On February 12, 2015, the Department of Justice announced that three domestic importers have agreed to pay $3,050,000 to resolve a lawsuit brought under the False Claims Act (FCA). The lawsuit alleged that the three importers, who sell shower doors and shower enclosures, engaged in schemes to evade antidumping and countervailable duties on imports of aluminum extrusions from the People’s Republic of China (PRC). The companies, California-based C.R. Laurence Co. Inc., Florida-based Southeastern Aluminum Products Inc. and Texas-based Waterfall Group LLC, have agreed to pay $2,300,000, $650,000 and $100,000, respectively.
The complaint alleged the companies engaged in a practice known as “transshipping.” To effectuate this scheme, the three importers allegedly shipped aluminum extrusions manufactured in the PRC to Malaysia, then imported these aluminum extrusions to the United States with false “country of origin” declarations stating the imports originated in Malaysia. Unlike the PRC, AD and CV duties are not assessed on aluminum extrusions from Malaysia. Therefore, as alleged in the complaint, the three importers knowingly made false declarations to Customs and Border Protection to avoid paying money to the federal government, which implicated liability under the FCA.
The FCA imposes civil liability for any person who submits a false claim for payment to the government, or as the case here, imposes liability for a “reverse false claim,” where one makes a false representation to avoid paying money to the government. The FCA imposes significant damages upon violators: civil penalties ranging from $5,500 to $11,000 for each false claim submitted to the government and treble the amount of the government’s damages. However, if a person reports a violation of the FCA to the government under certain conditions, the FCA provides that the person shall be liable for not less than double damages.
The FCA also contains a private enforcement mechanism known as the qui tam provision, which allows private parties to file suit on behalf of the government and receive a portion of recovered funds. Under the qui tam provisions, whistleblowers are entitled to receive between 15-25 percent of the government’s recovery if the government decides to intervene and take over the case. If the government decides not to intervene, whistleblowers are entitled to receive 25-30 percent of the recovery. The allegations against the three importers were originally brought as a qui tam action by whistleblower James F. Valenti Jr. in the U.S. District Court for the Middle District of Florida. The government decided to intervene in the action and Mr. Valenti will receive $555,100 as his share of the settlements.
As this settlement demonstrates, the FCA is a powerful enforcement tool for the United States and the Department of Justice has increasingly utilized the FCA to impose liability on importers attempting to fraudulently avoid AD and CV duties. Furthermore, the potentially large whistleblower recoveries provide strong incentives to insiders with knowledge of AD/CVD avoidance to file a qui tam suit.
As noted by the Department of Justice, “the claims resolved by the settlements are allegations only; there has been no determination of liability.” The lawsuit is captioned United States ex rel. Valenti v. Tai Shan Golden Gain Aluminum Products Ltd., et al., Case No. 11-cv-368 (M.D. Fla.).