Trade Compliance

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Should Importers be Worried About Whistleblower Claims? 

Posted March 27, 2015


A recent article published by lawyers at the firm Sheppard Mullin Richter & Hampton LLP on their Global Trade Law Blog, suggests that U.S. importers may now be facing exposure to financial risk from a new and possibly unexpected quarter.

Citing a case from earlier this year, in which three importers agreed to pay more than $3 million to resolve a lawsuit brought against them under the False Claims Act (FCA) by a private individual on behalf of the federal government and who was eventually paid a $555,100 share of the settlement for his efforts as a “whistleblower” in this instance, authors Neil Ray and Curtis Dombek say that it could be a potentially worrisome development in the future for importers.

In the lawsuit, Chinese manufacturer Tai Shan Golden Gain Aluminum Products Ltd. was alleged to have conspired with two U.S. companies, C.R. Laurence Southeastern and Waterfall Group LLC, to avoid countervailing duties on aluminum extrusions by shipping the products though Malaysia. A Malaysian subsidiary of the Chinese manufacturer was also accused of having undervalued the imported goods, causing the amount of declared duties to be lower. It was claimed that by submitting inaccurate country-of-origin and import-value information to Customs, the companies violated the FCA. The suit was initially filed in April 2013 and the Department of Justice intervened approximately six months later.

According to Ray and Dombek, the problematic upshot of the matter is that “the whistleblower’s one-half million dollar award in this case is sure to be a temptation to personnel in other companies who learn of Customs irregularities.” In light of this precedent, they ask: “can industry really expect its employees to continue suggesting a mundane Customs Prior Disclosure when the prospect of a rich whistleblower recovery beckons if they can frame a colorable claim of company fraud, especially at a time when the Government has been seeking steadily to erode the standard of scienter under the FCA?”

Although Canada presently has no equivalent settlement sharing reward program for whistleblowers to those offered by the U.S. government, last year the Canada Revenue Agency did introduce the Offshore Tax Informant Program, which promises financial awards for individuals who provide information that leads to the collection of taxes owed due to “major international tax non-compliance.”