Cracking Down On Customs Fraud Using The False Claims Act (Pt.1)

This is the first of a two-part discussion of the False Claims Act (FCA), a law that is increasingly being used as an enforcement tool against customs fraud. FCA cases can be pursued by the DOJ or through "whistleblowers," who may be competitors or "disgruntled "employees. Unlike other FCA exposure, enforcement risk is not limited to healthcare companies, government contractors, or grant recipients—instead, this risk implicates all companies that import goods from outside of the U.S. We discuss not only the law but also how you might best protect your company against such claims.

False Claims Act: An Enforcement Tool in Customs Cases

Under this Administration, the Civil and Criminal Divisions of the U.S. Department of Justice ("DOJ") stand united in making customs fraud a clear enforcement priority.

Most recently, the DOJ and the Department of Homeland Security ("DHS") unveiled the "Trade Fraud Task Force" in August 2025 to intensify enforcement efforts. The Task Force will augment the existing coordination mechanisms within the DOJ and leverage expertise from both the Civil and Criminal Divisions, as well as DHS, to aggressively pursue enforcement actions against any parties, whether individuals or companies, who seek to evade tariffs and other duties. The creation of the Task Force was just one of several recent steps demonstrating the Government's continued focus on customs fraud.

For example, on February 20, 2025, in a keynote address at the Federal Bar Association's Annual Qui Tam Conference in Washington, D.C., then-Deputy Assistant Attorney General Michael Granston announced DOJ's focus on customs fraud enforcement. Granston emphasized that the DOJ plans to focus on False Claims Act ("FCA") enforcement of illegal trade practices, noting that "You can expect the Department to continue to use the False Claims Act to enforce these trade laws." In particular, Granston stressed that the FCA may be used as a formidable tool against entities that make false statements and engage in other fraudulent schemes to avoid paying customs duties. Likewise, that same day, Director of the Civil Division's Fraud Section, Jamie Ann Yavelberg, also identified customs and tariff evasion cases as a "key area" for enforcement. She indicated that cases would likely focus on misrepresentations about a product's country of origin, declared value, and quantity. In particular, Yavelberg referenced the 2023 $22.8 million settlement with vitamin importer International Vitamin Corporation ("IVC") (described below) as an example of the types of cases that the DOJ intends to pursue.

Also, on May 12, 2025, Matthew Galeotti, head of DOJ's Criminal Division, published a memorandum outlining its white-collar crime enforcement strategy, identifying "trade and customs fraud, including tariff evasion" among ten "high-impact areas for criminal prosecution."

All of this marks a significant shift in enforcement focus, given that, historically, customs fraud was primarily addressed by U.S. Customs and Border Protection ("CBP") by the civil administrative penalty statute, 19 U.S.C. §1592, and occasional criminal prosecutions by DOJ. This shift, however, underscores the DOJ's commitment to aggressively enforce customs laws and combat tariff evasion through the FCA and other relevant criminal statutes, signaling increased scrutiny for importers and companies involved in international trade.

Why is Customs Fraud so important now?

Customs fraud has become a central enforcement priority in today's trade landscape because, in the Trump Administration's view, it directly undermines U.S. economic security, deprives the Government of tariff revenue, and disadvantages domestic companies and importers that play by the rules. With increased tariffs created by the Administration's use of Section 232, Section 301and International Emergency Economic Powers Act ("IEEPA"), as well as antidumping and countervailing duties, schemes involving undervaluation and misclassification appear to be on the rise. Such non-compliance threatens to erode the very protections those measures were designed to provide. The urgency to prevent customs fraud is heightened under President Trump's "America First Trade Policy," which the President announced on his first day in office. In his words, this Policy is intended to "promote investment and productivity, enhance our Nation's industrial and technological advantages, defend our economic and national security." A core aspect of this policy is strict enforcement of trade laws to protect U.S. manufacturers. Thus, compliance with customs laws has become a cornerstone of the Administration's broader "America First" policy vision.

Escalating Civil Enforcement

That said, aside from the recent emphasis by this Administration, over the past decade, the DOJ has steadily ramped up its customs enforcement activity, with notable FCA settlements involving misrepresentations of country of origin or tariff classification. In 2023, for example, the DOJ announced the settlement of an FCA case involving underpayment of customs duties allegedly owed on imported vitamins and other supplements. The DOJ alleged that IVC defrauded the Government by misclassifying more than 30 of its products under the Harmonized Tarriff Schedule of the United States ("HTSUS"). Apparently, even after IVC retained a consultant who informed IVC that it had been misclassifying their products, it did not implement the correct classifications for over nine months and never remitted duties it had underpaid due to the misclassification.

Next, on March 25, 2025, the DOJ announced a $8.1 million settlement with Evolutions Flooring Inc., an importer of wood flooring, and its owners based on alleged customs violations. The DOJ alleged that the company caused false information to be submitted to CBP regarding the identity of the manufacturers and country of origin of imported multilayered wood flooring. As a result of this false information, the importer substantially underpaid duties. Notably, this matter involved a "relator," a private party who stood in the shoes of the Government under the qui tam provisions of the FCA – and collected over $1 million as part of the Government's overall recovery.

Likewise, in June 2025, the Ninth Circuit upheld a $26 million judgment against Sigma Corporation, a U.S. importer, for violating the FCA by misclassifying Chinese-made pipe fittings to avoid antidumping duties. The case stemmed from a 2017 whistleblower suit filed by Sigma's competitor, Island Industries, which alleged that Sigma falsely claimed its imports weren't subject to duties and misidentified them to CBP. The decision affirms that import fraud by foreign manufacturers or their U.S. partners can trigger FCA liability, even when raised by a competing company.

In sum, FCA, one of the government's oldest civil fraud enforcement tools, is now being used to prosecute alleged customs fraud. Although enforcement has consistently increased over the last decade, this Administration's focus on tariffs as an essential national security policy heightens scrutiny for all companies and individuals importing goods. Moreover, the Administration is encouraging whistleblowers to bring such actions. These factors increase exposure for companies even where the allegations lack merit.

Part 2 of this series will discuss the FCA in greater detail, specifically how it is applied in customs cases. It will also provide recommendations on how your company can prepare to defend itself against such claims.

This article was co-authored with trade attorney, Evelyn Suarez.

Originally published by The American Association of Exporters and Importers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.