Chinese companies and the U.S. importers of their products often tell me that they are not concerned about U.S. Antidumping (“AD”) and Countervailing Duty (“CVD”) orders because they can “just get around those orders by transshipping the products to Malaysia, Vietnam, Philippines, Sri Lanka, India, [or some other country] before sending them on to the United States.” Their plan is to relabel the products with a new country of origin and then export the products to the US free of AD and CVD duties, without US Customs and Border Protection (“CBP”) ever being the wiser.
Not only has CBP become expert at discovering such evasions, but the penalties — both civil and criminal — when caught have become very harsh. Importers that knowingly falsely label the country of origin on their imports are subject to significant fines and penalties under 19 USC 1592 and to criminal prosecution under 18 USC 542 (import by using false statement) and 18 USC 545 (smuggling). Lying about a product’s country of origin can subject you to 20 years in Federal prison.
Immigration and Customs Enforcement (“ICE”) has conducted criminal investigations against a number of products under AD and CVD orders, including honey, saccharin, citric acid, lined paper products, pasta, polyethylene bags, shrimp, catfish, crayfish, garlic, steel, magnesium, pencils, wooden bedroom furniture, wire clothing hangers, ball bearings and nails. Many of these investigations have led to criminal convictions and large fines and penalties. U.S. importers have also been prosecuted and sentenced to prison for bringing in Chinese products, such as honey, garlic, wooden bedroom furniture and wire clothing hangers, by means of false Country of Origin statements so as to evade US AD and CVD orders.
Many Chinese companies do not realize that U.S. Customs laws can be used to go after not only US importers that have filed the false documents at Customs, but also after Chinese companies and anyone from those companies involved in setting up the transshipment. In one case, a Chinese seafood executive was arrested at a seafood show in Belgium based on a US extradition warrant for evasion of a US AD order He ended up spending six months in a Belgian prison.
United States CBP, ICE and the Justice Department can be very tough investigators and prosecutors.
The real hammer against evasion of US AD and CVD orders, however, is the False Claims Act (“FCA”). The FCA ( 31 U.S.C. § 3729) allows people or companies, designated a “Relator”, to file what are termed “qui tam” lawsuits against individuals or companies that directly or indirectly defrauded the Federal government. Through qui tam lawsuits, the informants or “whistleblowers” may recover triple damages on the government’s behalf. Anyone who knows of the fraud, including a competitor company may file a qui tam lawsuit. And they do.
Relators file these qui tam actions to attack competitors and to get 15 to 30 percent of the triple damages the U.S. Government can recover from the lawsuit. Your competitors and your importers and your own employees are the most likely to initiate a qui tam lawsuit against you, but sometimes it is just someone who learned of what you are doing. Because the person or company that brings such an action can be awarded millions and even tens of millions of dollars, the incentive to file is huge. If you want to get a better idea of just how lucrative these lawsuits can be, do a Google search for lawyers looking to take on qui tam lawsuits.
The qui tam relator’s lawsuit is filed confidentially and is not served on the defendants, but on the US Government. The US Government then determines whether to intervene and pursue the action or settle the matter with the defendant. If the U.S. Government intervenes, it takes on primary responsibility for the case. If the U.S. Government decides not to intervene, the relator may dismiss the lawsuit or pursue the lawsuit on its own.
Under the False Claims Act, relators and the government can look backward as much as ten years after the date on which the violation was committed. When looking at imports over 10 years subject to antidumping orders with potential rates of over 300%, the amounts being evaded are usually enormous. In one False Claims Act we handled, the antidumping duties evaded were over $80 million. When those duties were tripled, and additional penalty sums were added for false statements and attorneys’ fees, the complaint against numerous importers exceeded $300 million. Our original complaint has resulted in an ongoing penalty action for $80 million against one U.S. importer, with the relator entitled potentially to $12 to $24 million of this sum.
With increasing opportunities to collect such massive sums, both the U.S. Government and private companies and individuals have huge incentives to bring more False Claims Act cases against those who transship and seek to evade U.S. antidumping and countervailing duties. If you are exporting to the United States or importing into the United States, you need to be wary of the hammer against transshipment—the False Claims Act.