Importers agree to pay $15 million to settle Reverse False Claims allegations

posted on:
January 19, 2016

author:
Andrew Brashier

Last month, the Department of Justice announced that University Furnishings agreed to pay $15 million to resolve a lawsuit. The suit, brought under the False Claims Act (FCA), alleged that University Furnishings was evading customs duties by making false statements concerning furniture imported from the People’s Republic of China. This type of fraud is commonly known as reverse false claims.

The reverse false claim provision of the FCA states:

[A person is liable for certain acts if that person] knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.

31 U.S.C.A. § 3729. Regarding the FCA, usually the subject ― the financial obligation ― of the fraud flows in one direction. An entity defrauds the government in order to obtain some sort of payment. However, when an entity defrauds the government in order to avoid an obligation to pay, it’s known as a reverse false claim because the subject of the fraud flows in the opposite of the usual direction.

A similar situation occurred in U.S. ex rel Huangyan Imp. & Exp. Corp. v. Nature’s Farm Products, Inc., where mushrooms being imported from Chile were being falsely labeled and designated as imported from Canada. These mushrooms were shipped from Chile to Canada, repackaged and relabeled, and then imported into the United States duty free pursuant to the North American Free Trade Agreement, thus avoiding $7.8 million in antidumping duties.

An antidumping duty is simply the price of bringing certain products into the United States. Because the obligation to pay these duties exists before and outside of the false statement, the reverse false claim provision of the FCA applies. A Chilean mushroom will always be Chilean, even in Canadian packaging.

Allegedly, University Furnishing was classifying wooden bedroom furniture as being office furniture in order to avoid the antidumping duties on imported wooden bedroom furniture manufactured in the People’s Republic of China. University Furnishing would then sell the furniture as student dormitory bedroom furniture.

Concerning the University Furnishing allegations, Principal Deputy Assistant Attorney General Benjamin C. Mizer stated, “Those who introduce goods into the United States must comply with the law, including the payment of customs duties meant to protect domestic companies and American workers from unfair competition abroad.”

The allegations against University Furnishings were brought under the qui tam or whistleblower provision of the FCA. The FCA permits private individuals to sue on behalf of the government when the government itself is being defrauded. The FCA also provides incentives for private individuals to do the right thing and report the fraud. These incentives include 15 to 30 percent of the funds recovered by the government. In this case, the whistleblower will receive $2.25 million for their participation in the investigation.

Are you aware of fraud being committed against the federal government, or a state government? If so, the FCA can protect and reward you for doing the right thing by reporting the fraud. If you have any questions about whether you qualify as a whistleblower, please contact an attorney at Beasley Allen for a free and confidential evaluation of your claim. There is a contact form on this website, or you may email one of the lawyers on our whistleblower litigation team: Andrew Brashier, Archie Grubb, Larry Golston, or Lance Gould.

Sources:
U.S. Department of Justice
U.S. ex rel Huangyan Imp. & Exp. Corp. v. Nature’s Farm Products, Inc., 370 F. Supp. 2d 993 (N.D. Cal. 2005)
31 U.S.C.A. § 3729 (West)

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