Clifford Chance

The US Department of Justice (DOJ) has announced that it intends to be vigilant in monitoring tariff compliance and to take action against tariff circumvention.

One of the headline tactics of the new Trump Administration has been the aggressive use of tariffs as an economic and foreign policy tool. The specific tariffs change almost on a daily basis, but the Administration's tariff initiatives have targeted traditional rivals and allies alike, including China, Canada, Mexico, and the European Union. And the Administration shows no sign of moderating its approach. To the contrary, on a day it deemed "Liberation Day," April 2, 2025, the Administration announced sweeping new tariffs targeting virtually all imports.

In support of these policies, the US Department of Justice (DOJ) has announced that it intends to be vigilant in monitoring tariff compliance and to take action against tariff circumvention through tactics such as undervaluing or misclassifying imported goods or misrepresenting their country of origin. DOJ has a powerful weapon for this: the False Claims Act (FCA), 31 U.S.C. § 3729(a) et seq., which is a statute targeting financial fraud against the federal government. In an early speech to the Federal Bar Association, one DOJ official gave early warning that DOJ would aggressively use the FCA to target tariff evasion and customs fraud. The FCA also gives private parties a cause of action to initiate claims on behalf of the government, goaded by the strong incentive of sharing in any proceeds recovered – which include treble damages.

Given the economic incentives for importers to attempt to evade tariffs and for the government to police those circumvention efforts, we anticipate a sharp increase in trade- and tariff-related FCA cases by both DOJ and private plaintiffs.

The FCA and "Reverse False Claims"

The FCA is a long-standing statute that was first enacted to address defense contractor fraud during the American Civil War. The statute provides in part that any person who "knowingly presents . . . a false or fraudulent claim for payment or approval" to the United States government is liable. 31 U.S.C. § 3729(a). A so-called "reverse false claim" occurs when a person knowingly and improperly avoids or decreases a payment obligation to the government, such as customs duties or tariffs.

FCA claims can be brought by the government itself or by private-party "relators" on behalf of the government, through "qui tam" actions. In qui tam actions, relators' complaints are sealed until the DOJ decides whether to intervene in the case. If the DOJ does decide to intervene, then it will take the relator's place in the action. 31 U.S.C. § 3730(c)(1). Depending on their contributions, relators can be entitled to up to 30% of the amount recovered.

FCA penalties can be extremely high, as the statute allows for civil penalties and treble damages. In Fiscal Year 2024, DOJ obtained more than $2.9 billion in settlements and judgments under the FCA and reported the highest number of qui tam suits ever brought by relators.^[1]

Use of the FCA to Combat Tariff Circumvention

Reverse false claims allegations are often used to penalize tariff and customs evasion. FCA liability in the context of tariff evasion would typically involve (1) undervaluing imported goods, (2) misclassifying the imported goods, or (3) misrepresenting the country of origin of the imported goods. And the government and putative relators will be on the lookout for other novel fact patterns.

Defenses to liability often rely on the "obligation" and knowledge (or "scienter") elements of the statute. The FCA defines "obligation" to mean "an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment." 31 U.S.C. § 3729(b)(3). Defendants may be able to challenge the "obligation" prong by, for example, contesting whether a tariff or duty is owed, or whether they are the appropriate party to file a related report.

The "scienter" element requires that a person "knowingly" submit a false claim, which is defined by the FCA to "mean that a person, with respect to information (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information." 31 U.S.C. § 3729(b)(1)(A). Furthermore, the Supreme Court, in 2023, clarified that the FCA's scienter element refers to a person's knowledge and subjective belief, not whether a reasonable person objectively "might have known."^[2] This is a rigorous standard.

Recent examples of trade-related FCA reverse false claims cases include:

• In 2024, DOJ filed a FCA suit against Repwire LLC, a Florida wire and cable importer, Repwire's manager, and its insurer, for allegedly making false statements to customs officials when importing Chinese aluminum. The complaint alleges that Repwire falsely classified the type of aluminum wire it was importing from China under the Harmonized Tariff Schedule (HTS), and that it falsely identified the country of origin for various examples of its merchandise as Singapore or Korea. DOJ is seeking the recovery of over $11 million in import duties and up to $62 million in civil penalties.^[3]
• In 2023, International Vitamins Corporation settled an FCA suit for $22.8 million to resolve allegations that it had been misclassifying more than 30 of its products under the HTS in order to avoid paying customs duties. ^[4]
• In 2020, Linde GmbH and its U.S. subsidiary Linde Engineering North America LLC settled an FCA suit alleging false statements relating to natural gas and chemical manufacturing imports for $22million.^[5] Linde was alleged to have submitted invoices and entry forms that falsely identified its imported goods under the HTS to avoid antidumping and countervailing duties.

Takeaways

Rising tariffs mean increased incentives to circumvent tariffs and avoid customs duties. And the Trump Administration's focus on tariff policy likely means that its enforcement efforts will be aggressive. Importers should pay close attention to their programs for identifying tariffs and duties owed and for ensuring that documentation is in place. Our international trade team is available to provide advice. 

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[1] Press Release No. 25-58, DOJ, "False Claims Act Settlements and Judgments Exceed $2.9B in Fiscal Year 2024,"( Jan. 15, 2025), (https://www.justice.gov/archives/opa/pr/false-claims-act-settlements-and-judgments-exceed-29b-fiscal-year-2024) 

[2] United States ex. rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023). 

[3] Press Release No. 24-1145, "United States Files Suit for Unpaid Duties and Penalties for Alleged Transshipment of Chinese Aluminum Wire," (Sept. 13, 2024) (https://www.justice.gov/archives/opa/pr/united-states-files-suit-unpaid-duties-and-penalties-alleged-transshipment-chinese-aluminum)

[4] Press Release No. 23-031, DOJ, "U.S. Attorney Announces $22.8 Million Settlement of Civil Fraud Lawsuit Against Vitamin Importer for Underpaying Customs Duties Owed on Products Imported into the United States," (Jan. 30, 2023) (https://www.justice.gov/usao-sdny/pr/us-attorney-announces-228-million-settlement-civil-fraud-lawsuit-against-vitamin#:~:text=The%20settlement%20resolves%20claims%20that,after%20IVC%20finally%20corrected%20its)

[5] Press Release No. 20-1004, DPJ, "Multinational Industrial Engineering Company to Pay $22 Million to Settle False Claims Act Allegations Relating to Evaded Customs Duties," (Sept. 25, 2020) (https://www.justice.gov/archives/opa/pr/multinational-industrial-engineering-company-pay-22-million-settle-false-claims-act)