Bridging regulatory demands and ESG commitments

This is what is subtly in filigree of a recent EU Commission’s guidance notice[1] on the applicability of the EU Sustainable finance[2] framework to the defence industry.

After having reminded that:

– The Notice is intended for all investors and operators referred to in the EU sustainable finance framework, as well as public authorities and bodies.

– The Notice will be particularly relevant for:

— financial market participants;

— ESG rating providers, meaning a legal person that issues ESG ratings or scores on a professional basis (3);

— providers of ESG labels (ecolabels, national labels etc.);

— stock exchanges/index providers, benchmark providers, data vendors/certification bodies, etc,

the EU Commission confirms to the world of finance and operators that investing in the defense industry is a vital to EU resilience, security and to broader EU and UN objectives. This statement seeks to eliminate any unwarranted discrimination against the financial sector in investment decisions and ESG practices, particularly amid ongoing debates regarding the alignment of defense and Sustainability. The message is clear: there should no longer be any ambiguity—Europe’s sustainability-related regulations apply uniformly across all sectors.

The EU Commission takes different examples of Sustainability regulations (incl. CSRD, SFRD ) to demonstrate the compatibility with defense activities.

The demonstration starts with the EU Taxonomy which serves as a shared dictionary for investors to assess how economic activities contribute to European environmental goals. The Commission encourages, operators to factor in “due diligence requirements and measures put in place to comply with the national export control legislations as contributing towards the fulfilment of UN Guiding principle 13, principles 3 and 6 of Ch. IV of the OECD Guidelines for Multinational Enterprises, and in turn towards the minimum safeguards  required under Article 18(1) of the EU Taxonomy Regulation”.

The guidance then focuses on “the Corporate Sustainability Due Diligence Directive” (referred to as CSDDD)  which addresses the particularities of the  the defence sector through the adaptation of the due diligence obligation. In deed such obligations do not apply to activities of downstream business partners that are related to products which are subject to export control by a Member State (meaning either the export control under Regulation (EU) 2021/821 of the European Parliament and of the Council regarding the control of exports, brokering, technical assistance, transit and transfer of dual-use items, or the export control of weapons, munitions or war material under national export controls), after the export of the product is authorized.

Thereby underlining subtly that, although being excluded from the Due Diligence Directive’s obligations, the trade of these “controlled” items is subject to other stricter -and in fact more restrictive- constraints.

After reminding the complex regulatory web (both by means of International Treaties[3] and  of EU legislation) which organizes the necessary frame and control of international trade of  High-tech goods and data, discreetly referred to as “sensitive goods”; the EU Commission, deepening its regulatory screening firstly addresses military technology and equipment with regard to both related Extra EU Transfers (i.e Exports) and Intra -EU transfers and secondly the Extra EU Transfer(i.e Export) of Dual-Use items.

Any compliance officer or CFO who has not been trained or educated in the defence sector will appreciate the meaning behind the lines from the following extracts of this EU Commission’s notice:

“The export and intra-EU transfer of military and dual-use items is subject to strict controls implemented by Member States. Member States’ enforcement of compliance with EU and international legislation relies on the industry taking due diligence measures. For instance, as a prerequisite to obtain export licenses, defence companies are required to implement robust internal control and compliance measures, imposed by national export control authorities”. The close supervision by Member States’ agencies enforcing the export control mechanism constitutes an important part of addressing potential adverse impacts of the products developed by the defence industry.

The Common Position[4] lists criteria which need to be considered by Member States to grant an export licence. These conditions include, inter alia, the respect of human rights in the recipient country and the preservation of regional peace and security. The Common Position is legally binding on Member States.

The User’s Guide includes a series of mechanisms Member States can put in place to address re-export and end-user concerns, such as the minimum information to be contained in an end-user certificate. These include, among others ‘end-use and/or non re-export clause, where appropriate’ and an option for Member States to include ‘a clause prohibiting re-export of the goods covered in the end-user certificate’. The methodology included in the User Guide, as well as the international agreements it references[5] serve as standards against which Member State authorities assess the behaviour of companies in the sector.

Intra-EU transfers of military technology and equipment

Intra-EU transfers are also regulated through Directive 2009/43/EC (33) on transfers of defence-related products within the Union, which sets out several criteria for consideration by Member State’s authorities prior to authorizing the transfer of defence equipment or technology. These include, for example, processes to avoid the possible diversion of defence-related products. It also lays down a requirement for Member States export authorities to monitor the recipient country’s compliance with the export limitations set out in the transfer licence, once every three years.

Extra-EU transfer (Export) of dual-use items

The EU  Commission recalls that the export control of dual-use items is subject to EU legislation, and subject to different governance from the export of military items. Regulation (EU) 2021/821 established the EU regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items.

In 2019, the Commission issued Recommendations (2019/1318) on the internal compliance programmes for dual-use trade controls under Council Regulation (EC) No 428/2009 for companies engaging in the export, transfer, brokering and transit of dual-use items. Companies seeking certain licenses should have internal compliance mechanisms covering the following aspects, which could also serve as a template for financial operators seeking to assess the due diligence of relevant companies:

• top-level management commitment to compliance;
• organisation structure,
• responsibilities and resources;
• training and raising awareness;
• regulatory monitoring
• transaction screening process and procedures;
• performance review,
• audits,
• reporting and corrective actions;
• record-keeping and documentation;
• physical andinformation security”.

Similarly, the guidance recalls the existence of provisions of the EU sustainability reporting standards, known as ESRS (European Sustainability Reporting Standards) in the CSRD, that are particularly relevant to the defence industry since it allows the omission of sensitive or classified information such as the volume of raw material  (ESRS 1, paragraph 105).

Eventually, the EU Commission refers to Section 3 of the European defence industrial strategy unveiled on March 5^th 2024, which recognises the defence industry as a crucial contributor to peace and social sustainability thereby inducing that defense is far from being incompatible with Sustainability.

The core expertise of our cross profiles professionals combined with our transversal approach of the above mentioned legal and regulatory issues offers a high standard of both competence and experience to assist any economic actor operating in relation with the industries of defence, in his concern for compliance.

The EU Commission’s guidance is therefore highly welcome, as it formalizes a crucial shift: Sustainability is no longer just an optional consideration but a central pillar of both competitiveness and regulatory compliance.This is fully aligned with Christine Lagarde’s August 2025 letter to EU lawmakers[6], warning that diluting sustainability reporting standards (and due diligences requirements in CSR Directive’s latest up-date 2026/470) would undermine Europe’s financial stability and global competitiveness: transparency and traceability not being bureaucratic hurdles but strategic assets for risk management and investor confidence.

In this context, the EU’s approach to export control and Sustainability is clear: compliance is not just about avoiding penalties but about securing long-term competitiveness. Sustainability is the new frontier of competitiveness and those who lead in transparency and accountability will shape the future of global trade.

Footnote:

[1]C/2025/4950 – OJEU Dec 30^th 2025

[2]Sustainable finance refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector, facilitating a better appreciation of sustainability-related risks and more investments in sustainable economic activities and projects.

[3]Such as the Treaty on the Non-Proliferation of Nuclear Weapons (1968), to which all EU Member States are parties, which provides that each undertakes not to transfer nuclear weapons or explosive devices directly or indirectly, and which clarifies this obligation as a basis for denying relevant export licenses, and other treaties. The User’s Guide to the Common Position provides a comprehensive, yet non-exhaustive, list of Treaties to be taken into consideration before authorising an export license . These include treaties and international instruments (regimes) governing use and/or stockpiling and/or export and transfer or military equipment and technology, such as (but not limited to): the Australia Group, MTCR, Zangger Committee, Nuclear Suppliers Group, Wassenaar Arrangement, The Hague Code of Conduct against the Proliferation of Ballistic Missiles (HCoC), etc

[4]2008/944/CFSP OJ L 335

[5]Such as the Wassenaar Arrangement End User/End Use Controls for Exports

[6]https://www.ecb.europa.eu/pub/pdf/other/ecb.mepletter250815_Eickhout_Gerbrandy_Pietikainen_Saramo_Wolters~25dd21fe84.en.pdf

We bring to your attention an important update from HMRC regarding changes to the warehousekeeper authorisation and approval process, effective from 1 April 2026.

As part of preparations for the introduction of Vaping Products Duty (from 1 October 2026), HMRC is modernising and digitalising the application process for excise Warehouse keepers.

 What is changing?

A new online application system will replace the current paper-based process, allowing businesses to:

• Apply for warehouse keeper authorisation and premises approval in one place
• Submit applications for Vaping Products Duty and Vaping Duty Stamps approval
• Use a new online amendment form for existing approvals

This change will impact both new and existing warehouse keepers dealing with alcohol, tobacco, and vaping products.

What do you need to do?

No immediate action is required before 1 April 2026. The new process will apply to:

• Businesses applying to become ware housekeepers
• Existing ware housekeepers seeking to amend approvals or add new premises

These changes are designed to provide a more streamlined, secure and efficient application journey, replacing the current postal system.

Feeling concerned? We strongly encourage you to review the full update to understand how these changes may affect your business.

The primary objective of this initiative is to strengthen the industrial and operational preparedness of Member States by improving the responsiveness, flexibility, and efficiency of processes related to the production, acquisition, and deployment of essential defense capabilities. It also aims to facilitate cross-border cooperation and access to financing, particularly for small and medium-sized enterprises and mid-cap companies, to stimulate innovation and ensure the competitiveness of the European defense industry. The package thus covers defense and security procurement extensively, where it proposes to simplify procedures and introduce more flexible rules for innovative procurement and cross-border consortia. It also includes the regulation of intra-EU transfer authorizations for defense equipment, with the introduction and harmonization of General Transfer Licenses, aimed at reducing delays related to national procedures and facilitating cross-border cooperation. In addition, the Omnibus Defense Package clarifies the European financing framework, both through the European Defense Fund and InvestEU instruments, by specifying eligibility criteria and providing clear guidance on sustainable finance applicable to the defense sector. Finally, it aims to support innovation and the inclusion of SMEs by reducing the administrative burden and recognizing compliance certifications as a lever for simplification.

From a legal standpoint, the Defense Omnibus Package is based on several fundamental principles. It complies with the principle of subsidiarity, allowing Member States to strike a balance between defense preparedness and their national societal objectives. The proposed simplifications remain within the framework of existing legal and political safeguards, thus ensuring legal certainty and predictability for the actors concerned. The principles of proportionality and flexibility guide the reform, with simplified procedures limited to projects financed by the European Defense Fund and innovative procurement, without undermining essential legal obligations. Transparency and accountability are also preserved, through the clarification of sustainable financing requirements and the regulation of investment exclusions in certain categories of prohibited weapons.

The implementation of the Defense Omnibus Package is likely to generate significant benefits. It should speed up the completion of defense projects by reducing delays related to public procurement and equipment transfers, particularly for cross-border projects. It will support innovation and the participation of SMEs by facilitating their integration into cross-border consortia and reducing the disproportionate administrative burden on them. The reform also contributes to strengthening the European Union’s strategic autonomy by enabling the production and deployment of essential defense capabilities with limited dependence on suppliers outside the EU. Economically, it should strengthen the European industrial and technological ecosystem, stimulate research and development, and generate long-term positive spillover effects on the Union’s gross domestic product. Finally, the package provides legal harmonization by clarifying the rules on financing, equipment transfers, and business support instruments, ensuring greater predictability for industrial and financial actors.

Nevertheless, the reform also presents challenges and limitations. The complexity of its national implementation could require significant adjustments to the legal and administrative systems of Member States, particularly regarding the harmonization of procedures and the application of General Transfer Licenses. Certain aspects remain subject to differing interpretations at the national level, creating uncertainty for businesses and authorities. The transition to the new framework will involve an initial burden, particularly for the adaptation of reporting systems and certification mechanisms. The success of the plan also depends on political and institutional cooperation between the Commission, the European Parliament, the Council, and Member States, as well as effective coordination with industry stakeholders.

This reform is expected to have multiple impacts. Strategically and operationally, it should reduce project implementation times, improve responsiveness to crises, and increase support for the massive investments needed for defense preparedness. In terms of European cohesion, the reform will promote cross-border cooperation and reduce industrial fragmentation. It will also stimulate innovation and competitiveness by accelerating the development of cutting-edge defense technologies and supporting innovative consortia. Finally, it should generate significant economic benefits by strengthening the Union’s technological capabilities and industrial ecosystem, thereby contributing to long-term growth.

The next steps involve the European Parliament and the Council reviewing the text as part of the ordinary legislative procedure. The adoption and gradual implementation of the measures will be monitored by dedicated monitoring forums, which will assess the impact of the reform and adjust the provisions based on feedback from industry and national authorities. Coordination between the Commission, Member States, and stakeholders will remain essential to ensure the legal and operational consistency and effectiveness of the entire system.

In conclusion, the European Defense Omnibus Package is a key legal and strategic instrument for strengthening the European Union’s strategic autonomy and the industrial preparedness of its Member States. Through its ability to simplify procedures, improve access to financing, and stimulate innovation, it offers a concrete and operational response to contemporary security and industrial challenges. The rapid adoption and effective implementation of this initiative will be crucial to ensuring that the European Union can respond credibly and effectively to current and future crises.

Official text: Official Journal of the EU (forthcoming)

1. Main objectives of the 18th package

• The measures adopted are based on five strategic pillars:
• Reducing Russian energy revenues
• Strengthening the isolation of the Russian banking system
• Targeting Russian and Belarusian military supply chains
• Combating circumvention mechanisms (third countries, crypto assets)
• Accountability mechanisms under international law (deportation of children, cultural violations)

2. Energy measures: tighter regulation of the oil sector

• The package introduces several measures to strictly regulate trade in energy products:
• Reduction of the price cap on Russian crude oil: from $60 to $47.6 per barrel, with automatic adjustment to 15% below the average price of Urals crude oil over the previous six months.
• Ban on all transactions related to the Nord Stream 1 and 2 gas pipelines.
• Extension of the import ban to refined products derived from Russian crude oil, even if processed outside Russia.
• Sanctions against the “shadow fleet”: 105 new vessels blacklisted, bringing the total to 444, with measures prohibiting access to ports and restricting logistics services.

3. Strengthening financial measures

• The financial component of the package is significant:
• Total ban on transactions with 45 Russian banks, including a ban on providing specialized messaging services (e.g., SWIFT).
• Extension to third-party financial actors (particularly crypto assets) involved in circumventing sanctions or linked to the Russian messaging system.
• Sanctions against the Russian Direct Investment Fund (RDIF): ban on transactions with its subsidiaries, holdings, and intermediaries.
• Ban on providing certain banking software to the Russian Federation or public entities.

4. Trade measures and anti-circumvention measures

• Addition of 26 new entities (15 Russian, 11 in third countries – Turkey, China, Hong Kong) for their involvement in the military industry or circumvention practices.
• Extension of export bans: addition of critical products for energy and construction.
• Targeted “catch-all” mechanism: allows Member States to block exports to third countries in cases of suspected re-export to Russia.

Useful reference: Regulation (EU) No 833/2014 – Sanctions regime against Russia (consolidated)

5. Accountability and ISDS disputes (Investor-State Dispute Settlement)

The package introduces preventive measures against arbitration disputes brought by persons sanctioned under bilateral investment treaties (ISDS), allowing Member States to:

• Refuse compensation to sanctioned investors;
• Recover damages caused by abusive litigation based on the effects of sanctions.

6. Extension of the regime to Belarus

New measures are also being adopted against Belarus, including:

• A ban on the acquisition of weapons;
• Extension of the ban on banking services to a general ban on transactions;
• Addition of industrial entities linked to the Russian military-industrial complex.

Companies exposed to international flows or complex supply chains must:

1. Review their country/customer risk mapping;
2. Rigorously monitor relationships with third parties located in Turkey, China, the United Arab Emirates, or India (identified circumvention zones);
3. Apply enhanced due diligence procedures, including on crypto-assets and indirect relationships;
4. Update their contractual clauses on sanctions compliance.

Useful links:

• EU sanctions against Russia – Official overview
• EU Sanctions Helpdesk: assistance for businesses
• Publications Office of the European Union – Latest regulations

]]> https://www.custax.com/en/export-control-international-sanctions-record-fine-in-guernsey-for-iti-trade-ltd/ Thu, 21 Aug 2025 10:38:30 +0000 https://www.custax.com/?p=1250 On July 18, 2025, the Guernsey Financial Services Commission (GFSC) imposed a cumulative penalty of £210,000 on ITI Trade Ltd and its director, Alex Phil (formerly Alexei Filatov). This fine marks a turning point in the supervision of sanctions regime obligations and serves as a stark reminder of the risks associated with uncontrolled outsourcing to high-risk jurisdictions.

Behind the facade of a Guernsey -registered investment company, ITI Trade operated primarily as a conduit for activities conducted from Russia- a practice made even more problematic by the fact that sanctions against the Russian Federation have been significantly tightened since the outbreak of war in Ukraine in 2022.

The GFSC highlighted a surge in flows and assets under management (+440% in the first half of 2022), against a backdrop of tougher international sanctions regimes. However, this rapid expansion of operations did not prompt an appropriate response from ITI Trade’s management, who maintained a largely fictitious compliance structure.

As a result, the company ceased operations and administrators were appointed by the Royal Court. The GFSC emphasized the seriousness of the breaches, particularly given the high-risk profile of the clientele and the lack of effective controls to manage these risks.

Major compliance and sanctions breaches

The Commission’s investigation revealed a series of systemic failures, particularly regarding Export Control & Sanctions obligations:

No reliable screening mechanism, particularly for Russian nationals or politically exposed persons (PEPs);

Outsourcing of customer and financial flow controls to a Russian sister company, under conditions deemed “rudimentary” and without effective supervision;

Lack of country/customer risk mapping, preventing a coherent view of exposures;

Failure to identify beneficial owners for more than 75% of assets under management (108 unidentified individuals).

Worse still, the director personally altered a compliance report intended for the regulator, attempting to conceal the extent of internal deficiencies.

The fundamental principle: responsibility cannot be delegated

This case clearly illustrates a cardinal principle of sanctions law and export control:

Regulatory responsibility can never be fully transferred.

When certain functions -such as screening, KYC, or customer management- are outsourced, the company remains solely responsible for the compliance of the entire system in the eyes of the supervisory authorities. This applies to financial companies as well as industrial companies.

A strong signal to players in the trade and finance sectors

This record fine (even if its amount seems relatively symbolic in view of the offenses charged and the volumes referred to) is a clear warning to financial institutions, brokerage firms, and exporters:

It is not enough to have a license in a reputable jurisdiction to comply.

It is necessary to demonstrate real, local, proactive mastery of the obligations relating to the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA/LCB-FT) and sanctions.

International sanctions regimes (UK, EU, US) now impose high standards that brook no leniency, even within complex structures or those spread across several countries.

Key points: best practices to adopt

To avoid the pitfalls of the ITI Trade case, here are some essential best practices to implement:

• Rigorous auditing of service providers and related entities, particularly in high-risk jurisdictions;
• Independent, verifiable, and documented screening of clients and partners, particularly those exposed to sanctions or blacklists;
• Active supervision of outsourced functions, with contracts setting out responsibilities and alert mechanisms;
• Up-to-date risk mapping, incorporating geopolitical and regulatory developments;
• Total transparency with the authorities: concealing a breach aggravates the penalty, including for executives personally.

The ITI Trade case reveals a common pitfall in cross-border models: confusing license with legitimacy, and formal compliance with substantive compliance.

It also shows that regulators will no longer tolerate opaque arrangements, unclear responsibilities, or superficial controls.

In a world where sanctions are becoming a major tool of international policy, any company operating internationally must, to succeed, make compliance a strategic priority, on a par with its commercial performance.

This new law amends the Export Control Reform Act (ECRA) of 2018 by imposing an annual reporting requirement to Congress for any application for a license or authorization for export, re-export, or domestic transfer involving:

Entities located in countries subject to arms embargoes (Group D:5 of the EAR and §126 of the ITAR, including China);

Parties listed on the Military End User List (MEU) or the BIS Entity List.

The Department of Commerce, through the Bureau of Industry and Security (BIS), will therefore be required to disclose in a non-public annual report the details of each application processed:

• Name of the applicant company;
• Description of the goods and their classification (ECCN);
• Name and location of the end user;
• Value of the goods;
• Decision rendered and date of submission.

The BIS report will also detail end-use checks and aggregate statistics on all authorizations processed.

A challenge for technological sovereignty

Adopted in a context of strategic rivalry with China, this law marks a clear desire to rebalance the scales between commercial interests and national security imperatives. A parliamentary inquiry conducted in 2023 criticized the BIS for being too permissive in its approvals of transfers of sensitive technologies to China, highlighting the lack of sufficient traceability.

The text therefore aims at establishing a systematic “paper trail” enabling Congress and federal agencies to better monitor the flow of critical dual-use technologies, particularly in the fields of semiconductors, AI, and telecommunications.

What impacts can be expected?

Even though the report will not be made public (except for statistical data), it imposes an obligation of increased transparency on US manufacturers and their partners. This reform could also inspire similar initiatives in Europe, where the issue of sensitive export governance is also under debate, particularly in the context of the strengthening of Regulation (EU) 2021/821 on international trade of Dual -Use goods.

In the meantime, exporting companies operating with entities located in countries under control or on sensitive lists should be extra vigilant, as the BIS could tighten its review criteria in the coming months.

Next steps: If the President signs this bill into law as expected, the BIS’s first report will have to be submitted to Congress by July 2026. This sends a strong signal toward stricter and more transparent regulation of trade in technologies of high strategic value.

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 9^th 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 9^th 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:

• Hogan Lovells – Imports and the False Claims Act (2024)
• https://www.law.cornell.edu/uscode/text/31/subtitle-III/chapter-37/subchapter-III
• Customs and Border Protection – Official site
• https://www.justice.gov/civil/false-claims-act
• https://fr.wikipedia.org/wiki/False_Claims_Act

• https://www.foley.com/insights/publications/2025/05/multinational-company-customs-enforcement-false-claims-act-risks-part-iii/?

[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.

This table is only indicative and does not exempt operators from carrying out a classification analysis of their products in accordance with the applicable regulations.

It is available on the Europa CIRCABC website.

The EU Customs Reform B RAGER