9th Circuit FCA Decision to Usher in Wave of New Customs Enforcement, Law Firms Say
The U.S. Court of Appeals for the 9th Circuit's recent ruling in a trade-related False Claims Act case likely will create more customs fraud enforcement led by private parties and should lead importers to be extra wary that they are complying with U.S. trade laws, various laws firms said. The case is Island Industries v. Sigma Corp. (9th Cir. # 22-55063).
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Last month, the 9th Circuit upheld a jury's determination that importer Sigma Corp. is liable under the FCA for lying about whether its imports were subject to antidumping duties (see 2506240037). The decision was notable on several fronts, including for the facts that it said jurisdiction in the case, which was brought by one of Sigma's competitors, was proper in federal district court and not the Court of International Trade, and that the law's scienter element refers to a defendant's actual knowledge that its statements are false and not an objective-reasonableness standard.
In response to the decision, attorneys at Crowell & Moring said the case should serve as a "cautionary tale of the growing risk to U.S. importers as the FCA is increasingly used as an enforcement tool for the underpayment of duties." The firm said key takeaways for importers should be to expect more enforcement action taken by their competitors, given that they can get a cut of up to 30% of the amount recovered by the U.S., and to be aware that lack of actual knowledge isn't a complete defense.
Crowell attorneys noted that at trial, the relator didn't provide evidence that Sigma had actual knowledge it violated the law when it told CBP its goods aren't subject to AD. Instead, to satisfy the scienter element, it was enough to show that Sigma acted with "deliberate ignorance or reckless disregard for the truth or falsity of its customs forms."
As a result, "importers should consider assessing their current trade compliance programs, including their valuation, country of origin, and classification practices," the Crowell attorneys said.
Attorneys at DLA Piper issued similar advice following the decision, telling importers to ensure they take "reasonable care" when making declarations to CBP regarding imports into the U.S. Such care should include a review of the applicability of tariff regimes, strengthening import compliance programs, ensuring product descriptions on commercial invoices are accurate and monitoring all trade-related executive action.
The ruling also likely will lead to a "new era of trade enforcement with private parties acting against competitors and others in the import market," attorneys at Buchanan Ingersoll said. FCA enforcement led by private parties has ballooned in the defense, life sciences and healthcare fields, and now trade enforcement likely will follow suit, the alert said. The 9th Circuit's decision "has lowered the jurisdictional and procedural hurdles that the qui tam plaintiffs must clear in a customs enforcement case," and it has shown that "importers cannot avoid FCA liability by putting their heads in the sand and failing to investigate their tariff obligations."