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Reverse False Claims in Non-Payment of Customs Duties

To steal a line from a colleague, Customs provides the second largest source of revenue to the federal Government after only the IRS. The 2016 Performance and Accountability report of the U.S. Customs and Border Protection Agency lists revenues collected on page 170 as $44.8 billion and change for 2016.

Even by the standards of the U.S. Government, that is some serious money. It is an interesting chart too. It shows how much money is collected by port processing locations. If you guessed the port of Los Angeles was the biggest in terms of collections, this chart would seem to back you up, but there is a lot of business going through Newark and Philly and there are plenty of ports doing plenty of duty charging business if you look at this report.

Therefore, it is obvious customs duties on imports duties is big business. Now maybe you know why there was a minor earthquake in the world of False Claims Act litigation when the Third Circuit determined that non-payment of customs duties could be a valid reverse false claim under the False Claims Act. Ah yes, the much debated and much loved, but not much used U.S.C. 3729 Section (a)(1)(G) for you qui tam fans. The big reverse.

Back in the day, specifically back in 2009, the False Claims Act was amended. The term “obligation,” was re-defined and many a False Claims Act lawyer thought we had a new frontier. Fines! We thought might be an obligation to pay, which somebody would avoid paying and we thought we could sue for those kinds of obligations. Well, it has not worked out that way. Fines it seems are not favored by the Courts or even by the Department of Justice as a basis of a case. They have come to be seen as too much of a “contingent obligation.”

Then we all learned about Customs duties. They are not contingent at all. They may be difficult to figure, but they are not contingent on government action to assess and an importer owes them to import any good upon which such a duty is imposed. Since an importer is required to pay them when importing goods avoiding them can make a (reverse) False Claims Case.

This might explain why at the most recent meeting of Taxpayers Against Fraud, AKA the organization of lawyers who do this stuff, the room was filled and there were people standing at the back to hear what was to be said about customs enforcement cases. It is not often we see a whole new line of cases, which fit very neatly into False Claims Act enforcement theories.

Just to make it a little more interesting it would appear that the cases could involve big business and correspondingly large amounts of money. I do not want to speculate as to what is outside the country trying to get in the country for free, which should not. Still with more than 40 ports of entry involved and billions in customs being paid, meaning many times that in terms of the amount of goods entering the country, it stands to reason that some people may not be paying.

The government has legitimate reasons for charging companies for the importation of their goods. When those charges are avoided, it’s now clearly a “reverse” false claim.

I expect to see many, many more of these cases in the near future.