The U.S. Department of Justice ("DOJ") recently announced that a Japan-based company, Toyo Ink SC Holdings Co. Ltd., and various affiliated entities, have agreed to pay $45 million plus interest to settle allegations they knowingly failed to pay antidumping and countervailing duties. DOJ alleged that the companies, between 2002 and 2010, knowingly misrepresented or caused to be misrepresented the country of origin on documents presented to U.S. Customs and Border Protection ("Customs"). These misrepresentations allegedly allowed the companies to avoid paying duties, and particularly countervailing and antidumping duties, on certain imported products.
This case represents much more than just an importer allegedly evading duty payments as it has many different elements to it, one being substantial transformation. The products at issue were colorant carbazole violet pigment number 23 (CVP-23). While the companies represented the products' country of origin to be either Japan or Mexico, to which antidumping or countervailing duties would not apply, the products actually originated either in India or China, to which antidumping or countervailing duties would apply. The CVP-23 products went through a finishing process either in Japan or Mexico before being imported into the United States, but the government maintained that those processes were not sufficient to substantially transform the products into products of Japan or Mexico. Consequently, the government challenged the companies' claims that the products were not subject to antidumping or countervailing duties. If nothing else, this case underscores the value of making honest and accurate country-of-origin claims based on substantial transformation. But this case raises important additional concerns for importers.
Under the False Claims Act, 31 U.S.C. § 3729 et. seq., ("FCA") any person who knowingly presents to the federal government a false or fraudulent claim for payment or approval is liable to the government for a civil penalty of not less than $5,000 nor more than $10,000, plus three times the amount of damages which the government sustains because of the act. Knowingly presenting a false claim is deemed to include not only making a claim for payment, but also making or using a false statement or record to conceal, avoid or decrease an obligation to the government. Accordingly, attempting to avoid or reduce a duty obligation by making false statements to Customs about classification, valuation or country of origin of imported merchandise can subject an importer to FCA liability.
Moreover, that liability does not run only to the government. The FCA authorizes private citizens to commence actions as "private attorney generals." A private citizen with evidence that an individual or company is violating the FCA is entitled to bring a civil action in his or her name and in the name of the federal government. The complaint is filed under seal with the appropriate federal court. A copy of the complaint, along with the evidence the plaintiff possesses, is filed with the DOJ, which then decides whether to intervene in the civil action. DOJ can also determine if the matter warrants a criminal investigation.
Should DOJ intervene in the civil case and the plaintiff prevails, the private citizen may receive from 15% to 25% of the recovery. If DOJ chooses not to intervene and the plaintiff prevails, the private citizen may receive between 25% and 30% of the recovery. These recoveries are in addition to recoveries for reasonable expenses and attorney fees.
In the instant situation, the case was brought under the False Claims Act by John Dickson, president of a domestic producer of CVP-23. As a result of bringing the case Mr. Dickson will receive more than $7.8 million as his share of the government's recovery. DOJ advised in its press release that, "The claims settled by this agreement are allegations only; there has been no determination of liability."
The lesson for importers from this matter is that the consequences of inaccurate country-of-origin designations go far beyond potential liability to Customs. A competitor or even an importer's own employee can bring an FCA action against the employer based on allegedly intentional wrongdoing or reckless disregard where the organization is allegedly not paying required duties. The FCA's private attorney general authority significantly augments the government's tools to thwart underpayment of duties by making it financially worthwhile for those with knowledge of alleged wrongdoing to act on what they know.
For more infromation, you can read the government's press release on the case.