When goods are imported into the country, they are subject to tariffs and/or duties which vary depending on what the goods are and their country of origin.
Improper efforts to avoid or reduce these fees result in two common types of False Claims Act violations:
Misclassification of Goods
The United States has a complex system of customs duties where the amount owed can vary based on the type and purpose of a product. For example, in one infamous dispute with the federal government, a purchaser of Santa Claus costumes litigated the issue of whether such a costume is “wearing apparel” subject to a customs duty or a duty-free “festive article.”
Intentionally misclassifying goods to avoid these duties is a violation of the False Claims Act. Moreover, duties are percentage-based. Misstating the values of the products or splitting them into separate shipments to reduce liability is a violation.
Falsification of Country of Origin
Imports from certain countries, particularly those with “less friendly” relationships with the United States, can have high tariff rates. Companies may try to avoid paying these high duty rates by falsifying the country of origin for the products. Sometimes this entails shipping finished products to a “more friendly” country and falsely declaring this country as being the manufacturer.