February 1 are in addition to any existing duties, such as those already imposed on Chinese goods during the first Trump Administration. The heightened duty rates mean that parties seeking to import Canadian-, Mexican-, or Chinese-origin products into the United States will have to pay more duties (increasing the cost of importing goods from these three countries).
Historically, both DOJ and CBP have brought enforcement actions against parties who have sought to evade payment of duties. For example, importers who attempt to conceal the true country of origin of merchandise (e.g., through mislabeling) may face civil liability under the Tariff Act of 1930, as well as criminal liability under a range of statutes, such as 18 U.S.C. § 541 (Entry of goods falsely classified); 18 U.S.C. § 542 (Entry of goods by means of false statements); 18 U.S.C. § 545 (Smuggling goods into the United States); and more traditional criminal laws (such as conspiracy or wire/mail fraud statutes). DOJ also has pursued such cases under the FCA over the years, but enforcement activity in this area has—until now—comprised only a small percentage of DOJ’s FCA docket.
FCA Claims Based on Customs Fraud
Although the FCA is most commonly thought of as prohibiting the knowing submission of false claims for payment to the government—for example, if a health care provider submits a claim to Medicare or Medicaid for services not provided—31 U.S.C. § 3729(a)(1)(G) also imposes FCA liability when a person or company “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government” or knowingly makes a false record or statement material to such an obligation. Thus, if duties are owed to the U.S. government, and a company knowingly avoids paying such duties—i.e., through mislabeling or other conduct—there is a basis for the government or a third-party relator to bring an FCA claim (potentially in addition to other claims or charges).
Several import-related FCA actions have been brought (or resolved via settlement) in recent years, including:
- In 2020, a multinational engineering company paid $22 million to settle an FCA suit alleging false statements on natural gas and chemical manufacturing imports.
- In 2015, three importers paid more than $3 million to resolve allegations that they violated the FCA by making false statements to CBP in order to avoid paying antidumping and countervailing duties on Chinese-made aluminum imports.
- In 2012, a Japanese company paid $45 million to resolve FCA allegations for knowingly misrepresenting the country in which certain goods originated in order to avoid heightened duties.
The government also filed two suits in 2024, including one against an individual, alleging similar violations.
Customs Fraud in the Spotlight as Trump Administration Looks for New Ways to Deploy the FCA
The Trump Administration has already signaled that it intends to use the FCA (and its threat of treble damages, plus penalties) aggressively. For example, in a much discussed January 21 Executive Order targeting diversity, equity and inclusion (“DEI”) programs, the Administration laid the groundwork for FCA enforcement in this area, including by directing that all federal agencies include in their contracts a provision stating that compliance with federal anti-discrimination laws is material to government payment decisions. See 31 U.S.C. § 3729; Universal Health Servs. v. U.S. ex rel. Escobar, 579 U.S. 176 (2016) (discussing the FCA’s materiality requirement); see also Ropes & Gray Alert discussing this Executive Order.
Although talk of FCA enforcement in the tariff avoidance space has been more muted, there is reason to think a marked increase in such enforcement is on the horizon. Just last week, DOJ Deputy Assistant Attorney General (and former Civil Fraud Section Director) Michael Granston, in his prepared remarks at an FCA-focused conference, made a point of reminding attendees that the FCA is a powerful tool in the government’s arsenal for combating evasion of customs duties owed to the U.S. government.
Given that many in that audience were attorneys from the relators’ bar—meaning they bring FCA qui tam actions on behalf of whistleblowers—Deputy Assistant Attorney General Granston’s remarks read as a direct invitation to these plaintiffs’ lawyers to seek out and bring FCA claims based on customs duty evasion.
That DOJ put a deliberate spotlight on customs fraud in a room full of plaintiffs’ attorneys is significant. The Administration’s hiring freeze and its other actions aimed at decreasing the size of the federal workforce may result in a DOJ that finds itself short-staffed in the coming years. But the effect of such downsizing is more muted in the FCA context. Under the statute, relators and their lawyers can continue to pursue FCA claims even if the government declines to intervene. See 31 U.S.C. § 3730(b)(4)(B). As a result, companies may face an ever increasing number of FCA claims premised on (actual, suspected, or speculative) efforts to evade the sweeping new tariffs and the corresponding substantial costs they impose on international supply chains. Even if the claimed customs fraud is unsupported, defendants may need to engage in motions practice to eliminate specious whistleblower claims. As discussed in a prior Alert, a federal judge in Florida recently held that qui tam enforcement of the FCA is unconstitutional. But until and unless that ruling survives an appeal to the Eleventh Circuit or is adopted by the Supreme Court, enforcement actions brought by whistleblowers remain a significant risk in this area.
Given the likelihood of increased enforcement, as well as the potential implementation of even more tariffs by the Trump Administration, companies should carefully scrutinize their import policies and procedures to ensure they are adhering to all applicable laws. Companies also should make sure that they have appropriate avenues through which internal and external parties can bring confidential reports to the company’s attention to be addressed. Proper attention to any compliance concerns raised internally may help prevent an internal complaint from mushrooming into a qui tam suit. And, if it does—and a company finds itself on the receiving end of an FCA-focused Civil Investigative Demand (“CID”) from DOJ or is served with a qui tam complaint in a customs fraud case in which DOJ has declined to intervene—the company should take swift action to investigate and defend against those claims.
