And Yet Another Whistleblower-Originated Customs Fraud Case -- Ceratizit Pays $54.4M in Largest-Ever False Claims Act Settlement

By the Constantine Cannon Whistleblower Team

Last Thursday (December 18), the Department of Justice (DOJ) announced that North Carolina-based Ceratizit USA agreed to pay $54.4 million to settle allegations it violated the False Claims Act by failing to pay duties it owed Customs and Border Protection (CBP) on the products it imported from China.[1]  It is just the latest in a string of customs fraud settlements this year, but the largest by far, and the largest settlement ever under the False Claims Act for evading customs duties.

What Was the Customs Fraud Ceratizit Allegedly Committed?

According to the Government, Ceratizit engaged in three forms of customs fraud to avoid the customs duties it owed on the tungsten carbide products it imported from China.  These are hard, wear-resistant materials used for making cutting tools and other components.

First, the Government alleged that over roughly a 4-year period (August 2020 through March 2024), Ceratizit misrepresented the country of origin of the Chinese-manufactured tungsten carbide products it imported into the United States.  Specifically, Ceratizit allegedly knew these products had been manufactured in China and transshipped to Taiwan before being shipped to the United States, but told CBP the products originated in Taiwan.  The Government claimed the company engaged in this stratagem to avoid paying applicable Section 301 tariffs, which — largely targeting Chinese imports — are designed to protect U.S. companies from what the Government considers unfair foreign trade practices.

Second, the Government alleged that over roughly a 10-year period (June 2015 through March 2024), Ceratizit misclassified tungsten carbide products under the incorrect Harmonized Tariff Schedule (HTS) code to further avoid paying the duties it owed.  The HTS is what CBP uses to classify imported goods and determines what customs duties apply.  The Government claimed the company misclassified the imports under HTS code 8311.90.00 which is duty free when it should have classified them under HTS code 8209.00.00, which corresponds to a 4.6% duty rate.

Third, the Government alleged that over a roughly 5-year period (May 2019 through March 2024), Ceratizit failed to mark the country of origin of its imported products and pay the relevant marking duties for these unmarked products before distributing them in the United States.

What Other Customs Fraud Settlements Has DOJ Secured This Year Under the False Claims Act?

This settlement follows on the heels of numerous False Claims Act settlements DOJ has secured this year against companies accused of engaging in customs fraud, mostly involving imports from China.  Just a few weeks ago, Harman International Industries agreed to pay roughly $11.8 million to settle allegations it violated the False Claims Act by evading antidumping and countervailing duties on aluminum goods from China.

And just a few months before that were several additional settlements for similar alleged wrongdoing:

• • In August, Allied Stone agreed to pay $12.4 million for allegedly mischaracterizing its quartz surface countertop/cabinetry products from China as marble or crystallized glass.

• • In July MGI International subsidiaries Global Plastics and Marco Polo International agreed to pay $6.8 million for allegedly claiming the wrong country of origin and value on plastic resin products they imported from China.

• • In July, Grosfillex agreed to pay $4.9 million for concealing that certain furniture parts imported from China were made of extruded aluminum.

• • In March, Evolutions Flooring agreed to pay $8.1 million for allegedly mischaracterizing the country of origin of the wood flooring it imported from China.

Is Customs Fraud a DOJ False Claims Act Enforcement Priority?

No doubt, the Government’s crusade against customs fraud is not tamping down anytime soon.  As DOJ Civil Chief Brett Shumate underscored in DOJ’s press release announcing this most recent DOJ enforcement action: “This settlement once again demonstrates [DOJ] will zealously pursue those who seek an unfair advantage in U.S. markets by evading customs duties.”  U.S. Attorney Jerome Gorgon for the Eastern District of Michigan added: “We will use the law to support our companies and to make cheaters pay.”

As we have previously posted, DOJ and the Trump Administration continue to treat customs fraud as a top enforcement priority.  In addition to all the False Claims Act settlements, DOJ launched a customs fraud task force in August, partnering with Homeland Security to “aggressively pursue” customs scofflaws and companies smuggling prohibited goods into the country.  And in May, DOJ expanded its Corporate Whistleblower Awards Pilot Program to specifically include customs fraud within its ambit.

According to Constantine Cannon whistleblower partner Gordon Schnell, “With the steady stream of False Claims Act settlements, the recently launched customs fraud task force, and the expanded focus of DOJ’s corporate whistleblower program, DOJ has tripled down on its campaign to stamp out customs fraud.”

What is the Role of Whistleblowers in Reporting Customs Fraud?

Schnell further notes it is not just DOJ taking action against customs fraud.  “More and more whistleblowers are using the qui tam provisions of the False Claims Act to bring lawsuits to go after this misconduct,” he says.  In fact, in announcing the Ceratizit settlement, DOJ specifically invited whistleblowers to do just that, explicitly stating it “encourages whistleblowers to utilize the qui tam provisions of the False Claims Act to alert the government to credible allegations of fraud.”

These provisions allow private parties to bring lawsuits on behalf of the Government against those committing fraud against the Government.  In exchange, successful whistleblowers can receive up to 30% of the Government’s recovery.  Given the complexity or hidden nature of these customs avoidance schemes, sometimes they can only be detected by those on the inside with first-hand knowledge or exposure of the fraud.  That is why so many False Claims Act cases involving customs fraud are originated by whistleblowers.

That was the case with the Ceratizit matter.  It originated with a qui tam lawsuit filed by Mark Stover, who will receive a whistleblower award of roughly $9,750,000 from the proceeds of the Government’s recovery.  The Harman, Allied Stone, Grosfillex, and Evolutions Flooring matters also were all originated by whistleblowers under the False Claims Act.

Constantine Cannon Has Substantial Experience Representing Customs Fraud Whistleblowers Under the False Claims Act

Constantine Cannon has substantial experience representing customs fraud whistleblowers under the False Claims Act.  In one of our more recent cases, the firm represented a whistleblower alleging an auto parts distributor misclassified brake pads imported from Asia to avoid millions of dollars of customs duties.  The company settled that matter for $8 million with our client receiving 18.5% of the Government’s recovery.

If you would like to learn more about our other whistleblower successes, customs fraud, the False Claims Act, or what it means to be a whistleblower more broadly, please do not hesitate to contact us.  We will connect you with an experienced member of the Constantine Cannon whistleblower team for a free and confidential consultation.

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Sources:

[1]  See https://www.justice.gov/opa/pr/ceratizit-usa-llc-agrees-pay-544m-settle-false-claims-act-allegations-relating-evaded-0.

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