THUMBNAIL 1
Customs Engineering & Law

False Claims Act and Imports: American justice reinforces pressure on businesses

Date : 9 July 2025

Bertrand Rager

Lawyer

Introduction: a law over a hundred years old at the heart of contemporary issues

 

Adopted in 1863 in order to fight against the frauds committed during the Civil War, the False Claims Act (FCA[1]) progressively imposed as one of the most powerful legal instruments of the United States for protecting public finances. Long confined to the public markets and the healthcare sector (Medicare/Medicaid), this law in recent years has experienced widening of its field of application. Imports are now seen as the potential target for the application of the False Claims Act.

A jurisprudential evolution by the Court of Appeals of the 9th Circuit has indeed recently validated the application of the FCA to shortcomings related to customs declarations. This decision is part of a greater dynamic of extension of controls and civil pursuits in the field of international trade and is in coherence with the methods of commercial intimidation/negotiation of the Trump administration.

 

The legal foundations of the False Claims Act

 

The under evaluation of merchandise; The False Claims Act, codified under title 31 of the Code of the United States (§?3729 and following), prohibits anyone to voluntarily submit a false declaration or a fraudulent claim in sight to obtain undue payments or advantages from the federal government. Two key characteristics make it a formidable tool:

  1.  “Qui tam” [2] actions: According to American law, an individual (called a relator) can report a fraud in the name of the government and engage in a civil case. In the event of success, they then receive a significant share of the recovered amounts (up to 30%).
  2. Severe Sanctions: The defendant can be condemned to civil fines (more than $20,000 per violation) and triple the damages (treble damages), which makes the potential amounts colossal.

Historically focused on military procurement, the FCA has evolved to apply to fraud in healthcare, education, taxation… and now, international trade.

Imports, a new area of vigilance

In recent years, federal authorities—most notably the Department of Justice—have shown an increasing interest in false customs declarations. This change of course results from at least three factors:

  • The rise in power of punitive tariffs within the context of trade tensions (particularly with China).
  • The desire to strengthen economic sovereignty through a strict application of tariff rules.
  • The need to efficiently sanction fraudulent behaviors where the traditional customs regime shows its limits.

Until recently, these offenses were almost exclusively from the Customs and Border Protection (CBP), in this context of administrative procedures or penalties. But today the federal administration considers that any false declaration resulting in the government being deprived of revenue—notably customs duties—can be prosecuted under the FCA.

This concerns, among others, the following practices:

  • The use of an incorrect tariff code (HS code);
  • The falsification of origin to bypass specific rights;
  • The manipulations of invoices between subsidiaries or commercial partners.

 

Return to the 9th Circuit Court of Appeals case: a turning point?

 

The Court of Appeals of the 9th Circuit has recently validated the application of the FCA to fraudulent customs declarations. The stop was carrying on a company accused to have intentionally under evaluated the value of the imported merchandise, thus reducing the rights owed to the American Treasury.

The company challenged the competence of the FCA in this context, arguing that the customs sanctions were exclusively the responsibility of the CBP. But the Court rejected this argument, considering that the submission of a false declaration having a financial impact on the State is indeed within the scope of the False Claims Act. This reasoning paves the way for an increase of civil lawsuits in cases that were previously limited to customs law.

 

-A concrete example: the Sigma Corporation affair-

 

In an article from 2024, the US law firm Hogan Lovells cited a landmark case: Island Industries Inc. v. Sigma Corporation. In this file, the federal government pursued Sigma Corp (denounced by a competitor- Island Industries Inc) accused to have diverted more than 8 million dollars in anti-dumping duties, by deliberately sorting Chinese import products under a tariff position of a category not subject to duties.

 

“In 2017, Island Industries … filed a sealed complaint under the FCA alleging that a business competitor, Sigma, and others made false statements on customs forms to avoid antidumping (AD) duties on welded outlets imported from China, resulting in a deprivation to the U.S. government of approximately US$200 million since 2004.”
— Hogan Lovells, 2024

The federal jury has retained the existence of false declarations in customs on two points:

  • The incorrect designation of products as “steel couplings” rather than “welded outlets”[3] ;
  • The false claim that these products were not subject to antidumping duties.

The sanctions were severe: the customs sanction of 8 million dollars was tripled in accordance with the regime of the FCA, to which civil penalties have been added, for a total of more than 26 million dollars.

This affair confirms that the deliberate bypass of customs obligations (tariffs for this specific case) is no longer simply a customs fraud but can be requalified as a fraudulent claim under the FCA, with all the consequences that this entails.

 

Practical consequences for importers

This evolution of American law imposes a profound change of approach for businesses. The risks are no longer only economic or administrative; they become legal, financial, and reputational.

  • The risk of contentious matters is increasing significantly, including at the initiative of internal or external whistleblowers;
  • The customs practices must be secured: Both on the analysis of the customs classification of the imported product, only on the determination of the customs value, and on the validity of the product’s certificates of origin: each key element of an import customs declaration must be able to be documented and justified;
  • The internal procedures of an importer (only responsible for what is included in the declaration filed with customs in their name) must exist, be documented and applied and the related documentation to the imported products must be duly preserved, robust, traceable, and available in case of an audit or judiciary inquiry.

 

Multinational companies must therefore strengthen their internal customs compliance programs and fully integrate this risk into their legal risk mapping.

 

Perspectives and recommendations

The trend is clear: the Department of Justice intends to continue and amplify the use of the FCA in order to recover the amounts owed to the Treasury, even outside traditional spheres (healthcare, defense, education). International trade, due to its complexity and its volumes, is a logical target in the current geopolitical context.

 

As such, the companies active in exporting to the United States should:

  • Proceed to an urgent verification of the related clause to the applicable Incoterms Rule in each past contract with an American client?

 

Companies making imports and -as an “importer of record”- submitting import customs declarations with the US customs (CBP) should in their case:

  • Proceed to an urgent verification of the related clause to the applicable Incoterm Rule in each past contract with a foreign supplier;
  • Verify the terms of the contracts binding them to their “customs brokers”;
  • Proceed with the preventive audits of their declarative import practices to the US (internally produced or by the customs brokers);
  • Set up reinforced internal controls on the supply chain in order to verify the reliability of customs data used and, another part, to identify the negligent comfort delegations to customs brokers, and this, continuously;
  • Ensure the competence of the internal staff in charge of the customs operations or monitoring external declarants and, if applicable, set up an official training policy and schedule for the staff in customs matters;
  • Integrate the specific risks of the False Claims Act into the program or the internal procedures of customs compliance of the business/group;
  • Establish internal alert channels, to detect irregularities before they become public.

 

 

Conclusion

 

The False Claims Act, apparent relic of the 19th century, imposes itself today as a strategic tool by the US authorities to fight against commercial and tax fraud and whose application is now extended to the customs field.

For importers, the challenge is now clear: not to underestimate the civil scope of customs non-compliance, under penalty of seeing oneself exposed to the serious financial consequences—even a consequential lawsuit.

Thus, the temptation to resort to the method of determining import customs value known as “First Sale Value” must be approached with care and caution and should only be considered after ensuring that the documentation of the entire supply chain justifies the legitimate use of this method of determining value[4]… otherwise, the importer would clearly be in the potential line of fire of the False Claims Act!

 

Article by Bertrand Rager, with contributions by Belle Nenadov and Elias Mekonnen

 

Useful Sources:

[1] Not to be confused with the Incoterm rule Free Carrier/ FCA

[2] Abbreviation of “qui tam pro domino rege legem servavit”, which means “who acts in his own name, but for the benefit of the king.” This phrase reflects the idea that an individual can take legal action for the good of the State.

[3] A “welded outlet” is a pipe fitting designed to be welded to seamless or continuous-weld pipes, allowing for a branch to be created in a main line, typically manufactured by hot forging and machining, and capable of withstanding high pressures (16 to 20 bars). Whereas a “steel coupling” is a sleeve made of steel, often stainless steel or carbon steel, to ensure strength, durability, and corrosion resistance, and that connects two elements, such as pipes or rotating shafts, to ensure efficient transfer of force or fluids.

[4] Without forgetting the restrictions on the use of the transactional value for the transactions between related parties unless it can be demonstrated that the declared customs value is “at arm’s length,” nor the alternative methods of calculating customs value (deductive, computed, fallback and others) provided for by US regulations, as well as the obligation of “due diligence and efforts to right one’s wrongs” in this matter and the distinctly American possibility of self-remedy within the 300-day period granted by the US practice to correct a customs declaration, a correction which may be accompanied, where applicable, by a “voluntary disclosure” in order to avoid a catastrophe.

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