Undervaluation, False Cost of Goods, or Double Invoicing
Customs duties are assessed based on information provided to a company’s customs broker, and/or Customs and Border Patrol, directly. Although the information must be certified by the importer of record, the information — which includes “cost of goods” figures for imported goods — is not independently verified. To cope with new tariffs or customs duties, or duties a company believes is unfair, the temptation can be strong to simply report the value of imported goods lower.
It is not true, however, that just because records are not used to verify valuation at the time of entry, records are not available. Even when purchasing goods from an affiliated foreign company, an importer of record has often paid an actual price for the goods. By paying one price and declaring a different value to CBP, a company may end up with two sets of books, sometimes referenced as “double invoicing.” This practice can be difficult for the United States to detect without the help of an insider or industry specialist, but once detected, this type of fraud can make for a particularly strong type of False Claims Act case.
False costs of goods or undervaluation cases have been pursued by private whistleblowers and the United States through the False Claims Act with many successes. Some cases are identified below; all information comes from public sources. The summaries below contain some information that may be allegations only, as the settlements do not necessarily entail an admission of fault.
U.S. ex rel. Grob v. Precision Cable Assemblies, Inc., et al. (2023)
Precision Cable Assemblies, Inc. (PCA) and Global Engineered Products, Inc. (GEP), along with their principals, were alleged to have underreported the value of goods imported from China. The companies purportedly provided falsified invoices with significantly reduced values to U.S. Customs and Border Protection (CBP), resulting in the underpayment of customs duties. This undervaluation scheme allowed them to offer products at lower costs, undermining fair competition. The whistleblower, a former employee, provided evidence of the fraudulent practices.
U.S. ex rel. Doe v. ADCO Industries, et al. (2023)
ADCO Industries, a Dallas-based importer, along with two Chinese companies—Xiamen Atlantis MFC Co., Ltd. and Xiamen Taft Medical Co., Ltd.—and two individuals, were alleged to have conspired to underreport the value of imported goods. They purportedly submitted falsified invoices with lower values to U.S. Customs and Border Protection (CBP), resulting in the underpayment of customs duties. This scheme allowed them to reduce costs and gain an unfair competitive advantage.
U.S. ex rel. Doe v. American Dawn, Inc. (2020)
American Dawn, Inc., a textile importer, was accused of misclassifying goods to evade higher customs duties. The company allegedly declared certain textile products under incorrect tariff classifications, resulting in the underpayment of duties owed to the U.S. government. This misrepresentation allowed American Dawn to reduce import costs and gain an unfair competitive advantage.
U.S. ex rel. Doe v. Linde GmbH and Linde Engineering North America, LLC (2019)
It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you tell your story online can make all the difference.
U.S. ex rel. Graphite Electrode Sales, Inc. v. Ameri-Source International Inc., et al. (2016)
Ameri-Source International Inc., Ameri-Source Specialty Products Inc., Ameri-Source Holdings Inc., SMC Machining LLC, and individuals Ajay Goel and Thomas Diener were accused of evading antidumping duties on small-diameter graphite electrodes imported from China. The defendants allegedly misclassified the size of the electrodes and provided false information to U.S. Customs and Border Protection (CBP) to avoid paying the required duties. This misrepresentation allowed them to sell the products at lower prices, undermining fair competition.
United States v. Motives, Inc., et al. (2016)
Motives, Inc., along with its foreign manufacturers Motives Far East and Motives China Limited, was accused of engaging in a double-invoicing scheme to defraud the United States by underreporting the value of imported apparel. The companies allegedly presented falsified commercial invoices to U.S. Customs and Border Protection (CBP) that understated the value of goods, resulting in the underpayment of customs duties. This practice allowed them to reduce import costs and gain an unfair competitive advantage.
United States ex rel. Folliard v. CDW-Government, Inc. (2015)
CDW-Government allegedly provided false information about the cost and origin of goods sold under government contracts. The company purportedly misrepresented costs, inflating product prices for government agencies, which violated the Trade Agreements Act. A competitor filed the claim, citing overcharges and improper cost representations, demonstrating the FCA’s application in enforcing accurate pricing and origin data under government contracts.
U.S. ex rel. Valenti v. Tai Shan Golden Gain Aluminum Products Ltd. (2015)
Tai Shan Golden Gain Aluminum Products Ltd. allegedly misrepresented the origin and undervalued aluminum extrusions imported to the U.S., routing Chinese products through Malaysia to evade antidumping duties. The complaint claimed that falsified invoices with reduced values were submitted to CBP to lower duty costs. This case emphasizes the FCA’s role in enforcing accurate valuation and origin reporting for imports.
U.S. ex rel. Valenti v. C.R. Laurence Co., Inc., et al. (2015)
C.R. Laurence Co., Inc. and others allegedly misrepresented the origin and undervalued aluminum extrusions from China, labeling them as Malaysian-made and providing falsified lower-value invoices to evade duties. This misrepresentation allowed the companies to pay lower antidumping and countervailing duties, illustrating the FCA’s role in enforcing truthful import valuation and origin reporting.
U.S. ex rel. Minge v. TECT Aerospace, Inc. (2014)
TECT Aerospace was accused of inflating the cost of materials used in products supplied to the U.S. Department of Defense. The company allegedly submitted false cost data that inflated contract prices, although it wasn’t a direct customs case. Former employees detailed overcharging practices, impacting the valuation of goods under government contracts. The case illustrated the FCA’s reach into misrepresented cost structures, especially those affecting government expenditures.
U.S. ex rel. Doe v. Otterbox (2014)
OtterBox allegedly underreported the value of protective cases imported from China by excluding certain production costs, such as engineering and mold expenses, from the declared value. This undervaluation reduced customs duties owed on the imported goods, prompting the government to scrutinize cost reporting practices under the FCA.
U.S. ex rel. Doe v. Dana Kay and Siouni & Zar Corp. (2014)
Dana Kay and Siouni & Zar Corp., apparel manufacturers, were alleged to have used dual invoicing to undervalue goods imported to the U.S. One set of invoices, with lower values, was presented to CBP, while a second set with actual prices was maintained internally. This undervaluation scheme allowed the companies to evade higher customs duties, demonstrating FCA enforcement in apparel import fraud.
U.S. ex rel. Knoflick v. Green Bag Co., Inc. (2014)
Green Bag Co., Inc., a manufacturer of reusable shopping bags, was accused of underreporting the value of goods imported from China. The company allegedly provided falsified invoices to CBP, declaring values significantly lower than the actual prices paid, to reduce customs duties owed. This practice allowed Green Bag to sell products at lower prices, gaining an unfair market advantage. The whistleblower, a former employee, revealed the company's systematic undervaluation scheme.
U.S. ex rel. Doe v. Noble Jewelry Holdings Ltd. (2011)
Noble Jewelry Holdings Ltd., a Hong Kong-based company, allegedly underreported the value of jewelry imported into the U.S., submitting falsified invoices to U.S. Customs and Border Protection (CBP) with values significantly lower than actual sales prices. This undervaluation aimed to reduce customs duties owed. A former employee provided evidence of the company’s systematic undervaluation practices, highlighting the importance of accurate valuation in import declarations.
U.S. ex rel. Bunk v. Birkart Globistics GmbH & Co. (2011)
Birkart Globistics, a logistics company, was accused of inflating moving charges for services provided to the U.S. military. Allegations included submitting false invoices that overstated costs for transportation and related expenses. Although not a traditional customs case, the false cost representation affected the valuation of services under government contracts, highlighting the FCA’s role in addressing inflated service charges.
U.S. ex rel. Tsang v. New Mode Sportswear, Inc. (2010)
New Mode Sportswear, Inc., an apparel importer, allegedly engaged in a double-invoicing scheme to understate the value of goods imported from China. The company provided CBP with lower-valued invoices while maintaining higher-value invoices for internal records. This misrepresentation allowed the company to evade higher customs duties. The whistleblower, a former shipping manager, exposed these fraudulent practices, underscoring the FCA’s role in tackling undervaluation schemes.