New Tariffs Mean New Targets of the False Claims Act

The value of goods imported to the United States in Fiscal Year 2024 was $893.15 billion, and as a result, U.S. Customs and Border Protection (“CBP”) collected $24.37 billion in duties, taxes and fees for those imports.¹ Given the flurry of emergency tariffs that President Donald Trump has implemented since taking office, those numbers are guaranteed to increase. To ensure that importers are accurately reporting the value, origin and classification of goods, the government may increase customs and tariffs enforcement through the False Claims Act, which prohibits any knowing obligation to pay monies due to the federal government, i.e., a customs duty.

The Interaction Between Tariffs, Customs Duties and CBP

In simplest terms, a customs duty is a tariff or tax imposed on goods entering the United States. The United States sets forth articles for which a customs duty must be paid, and each article has a specific duty rate, which is determined by several factors, including where you acquired the article, where it was made and what it is made of. An ad valorem tariff, such as the duties at issue in the new executive orders, functions as a tax on imported goods levied as a percentage of the imported goods’ value.² The Harmonized Tariff Schedule of the United States (HTSUS) provides ad valorem duty rates for any potential item being imported.

CBP is the agency primarily responsible for administering United States customs laws and regulations. To determine the applicable tariff rates and statistical categories for all merchandise imported into the United States, CBP uses the Harmonized Tariff Schedule. The United States government— through the Department of Justice or CBP, among other agencies — may enforce customs laws against importers who are seeking to evade payment of customs duties.

A Summary of the Executive Orders Instituting New Tariffs

On February 1, 2025, President Donald Trump signed three executive orders imposing across-the-board emergency tariffs on goods imported from Canada, Mexico and China. The executive order applying additional tariffs to imports from China entered into force on February 4, 2025. President Trump announced later that implementation of the executive orders for Canada and Mexico will remain on hold until March 4, 2025. Trump also signed a February 10, 2025, presidential proclamation imposing a 25-percent rate on imports of aluminum and steel from all countries under Section 232 of the Trade Expansion Act of 1962, 19 U.SC. § 1862.³

President Trump issued the executive orders for imports from Mexico, Canada and China under the International Emergency Economic Powers Act (“IEEPA”) (50 U.S.C. § 1701 et seq.), the National Emergencies Act (50 USC § 1601 et seq.), and the Trade Act of 1974 (19 U.S.C. § 2483 et seq.), which collectively give the President the emergency power, for national security reasons, to impose the following additional duties on imports from Canada, Mexico and China:

• An additional 25-percent rate of duty on imports of goods from Canada and Mexico⁴;
• An additional 10-percent rate of duty on imports of energy or energy resources from Canada.
• An additional 10-percent rate of duty on imports of goods from China⁵.

According to all three orders, the tariff rates will be charged “in addition to any other duties, fees, exactions, or charges” applicable to imported articles, meaning importers should expect to pay the new rates on top of existing rates the government charges for specific goods.

The executive orders for Canada and Mexico exclude subject goods from de minimis treatment under 19 U.S.C. § 1321, which provides a duty-free exemption for imports valued under $800 imported in a single day. President Trump reinstated the de minimis treatment for imports from China through a subsequent executive order dated February 5, 2025⁶, until the Secretary of Commerce verifies that “adequate systems are in place to fully and expediently process and collect tariff revenue” under the executive order, but the provisions remain in effect for the now-suspended executive orders applying to imports from China and Mexico.  

False Claims Act Enforcement Mechanisms

The federal government has power to enforce the evasion of customs duties executive orders under the False Claims Act. Under the False Claims Act, 31 U.S.C. §§ 3729-3733, importers may be liable for “knowingly” misstating or omitting the amount of a duty owed upon import. Importantly, the term knowingly is defined to include acting in reckless disregard of the truth or falsity of the information. Additionally, no specific intent to defraud is required for a False Claims Act violation. The federal government commonly enforces FCA claims through the qui tam procedure, whereby whistleblowers — including corporate employees — may submit federal lawsuits against importers in an effort to draw the U.S. government’s intervention. These whistleblowers may recover a reward that ranges from 15%-30% of the settlement amount if the government intervenes and recovers damages for the alleged false claim. This remedy extends to actions involving customs.

Trade and customs activities which could elicit False Claims Act litigation include: (i) underreporting a duty owed under the Harmonized Tariff Schedule⁷, (ii) transshipments through a third country and falsely representing that the goods were manufactured in that third country in order to evade higher tariffs imposed on goods from the actual country of origin; (iii) misclassifying the type of good that it is importing into the United States, as the HTS classifies each type of merchandise being imported into the United States and different HTS codes have different tariff rates; and (iv) structuring or splitting a shipment into multiple shipments to stay below a certain dollar threshold and avoid customs duties. Indeed, the DOJ’s enforcement of customs duties relating to misclassification, undervaluation and misrepresentation of the country of origin is not new and recent actions span across industries:

• An October 2024 lawsuit against a former executive of a solar company, seeking $1.1 million in repaid duties and civil penalties over allegations that he misclassified solar panels as LED lights⁸;
• A December 2023 settlement for $798,334 involving a furniture importer for misrepresenting the value of its merchandise that was manufactured in China and imported into the United States⁹;
• A January 2023 settlement involving the misclassification of vitamin and nutritional supplements imported from China under the HTS for $22.8 million¹⁰;
• An over $22.2 million settlement in September 2020 (during the first Trump administration) involving a German company and its U.S. subsidiaries that imported materials into the United States for use in the construction of natural gas and chemical manufacturing plants and misrepresented the nature, classification and valuation of imported merchandise.¹¹

Companies importing goods into the United States should expect increased scrutiny from whistleblowers and government officials regarding potential false claims on customs duties, especially under the recent executive orders. Notably, the Department of Justice, through an action it first brought under President Biden, is currently seeking to recover over $11 million in duties and up to $62 million in civil forfeitures and associated penalties for a Florida company’s alleged avoidance of special duties on aluminum wire shipments.¹² The case has remained pending under the second Trump administration.¹³ Attorney General Pam Bondi also reaffirmed the Department’s commitment to False Claims Act enforcement at her confirmation hearing, responding to questions from Senate Judiciary Committee Chairman Chuck Grassley. Bondi said the False Claims Act is “so important” in part because of the “money it brings back to our country.”

Takeaways

Importers from all industries should pay close attention to their customs compliance regimes given the intense focus on customs issues and the new tariffs on major U.S. trading partners and increased likelihood of enforcement. Thus, companies should consider their concurrent policies and practices for compliance; encourage a culture of compliance such that any potential whistleblower may feel comfortable raising a concern with the company instead of filing a qui tam action; and reviewing its customs declarations for accuracy.

If you have questions regarding the new tariffs or how to prepare for their implementation, or if you are concerned about exposure to qui tam actions for customs fraud, please contact your Quarles attorney or:

• Kirti Vaidya Reddy: (414) 277-5260 / kirti.reddy@quarles.com
• Ryan Rainey: (608) 283-2405 / ryan.rainey@quarles.com

• Aziza Mohamadhossen: (813) 384-6748 / aziza.mohamadhossen@quarles.com 

Please visit our Federal Policy Watch: Monitoring White House Developments page for more insight about navigating changes at the federal level.

END NOTES

¹ Trade Statistics, Customs and Border Protection (last visited Feb. 11, 2025).

² Ad valorem tariff, Glossary Term, World Trade Organization (available here) 

³ Presidential Proclamation, Adjusting Imports of Steel into the United States (Feb. 10, 2025) (available here).  

⁴ Exec. Order, Imposing Duties to Address the Situation at Our Southern Border (Feb. 1, 2025) (available here); Exec. Order, Imposing Duties to Address the Situation at Our Northern Border (Feb. 1, 2025) (available here).

⁵ Exec. Order, Imposing Duties to Address the Synthetic Opioid Supply Chain in the People’s Republic of China (Feb. 1, 2025) (available here).

⁶ Exec. Order, Amendment to Duties Addressing the Synthetic Opioid Supply Chain in the People’s Republic of China (Feb. 3, 2025). (available here).

⁷ See United States ex rel. Taylor v. GMI USA Corp., 714 F. Supp. 3d 275, 287 n.3 (S.D.N.Y. 2024) (collecting cases); U.S. ex rel. Winslow v. PepsiCo, Inc., No. 05 CIV. 9274 (CLB), 2007 WL 1584197 (S.D.N.Y. May 31, 2007).

⁸ Department of Justice, Justice Department Files Suit for Unpaid Duties and Penalties for Alleged Misclassification and Failure to Pay Duties on Imported Chinese Solar Panels (October 10, 2024), available here. 

⁹ Link here. 

¹⁰ Link here.

¹¹ Department of Justice, Multinational Industrial Engineering Company To Pay $22 Million To Settle False Claims Act Allegations Relating to Evaded Customs Duties (September 10, 2020), available here. 

¹² United States v. Repwire, LLC, Case No. 1:24-cv-00173 (Ct. Intl. Trade); see also United States Files Suit for Unpaid Duties and Penalties for Alleged Transshipment of Chinese Aluminum Wire, U.S. Department of Justice (Sept. 13, 2024) (available here).

¹³ Id.