DOJ Intervenes in Whistleblower-Initiated Customs Fraud Case (and, Likely Unintentionally, Potential Family Feud)
The Department of Justice’s (DOJ) intervention last week in a whistleblower-initiated False Claims Act case is going to make for an awkward holiday season for at least one family. The case, US ex rel. Xing Wei v. Yingshun Garments, Inc. et al, was filed in January 2013 in the Southern District of New York and alleges a scheme to avoid import duties on women’s clothing manufactured in China and sold to retailers in the United States. The case was brought by whistleblower Xing Wei, an Australian resident and the mother of a former sales representative for one of the defendant companies. The DOJ also identified as co-conspirators in its complaint, but did not name as defendants, the owner of one of the defendant companies (Relator’s sister-in-law) and her daughter, the President of another of the Defendant companies (Relator’s niece).
According to the government’s complaint in intervention, Defendant Wuxi Yifeng (a Chinese manufacturer of women’s clothing), Defendant Yingshun (an American subsidiary of Wuxi Yifeng which was created specifically to import its clothing), and Notations (an American wholesaler), produced, or tolerated and encouraged the production of, false invoices undervaluing the goods being imported into the U.S. for sale. Defendants presented these fraudulent invoices to Customs and Border Protection (CBP), the agency in charge of collecting import duties. The invoices presented to CBP by Defendant Yingshun had allegedly been falsified to understate the value of the goods by 75% or more. This fraudulent activity allowed the Chinese manufacturer to avoid import duties of approximately 32% of the value of the imported goods. In turn, Notations was able to increase its profits by purchasing the Chinese goods at reduced rates. At least 1.8 million garments were sold to Notations under this arrangement, likely resulting in millions of dollars in unpaid duties.