The automaker allegedly evaded 90% of the tariffs it owed on cargo vans made in Turkey by installing “sham” seats and misclassifying them as “passenger” vehicles
Ford Motor Company (NYSE: F) has paid $365 million to resolve federal charges it evaded $183 million in import duties by misclassifying light-duty Transit Connect cargo vans manufactured in Turkey as “passenger” vehicles when importing them. The settlement is believed to be one of the largest involving allegedly intentional tariff evasion by a major U.S. company
Deliberate HTSUS misclassification
Ford allegedly outfitted the vans with “sham” passenger seats designed to be removed immediately after clearing customs, misclassifying the imports as “passenger” vehicles subject to a tariff of just 2.5% under the Harmonized Tariff Schedule of the United States (known as the HTSUS) rather than the 25% tariffs owed on light-duty cargo vehicles, U.S. officials said.
The seats were “temporary and cheaply designed,” lacking head restraints, backrest reinforcement pads and adequate folding mechanisms, and were never intended for actual use, the government alleged. By the scheme, Ford deliberately underpaid the import duties it owed by 90% on nearly 163,000 cargo vans, according to the U.S. Department of Justice.
U.S. Customs and Border protection, known as CBP, learned about and investigated Ford’s practice and issued a letter ruling that it constituted an illegal “fraud or artifice” to evade higher duty rates, with Ford having installed the “sham” seats “only to manipulate the tariff schedule rather than for any manufacturing or commercial purpose.” A federal appeals court agreed with CBP’s determination.
The steeply higher cargo-vehicle tariff rate which Ford allegedly circumvented dates to the 1960s and is known in the auto industry as the “chicken tax,” so called because the U.S. government imposed it in retaliation for European tariffs on U.S. poultry.
Customs Fraud and the False Claims Act
While the settlement with Ford stemmed from a customs enforcement action brought by the government under the U.S. Tariff Act, the deliberate misclassification of imports to evade higher duty rates can also be grounds for lawsuits under another federal statute called the False Claims Act.
The False Claim Act’s qui tam provisions authorize private parties to sue on the U.S. government’s behalf, thereby becoming whistleblowers. The government has the right to intervene in and assume the prosecution of qui tam whistleblower cases. Nevertheless, the whistleblower is entitled to a reward of 15%-30% of any recovery, which can be substantial as False Claims Act violators can be held liable for up to three times or “treble” the government’s losses, i.e., the importer’s unpaid duties.
Had the settlement with Ford resulted from a False Claims Act lawsuit, the whistleblower would have received a reward of up to $55 million.
Schemes to evade customs tariffs like that allegedly conducted by Ford are believed to be rampant, particularly with respect to imports which are subject to especially high duty rates, including antidumping and countervailing duties, known as AD/CVDs. A prime example are imports from China which carry tariff rates of up to 25% under Section 301.
The U.S. government is highly reliant on False Claims Act whistleblowers to expose customs fraud and tariff evasion because it is a type of fraud which is otherwise difficult to detect. Given the enormous quantities and values of U.S. imports, opportunities to blow the whistle on dishonest importers abound. Parties with evidence or information about tariff evasion and thus situated to blow the whistle include employees, competitors and counterparties of importers as well as industry analysts and trade consultants.
While Ford allegedly evaded the tariffs it owed on the vans by using an erroneous HTSUS classification, customs fraud can also involve undervaluation, double invoicing, transshipment.
If you know of an importer cheating on its customs duties, contact highly experienced customs-fraud whistleblower attorney Mark A. Strauss for a free and confidential consultation. All communications with Mr. Strauss are protected by attorney-client privilege.
Customs-fraud whistleblowers need not reside in the United States but can be from any country. To be eligible for a qui tam whistleblower reward, however, the whistleblower must be represented by counsel and file a lawsuit under the False Claims Act, as tipping off CBP by other means is insufficient.
