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Catch of the Week: King Kong Tools

Posted  November 30, 2023

This week’s Department of Justice (DOJ) Catch of the Week goes to King Kong Tools GmbH & Co KG.  On  Wednesday (November 29), the German-based supplier of recycling, forestry, construction, and agricultural equipment, along with its American subsidiary, agreed to pay $1.9 million to settle DOJ charges of violating the False Claims Act through customs fraud.  More specifically, the government alleged King Kong falsely labelled its products as “made in Germany” when they actually were made in China.  All to avoid paying higher tariffs.

According to the government, King Kong was making cutting tools in a Chinese factory.  King Kong then shipped them to Germany, where it performed additional processing on some of the tools.  King Kong then shipped the tools to the United States, declaring all of them — even the ones originating from China without any additional manufacturing performed in Germany — “German-made” products.  Doing this allowed the company to escape the 25% tariff on Chinese goods.

Going after customs fraud has been a perennial priority for DOJ under the False Claims Act.  In addition to misrepresenting the country of origin, as King Kong is alleged to have done here, the most common areas of customs fraud include undervaluing the value of imported goods; misclassifying imported goods; and structuring or splitting shipments.  Each of these schemes allows the importer to pay lower custom duties or avoid them altogether by falling below or outside the tariff thresholds or coverage.

In announcing the King Kong settlement, the government made it clear it would not tolerate any form of customs fraud.  According to US Attorney Ryan Buchanan, “companies cannot avoid paying tariffs by misrepresenting product manufacturing information,” and DOJ “will work diligently to uncover these schemes, and those companies involved in such misconduct will be compelled to pay tariffs owed, as well as penalties.”

The government further stressed that going after these kinds of transgressions is not just about the money.  It is also about ensuring fair competition.  As Travis Pickard from Homeland Security put it: “stopping businesses from cheating the customs system not only prevents them from defrauding our government, but also prevents unfair competitive advantages that harm the labor market.”  Gregory Alvarez from Customs and Border Protection echoed this sentiment, emphasizing how customs fraud “results in an unfair advantage of legitimate businesses.”

The allegations in this case originated with a whistleblower who brought suit under the qui tam provisions of the False Claims Act, which allow private parties to sue those committing fraud against the government.  If successful, whistleblowers are entitled to up to 30% of the government’s recovery.

Typically, whistleblowers are employees of the defendant who have witnessed the fraud first-hand.  But that is not a requirement under the False Claims Act.  Anyone can be a whistleblower and “outside” whistleblowers, not employed by the defendant or even associated with the company, are becoming more common.  Often they are competitors of the defendant (or employees of competitors) exposed to the fraud in the course of their efforts to compete against the defendant.

That was the case in the King Kong matter with King Kong’s competitor, China Pacificarbide, Inc., filing the original False Claims Act case that initiated the government’s investigation and ultimate settlement.  That company will receive a whistleblower reward of 15% of the government’s recovery, amounting to roughly $287,000.

Constantine Cannon has represented numerous whistleblowers reporting customs fraud under the False Claims Act.  If you have information relating to potential fraud in this area, or to potential fraud in any area causing financial loss to the government, please do not hesitate to contact us.  We will connect you with an experienced member of our whistleblower lawyer team for a free and confidential consult.

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Tagged in: Catch of the Week, Customs Fraud, FCA Federal, Misrepresentations, Whistleblower Case,