The U.S. District Court of the Southern District of New York announced earlier this month that an award of $210,000 would be awarded to a whistleblower as a result of a $1 million settlement of a civil fraud lawsuit. The allegation had been that the trading company had been underpaying customs duties on imported footwear. Whistleblower Devyn Taylor filed a qui tam whistleblower case pursuant to the False Claims Act ("FCA"), and the Department of Justice ultimately intervened and settled with Samsung C&T America, Inc. ("SCTA"). The settlement addressed misclassifications of imported footwear under the Harmonized Tariff Schedule ("HTS") and failure to pay the full amount of customs duties owed between May 2016 and December 2018.
SCTA is a global trading and investment company that is a U.S. subsidiary of the Korean conglomerate Samsung C&T Corporation. SCTA imports and sells footwear manufactured overseas in partnership with other companies. The complaint alleged that for two and half years, SCTA, in conjunction with a business partner, imported footwear manufactured overseas, including from manufacturers in China and Vietnam, into the United States. SCTA provided its customs brokers with documentation and information, including invoices, that (i) misclassified the footwear under the HTS, and/or (ii) contained inaccurate information concerning the materials and construction of the footwear. Accordingly, in many instances, the footwear was entered at a lower duty rate than would have been applicable had the footwear been properly classified. Depending on the classification of the footwear, the duties owed varied significantly.
As part of the settlement agreement, SCTA admitted, acknowledged, and accepted responsibility for certain conduct alleged in the complaint, specifically that:
- As the United States importer of record, SCTA was responsible for paying the customs duties owed on the footwear at issue and providing accurate documents to CBP to allow CBP to assess customs duties applicable to the footwear.
- SCTA and its business partner provided SCTA's customs brokers with invoices and other documents and information that purportedly reflected the tariff classification of the footwear under the HTS, as well as the corresponding materials and construction of the footwear. SCTA knew that its customs brokers would rely on the documents and information to prepare the entry summaries submitted to CBP, which required classifying the footwear under the HTS, determining the applicable duty rates, and calculating the amount of the customs duties owed on the footwear.
- SCTA had reason to know that certain documents provided to its customs brokers, including invoices, inaccurately stated the materials and construction of the footwear at issue. SCTA failed to verify the accuracy of this information before providing it to its customs brokers. As a result, SCTA materially misreported the classification of the footwear under the HTS and misrepresented the true materials and construction of the footwear.
- SCTA, through its customs brokers, misclassified the footwear at issue on the associated entry documents filed with CBP and, in many instances, underpaid customs duties on the footwear.
Included in the announcement, Homeland Security Investigations Special Agent in Charge Ivan J. Arvelo stated that along with law enforcement partners it "will hold accountable organizations that engage in improper trade practices and deny our government of vital revenues." U.S. Attorney Damian Williams is also quoted saying that "This Office is committed to combatting customs fraud by holding companies accountable when they misclassify goods and evade paying their legally required duties." According to the Department of Justice website, the DOJ has obtained more than $5.6 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, 2021, and more than $2.2 billion in the fiscal year ending Sept. 30, 2022.
Importers should always remain cognizant of the fact that Customs investigations are not the only means by which non-compliant behavior can be uncovered. The whistleblower statute creates a significant opportunity for a person to share in any recovery derived from a government intervention of a whistleblower lawsuit. This means that companies must ensure that there are appropriate means to report compliance concerns and evaluate and address such concerns.
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