TRANSSHIPMENT AND THE FALSE CLAIMS ACT—IMPORTERS BEWARE
Recently, a US importer contacted me because he had received an e-mail from a Chinese chemical producer/exporter, saying buy my chemical product, which is covered by a US antidumping (“AD”) order. The Chinese producer told the US importer not to worry about the AD duties because the Chinese company would simply ship the product through Taiwan, call it Taiwan product and no problem. The importer was very angry because he knew that transshipment is a crime, and he the US importer could find himself criminally liable for such a scheme.
Chinese companies and US importers have different interests. The Chinese company wants to ship to the US. The US importer wants to stay out of Customs trouble and avoid additional liability, be it civil or criminal.
Several years ago, another importer contacted me about a chemical case and asked me to visit a Vietnamese producer, which was owned by a Chinese chemical company. The US importer was concerned because the Chinese chemical product was covered by an AD order. I visited the Vietnam company and warned the US importer that this was the cleanest chemical production facility that I had ever seen and to be very careful of the situation.
The US importer then decided to no longer be the importer of record on the product and be only the consignee. Under US AD law, the importer of record is liable for the AD duties, not the consignee. The importer also visited the Vietnamese Chemical factory and saw production.
Later, however, the Vietnamese government raided the chemical plant and closed it down saying that the Vietnamese company was simply transshipping the Chinese produced chemical product. After the raid, the US government went after the US consignee accusing the company of a conspiracy with the US importer of record to defraud the US government to avoid AD duties. At the end of the criminal case, the Court sentenced the owner of the US company/consignee to six months in Federal prison. Transshipment is certainly a crime.
But many US and foreign companies, including US importers and even Chinese producers/exporters, do not realize that they can profit from transshipment by Chinese companies and US importers under the False Claims Act. Under Title 31, United States Code, Section 3729 (G), et. seq., any person, including companies, currently face triple damages and a penalty of $11,000 per claim for any of the following acts:
“(G) 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.”
Section 3730 of the False Claims Act (“FCA”) provides a private right of action, that is a private person may sue for a violation of section 3729 on behalf of the US government, such as Customs fraud. The private party called a relator can be a competitor, such as a US importer or foreign producer, or an insider, such as a secretary or a filing clerk. The relator files a copy of the complaint and written disclosure of all material evidence and information possessed by the person under seal in the Federal District Court to show that certain US importers and foreign producers/exporters have committed fraud on the US government by transshipping products covered by antidumping and other trade orders to avoid the duties.
The complaint is brought on behalf of the United States and the Department of Justice. The complaint and the evidence supporting the complaint are not served on the defendants, but on the US government, which has 60 days to determine whether or not to intervene in the case.
If the government decides to intervene and prosecute the action, the private party is entitled to 15 to 25 percent of any recovery. If the government decides not to prosecute the case and the private party goes forward, the private parties are entitled to 25 to 30 percent of any recovery.
The remedy in a False Claims Act case is triple damages and in many AD and countervailing duty (“CVD”) cases, especially against China, the missing AD or CVD duties can be well over 100 to 300% on imports over the last 5 to 6 years. If total annual imports have come in from the transshipment country are over $15 million, for example, the total damages could be well over $100 million to $200 million with a potential payout to the relator of millions of dollars.
Relators be they a competitor or an individual can become very rich because of a False Claims Act case. We presently have an ongoing False Claims Act case, where the total award is potentially more than $80 million with a potential payout to the relator of $12 to $20 million. In a medical FCA case here in Seattle, a young clerk made several million dollars because of a False Claims Act case.
Although President Donald Trump and many in Congress scream about evasion of US AD and other trade duties because of transshipment, they often do not realize that there is already a legal hammer to crush transshipment in the US legal arsenal and that is the False Claims Act.