Customs fraud cases are on the rise as many companies try to save money by illegally avoiding the payment of tariffs and duties. Companies use many schemes to evade customs duties. Some companies misrepresent the country of origin on imports. Others misclassify the types of goods they are importing. And some use a tactic called double-invoicing.

Double-Invoicing Customs Fraud Schemes

Double-invoicing schemes are commonly used to fraudulently understate the value of imported goods. In this type of scheme, a manufacturer usually will prepare two invoices: a false invoice to provide to the government, and a real invoice to provide to the importer. The false invoice shows that the goods are less valuable than they actually are, so the importer owes lower duties and tariffs. The importer pays the manufacturer according to the real invoice, which shows the true value of the goods.

Recently, the U.S. Department of Justice (DOJ) settled a case against two clothing companies and their owner for using a double-invoicing scheme. According to the DOJ, the companies “engaged in two types of ‘double invoicing’ schemes to fraudulently underpay customs duties owed to the United States in connection with the garments that they brought into the country.” In the first scheme, the exporter provided two invoices: one that reflected a fraudulently reduced value for the goods, and one that reflected the true value of the goods. The exporter submitted the first invoice to U.S. Customs and Border Protection (CBP), and the second invoice to the importer. The two invoices were identical except they listed different prices for the same goods. Because CBP saw only the first invoice with the fraudulently reduced prices, the importers were able to pay reduced customs duties.

In the second double-invoicing scheme, the exporter provided one invoice that reflected a fraudulently reduced value for the goods, and a second invoice that reflected the price discounts that led to the figures on the first invoice. When combined, the two invoices reflected the actual price of the shipment. As in the first scheme, the apparel companies submitted only the first invoice to CBP. For instance, on one occasion, the importers provided a false invoice to CBP that showed they imported approximately $393,000 worth of goods. In reality, the goods were worth approximately $444,000, meaning the importers fraudulently reduced their reported value by approximately $51,000. The exporter then provided the importer with a second invoice for the $51,000 difference, ostensibly charging for “samples,” but really charging for the remainder of the true value of the products.

The apparel companies used these double-invoicing schemes to fraudulently underreport the value of the goods they were importing in order to evade the payment of millions of dollars in customs duties. Fortunately, a whistleblower—the CFO of the apparel companies—identified the fraud and filed a lawsuit on behalf of the federal government under the False Claims Act. As a result of this whistleblower lawsuit, the companies and their owner paid more than $7.6 million in civil and criminal penalties, and the owner was sentenced to six months in prison. The whistleblower received $1.2 million for his share of the recovery.

How to Report Customs Fraud

With millions of containers entering the United States every day, the government does not have the resources to monitor every shipment. The government relies on whistleblowers to step up and play a vital role in the enforcement of our customs laws.

Whistleblowers can report customs fraud by filing a case under the False Claims Act (FCA). The FCA allows a private citizen or company to file a case on behalf of the government. Employees of a company committing fraud, competitors of a company committing fraud, or other individuals working closely with the importation of goods may have information about customs fraud schemes. Whistleblowers who file a lawsuit under the FCA can receive 15% to 30% of the money recovered in the case. They are also protected from retaliation by their employers.

The most important step in filing a whistleblower lawsuit is to seek the assistance of an experienced whistleblower attorney. The attorneys at Baron & Budd can guide you through every step of the process and help you maximize your chances of sharing in a successful recovery by the government.

Contact Baron & Budd

With more than 30 years of experience, the attorneys on Baron & Budd’s whistleblower representation team have represented dozens of clients in government fraud cases returning over $6 billion to federal and state agencies, with whistleblower recovery shares as high as 49%. They are ready to help if you have evidence of customs fraud.

Please call (866) 845-2164 or complete our contact form if you would like more information. For more information, see What You Need to Know About Becoming a Whistleblower.  Please understand that contacting us does not mean that you have established an attorney-client relationship with Baron & Budd, P.C.