Customs duties are a top revenue source for the U.S. government, second only to the Internal Revenue Service (IRS). That means customs fraud puts a big dent in government coffers and attracts a lot of attention from law enforcement. In recent years, customs violations have increasingly been prosecuted under a legal statute with strong whistleblower provisions known as reverse False Claims.
Reserve false claims is a section of the False Claims Act (FCA), America’s first whistleblower law and one of the strongest whistleblower laws in the United States. The core principle of reverse false claims is that a wrongdoer has prevented the government from collecting what it is owed. When goods are knowingly falsely stated, undeclared, undervalued, or misclassified on a customs form, an entity has kept the government from receiving proper compensation.
Since the FCA was amended in 2009 by the Fraud Enhancement and Recovery Act (FERA), further strengthening reverse false claims, multiple whistleblowers have filed successful cases exposing violations of customs and import laws. A recent such case involves a former employee of a multinational engineering corporation who won $3.7 million in a whistleblower suit against the company in one of the largest False Claims suits involving customs fraud to date.
Jackson vs. Linde
Linde AG is a multinational industrial gas and engineering company headquartered in Germany. Its U.S. component, Linde Engineering North America, has operation centers in Oklahoma, Texas, and Pennsylvania.
Crystal Johnson is a former logistics and procurement manager in the company’s Oklahoma office. According to her complaint filed in U.S. district court, Johnson noticed that her superiors were intentionally filing customs declarations with inaccurate or incomplete descriptions of imported goods in order to avoid tariffs and antidumping and countervailing duties (AD/CVD).
In one example, the company declared Chinese stainless-steel piping subject to high tariffs and duties as carbon-steel piping, thereby evading more than $7 million in fees. Linde also allegedly declared assembled tanks as unassembled to avoid the higher tariffs and duties placed on assembled components.
Another common tactic involved the failure to declare extra work and materials associated with their products that would command higher duties and tariffs. The United States levies these duties to compel foreign companies to use U.S. materials and labor. In Linde’s case, the company used engineers in India at a fraction of the price of U.S. engineers, but didn’t include that information in their customs declaration.
According to the complaint, Jackson took her concerns to Linde’s vice president and other company executives, but her concerns were dismissed. She left the company in 2016 and filed suit on behalf of the government in 2017, which the U.S. Department of Justice (DOJ) ultimately joined. Linde agreed in October 2020 to pay $22.2 million settlement on the FCA violation charges, according to a DOJ press release. Jackson will receive approximately $3.7 million for her contribution to the prosecution.
Under the FCA’s qui tam provision, anyone with knowledge of fraud against federal contracts or programs—known in legal terms as a relator—can bring a suit on behalf of the government, so long as no one else has filed a suit first. Whistleblowers who provide original information that results in a successful prosecution are awarded between 15% and 30% of the collected proceeds. These rewards are often substantial, since under the False Claims Act, the criminal is liable for a civil penalty as well as treble damages.
These powerful incentives have resulted in multiple whistleblowers filing successful FCA cases exposing violations of customs and import laws. In addition to Jackson, whistleblowers have been integral to a 2019 suit against a British womenswear retailer who avoided customs duties by splitting up shipments, resulting in a $610,000 fine, and a $1.1 in 2013 by an Ohio manufacturer for avoiding duties by misrepresenting the Chinese origins of its products on customs forms.
Crucially, the FCA is applicable to conduct outside the U.S. – so long as there is federal spending, procurement or contracting, and the information reported is suitable for building criminal cases as well as civil. Additionally, under the FCA, it is possible for anyone to serve as a whistleblower, including non-U.S. citizens and NGOs.
Whistleblowers are responsible for 72% of the funds recovered since the FCA amendment in 1986. With the recent advances in what is covered by reverse False Claims, this record of success is expected to continue, with additional customs violations brought to light.