Virginia Lawyers Weekly Article on Qui Tam Actions to Enforce Tariffs
Recently I was quoted in an article in Virginia Lawyers Weekly on the use of the federal False Claims Act — and specifically the qui tam provisions of the FCA — to enforce trade tariffs. You can read the full article here.
What exactly are tariffs anyway?
Tariffs are collected at the time an item is imported into the United States, and basically operate as a kind of tax on imported items of foreign manufacture. In addition to serving as a source of revenue for the government, tariffs also serve to protect and stimulate domestic industries because they make foreign items more expensive. They also serve as a tool of international diplomacy, because lower tariffs can be dangled before other countries to encourage them to come into line with American priorities.
Tariffs, of course, are nothing new and evidence of them has been found in the ancient Greek city-state of Athens. In the United States — where the government initially had no authority to tax — tariffs were a major source of revenue after the Tariff Act of 1789. The Trump administration, however, has made tariffs a central part of its efforts to stimulate domestic manufacturing, and has done so to a much greater extent that past presidential administrations. At the time of this writing, it appears that the government is in the process of working out the exact levels of tariffs to be imposed, and there is still a great deal of speculation about the exact form — and amount — any new tariffs will eventually take.
But there is one thing about which no one needs to speculate: as tariffs increase, there will be a increased incentive to cheat…and enforcement of the tariffs will require qui tam relators and their counsel if they are to be effective.
What is the link between the qui tam provisions of the federal False Claims Act and tariffs?
Tariffs are assessed at the time the item is imported into the United States and are based on the ad valorem value of the items. In other words, the tariff is calculated as a percentage of the value of the item. This makes it possible to avoid customs duties in two main ways: first, by under declaring the value of the items at the time of import and, second, by misrepresenting the items as something other than what they are.
The federal False Claims Act is, therefore, specifically useful for tariff enforcement because it incentivizes individuals with knowledge of wrongdoing to come forward and file a qui tam action. The U.S. Customs and Border Patrol is responsible for collecting tariff duties on all imported items, and it does so by requiring all importers to file a CBP Form 7501.
This is the document that serves as the “claim” to the United States. As I tell people nearly every week, my approach to FCA cases is always to find the “claim” at issue and work backwards from there. The specific false claim that would be found in the CBP Form 7501 would fall under 31 U.S.C. §3729(a)(1)(G) which makes it illegal to “knowingly make, use, or cause to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government…”.
This type of false claim is often called a “reverse false claim” because it concerns making a false or fraudulent claim to avoid paying money to the government, instead of making a false or fraudulent claim to obtain money from the government.
As a result of the truly massive volume of imports that come into the United States every single day, customs officials are unable to inspect every single container and therefore rely on the honesty of importers when filing their CBP 7501. Virginia is home to some of the busiest deep-water ports not only in the United States but in the world; in 2022 the Virginia Port Authority recorded a record-breaking 3.7 million twenty-foot equivalent units or “TEUs”. Each ship that comes into Norfolk holds, on average, about 15,000 of these units. Enforcement of tariffs by the men and women of the CBP would simply be unthinkable — there simple isn’t enough manpower to comb through 3.7 million TEUs each year.
But a qui tam relator, on the other hand, has personal knowledge of wrongdoing and can streamline enforcement of any new tariffs instituted by the Trump administration. As I said in the Virginia Lawyers Weekly article, Virginia qui tam lawyers are well-positioned to bring these cases, as Virginia has some of the highest-volume ports in the world.
We should see an uptick in these types of claims fairly soon…stay tuned readers!
