Products were falsely declared to be of Thai origin when, in reality, they were made in China and only “transshipped” through Thailand.
U.S. Customs and Border Protection (“CBP”) has cracked down on a scheme to evade hundreds of millions of dollars in antidumping and countervailing duties (“AD/CVDs”) on imports of Chinese-origin “oil country tubular goods” (or “OCTGs”). According to a ruling issued by the agency, the scheme involved two customs fraud strategies: transshipment and undervaluation.
The Transshipment of Imports to Evade AD/CVDs
CBP found that the OCTGs—steel pipes and other tubular products used in oil and gas drilling and production—had been transshipped from China through Thailand before being imported into the United States. The products had, however, only undergone “minimal” processing in Thailand rather than the “substantial transformation” required to change their “country of origin” for customs purposes.
Nevertheless, upon entry through U.S. customs, they were falsely declared to be of Thai origin, circumventing the otherwise applicable AD/CVDs.
CBP uncovered that the Thai exporters had imported nearly fully manufactured OCTGs from China and performed minor finishing steps before shipping them to the U.S. importers with false country-of-origin documentation.
Import Undervaluation and False Documentation on OCTG Imports
CBP additionally found that some of the importers had significantly underreported the value of those products when entering them into the United States. They filed copies of commercial invoices with CBP containing prices that did not match those on the originals, unlawfully circumventing millions of dollars in additional customs duties.
The scheme involved false commercial invoices, Form 7501 entry summaries, mill certificates, purchase orders, and other critical documents. During the investigation, several importers refused to provide requested information or made apparently false statements about their affiliation with other parties involved in the transactions and other matters.
According to the U.S. OCTG Manufacturers Association, whose complaint prompted CBP to investigate, the scheme resulted in more than $300 million in evaded customs duties. The companies that imported the goods have been assessed those sums.
Blowing the Whistle on Customs Fraud
While CBP pursued the OCTG investigation under its enforcement authority, fraudulent practices like transshipment, misrepresentation of the country of origin, or undervaluation aimed at evading lawfully owed import duties can also be the basis for whistleblower lawsuits under a federal statute called the False Claims Act.
The FCA allows people with evidence of fraud—known as qui tam “relators”—to become whistleblowers by filing lawsuits on behalf of the U.S. government. The statute applies to parties that defraud federal programs or that fraudulently evade payments they owe to the government. False statements to reduce or avoid customs duties are actionable under the FCA.
FCA violators are subject to severe penalties, including treble (triple) damages, civil penalties, and payment of attorneys’ fees and costs. Whistleblowers who bring successful FCA cases, meanwhile, can receive substantial rewards—typically between 15% and 30% of any funds recovered by the government.
What Red Flags Should Customs Fraud Whistleblowers Look Out For?
The OCTG investigation highlights red flags that potential customs fraud whistleblowers should be on the lookout for, including:
- Minor processing in third countries: Companies shipping nearly finished products from countries subject to AD/CVD orders to third countries for minor finishing steps (insufficient for “substantial transformation”) before exportation to the United States.
- False country-of-origin declarations: misrepresenting imported products’ true origin on customs entry documentation.
- Undervaluation or misclassification: declaring artificially low values or incorrect tariff classifications for imported goods.
- Falsified documentation: Filing customs entry documents that have been fraudulently modified or altered to mislead the government regarding the origin or value of the merchandise or the type of product it consists of.
CBP uncovered these and other practices in the OCTG matter. Customs fraud whistleblower cases have resulted in substantial recoveries for the U.S. government and significant rewards for the relators who brought them.
Speak with a Customs Fraud Whistleblower Attorney
Customs fraud is pervasive, and whistleblowers are critical to uncovering such schemes. If you have evidence of a company engaging in transshipment fraud or other forms of customs evasion—including undervaluation, misclassification, false country-of-origin declarations, or other deceptive practices—you may be in a position to bring a successful FCA whistleblower claim.
Reach out to experienced customs fraud whistleblower attorney Mark A. Strauss for a free and confidential consultation to discuss your rights under the False Claims Act. The attorney-client privilege protects all communications with Mr. Strauss, and you pay no legal fees unless we recover a whistleblower reward.
