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False Claims Act Cases Against Duty Evasion Could Increase After Court Ruling

Thursday, October 27, 2016
Sandler, Travis & Rosenberg Trade Report

A federal appeals court ruled recently that avoidance of marking duties on imported goods is actionable under the False Claims Act, which could subject violators to substantial penalties. The reasoning set forth in the split decision could also increase the likelihood that more FCA cases will be initiated.

The FCA permits private parties to sue on behalf of the U.S. government those who falsely claim federal funds or, as in this case, who avoid paying funds owed to the government or cause or conspire in such conduct. The FCA also allows whistleblowers to receive a share of any funds recovered.

The case at issue involves imported pipe fittings, which under U.S. law must be marked with their country of origin. Those not so marked and released into U.S. commerce are subject to a ten percent marking duty. The plaintiff argued that the defendant failed to mark its pipe fittings and falsified import documents to avoid the marking duties. A district court dismissed the case, but in what is being described as a precedential decision the Court of Appeals for the Third Circuit reversed and remanded the case for further proceedings.

There are several aspects of the court’s decision that raise concern for importers. One, the court found that reverse false claims liability may attach as a result of avoiding marking duties, stating that a 2009 update to the FCA makes clear that any individual who knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government may be subject to liability. Two, the plaintiff appears to have been established solely to file this case, suggesting that FCA violations could become an increasing target of entities focused on making money from settlements or court judgments. Three, the court accepted allegations based on a statistical analysis of trade data acquired from a subscription service and a review of postings on an online auction site despite being “skeptical” of this methodology. One observer opined that this is a fairly low standard that “likely will spur other relators to present equally speculative and unsupported allegations.”

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