In the first few months of 2025, United States trade policy has consisted of rapid-fire developments, particularly with respect to the Trump Administration's imposition of tariffs on a wide-range of foreign-origin goods imported into the U.S. For importers, suppliers, and other parties involved in international trade, the tariff actions have led to an increase in costs and supply chain uncertainty as involved parties begin to take steps to mitigate the impact of the new tariffs. Overall, the continuously developing tariff landscape puts a spotlight on the enforcement of U.S. Customs laws and creates increased risk for U.S. importers that must be alert to potential compliance pitfalls and illicit tactics used to evade the new tariffs on imported goods.1
U.S. Customs and Border Protection ("CBP" or "Customs") is the main federal agency responsible for enforcement of U.S. Customs laws. However, over the past several years, the U.S. Department of Justice ("DOJ") has increasingly been more involved in the investigation and prosecution of Customs violations, particularly under the federal False Claims Act ("FCA"). At the Federal Bar Association's most recent annual Qui Tam Section Conference on February 21, 2025, Deputy Assistant Attorney General Michael Granston signaled that the FCA will remain a "permanent fixture" in the DOJ's toolbox of enforcement mechanisms to combat illicit foreign trade practices, emphasizing that the FCA shall be "aggressively" enforced against fraudulent actors that cause the government to lose out on revenue via import tariffs or other means. Importers, customs brokers, and other parties involved in international trade take care to understand potential liability risks under the FCA and maintain effective internal controls to detect and prevent fraudulent actions and violations of U.S Customs laws.
Application of the FCA to Customs Cases
The FCA is codified in Title 31 of the U.S. Code, sections 3729-3733, and is well-known for its application in cases where a party has fraudulently claimed money from the U.S. government through government contracting activities, Medicare claims, or other government funding programs. However, the FCA may also apply to cases where a party has knowingly avoided making owed payments to the government. This latter application, aptly called the "reverse false claim," can impose liability on a party that knowingly avoids proper payment of Customs duties for imported goods.2
Customs-related FCA cases typically involve the submission of false statements or documents to Customs resulting in the underpayment of owed duties on imported merchandise. The below points highlight some of the most common forms of Customs violations that may lead to a DOJ investigation and prosecution under the FCA.
- Misclassification of Goods – Intentional misclassification of goods under the Harmonized Tariff Schedule ("HTS") to pay a lower duty rate.
- Undervaluation of Merchandise – False invoicing or misreporting of transaction values to improperly reduce the amount of Customs duties owed.
- Country of Origin Fraud – Misrepresenting the country of origin of imported merchandise to circumvent antidumping and countervailing duties ("AD/CVD"), or any other applicable duties.
- False Duty-Free Claims – Improperly claiming duty-free treatment under preferential trade agreements, such as the U.S.-Mexico-Canada Agreement ("USMCA"), without meeting eligibility requirements.
FCA Enforcement and Liability
The FCA imposes significant penalties on violators, including treble damages and statutory fines per each false claim made. FCA cases involving Customs violations often arise out of administrative investigations initiated by CBP. When CBP discovers a case involving fraudulent intent to avoid payment of Customs duties, the agency can refer the case to the DOJ for further action.
Customs-related FCA cases can also arise out of whistleblower reports that alert the DOJ to potential violations and can trigger a DOJ investigation. According to the most recent statistics published on FCA cases over the past fiscal year, the number of FCA cases initiated by whistleblowers reached a record high in 2024.3 The rise in whistleblower actions under the FCA presents increased risks for businesses that lack internal compliance mechanisms and reporting procedures that help to prevent systemic fraud.
Importantly, whistleblowers are often employees or competitors of a subject party that have inside knowledge of facts related to the fraudulent behavior constituting the FCA violation. As such, it has become increasingly important for business to develop and maintain internal compliance controls and implement internal reporting and procedures to address potential fraudulent practices or violations when discovered. In addition, the DOJ has previously noted that it is committed to "incentivizing and rewarding" parties that voluntarily disclose misconduct, cooperate with investigations, and implement remedial measures when necessary to prevent future violations.4 Thus, importers that discover potential involvement in schemes to fraudulently avoid proper payment of Customs duties should take immediate action to stop the violative conduct and consult legal counsel to receive guidance on how to mitigate potential consequences associated with FCA and Customs liability.
Recent FCA Customs Cases
Recent FCA actions show that the trend towards more frequent application of the FCA to Customs-related cases has carried over from the Biden Administration to the new Trump Administration. Reviewing DOJ publications and announcements regarding its prosecution of Customs violations under the FCA can provide insight into the potential liability risks importers face and compliance red flags to be aware of when engaged in international trade.
On April 18, 2025, the DOJ announced it had filed an intervenor complaint in a case arising out of the Eastern District of California involving allegations of Customs fraud against defendants Barco Uniforms, Inc., Kenny Chan, David Chan, and the business operated by the Chans. The Chans operate several companies that manufacture uniform apparel in various countries, including China, and served as a supplier to Barco Uniforms. The FCA complaint alleges that the involved parties engaged in an illicit double-invoicing scheme where one set of invoices were provided to Barco Uniforms reflecting the correct value of the imported merchandise and another "dummy" set of invoices were supplied to CBP with false undervaluations resulting in the underpayment of Customs duties. Notably, this case originated from a whistleblower complaint filed by a former director of product commercialization at Braco Uniforms.5
In addition to the above, the DOJ also recently announced it had entered into a settlement with Evolutions Flooring, Inc. and its owners to resolve allegations that Evolutions Flooring had improperly evaded antidumping and countervailing duties and Section 301 duties on imports from China. The FCA compliant included allegations that Evolutions Flooring knowingly avoided proper payment of Customs duties by misrepresenting the country of origin for imports of multilayered wood flooring manufactured in China on documents submitted to CBP. Like the Barco Uniforms case described above, this FCA action arose out of a whistleblower complaint. However, the whistleblower in the Evolutions Flooring case was a competitor instead of a former employee. As part of the Evolutions Flooring's settlement with the DOJ, announced on March 25, 2025, Evolutions Flooring will pay $8.1 million to resolve the FCA claims. Evolutions Flooring's whistleblower competitors will receive approximately $1,215,000 of the settlement proceeds.6
As these most recent cases illustrate, parties with knowledge of an importer's activities and business, such as former employees and business competitors, can quickly become effective whistleblowers in situations where an importer is involved in an illicit scheme to avoid payment of Customs duties. Importers must take care to maintain efficient and effective internal compliance programs and reporting lines to mitigate risks associated with whistleblower actions and with increased overall enforcement of U.S. Customs laws under the Trump Administration.
Conclusion
The investigation and prosecution of Customs violations under the FCA represents an area of enforcement that is expected to continue to grow under the new Trump administration. Importers should review and update internal procedures to ensure compliance with Customs regulations and help mitigate risks associated with increased FCA enforcement. In addition, businesses should be alert and conscious of potential signs of Customs-related fraud, including the production of double-invoices by a vendor, unexplained HTS classification changes or blatantly incorrect misclassifications, and discrepancies in valuation or country of origin on transaction and import documents. Detecting and avoiding both direct and indirect involvement in schemes to violate U.S. Customs regulations will ultimately minimize liability risks under the FCA.
Footnotes
1 See previous alerts on tariff developments and other trade-related updates from Torres Trade Law, PLLC here.
2 31 U.S.C. § 3729(a)(1)(G).
3 U.S. Dep't Justice, Civil Division, Press Release: False Claim Act Settlements & Judgments Exceed $2.9B in Fiscal Year 2024 (Jan. 15, 2025), https://www.justice.gov/archives/opa/pr/false-claims-act-settlements-andjudgments-exceed-29b-fiscal-year-2024.
4 Id.
5 U.S. Dep't Justice, Press Release: United States Files Complaint Against Barco Uniforms & Suppliers (Apr. 18, 2025), https://www.justice.gov/opa/pr/united-states-files-complaint-against-barco-uniforms-and-its-suppliersalleging-false-claims.
6 U.S. Dep't Justice, Press Release: Evolutions Flooring Inc. and Its Owners to Pay $8.1 Million to Settle False Claims Act Allegations Relating to Evaded Customs Duties (Mar. 25, 2025), https://www.justice.gov/opa/pr/evolutions-flooring-inc-and-its-owners-pay-81-million-settle-false-claims-actallegations.
Originally published by Women's White Collar Defense Association (WWCDA), 7 May 2025.
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