This Post at a Glance:
- Company made false statements related to import duty charges
- Investigation initiated by whistleblower complaint from company’s competitor
- Trump Administration likely to impose more anti-dumping duties
On February 6, 2018, the Department of Justice (DOJ) announced that Home Furnishings Resource Group Inc. (HFRG), of Hermitage, Tennessee, agreed to a $500,000 settlement to resolve allegations that the company violated the False Claims Act (FCA). The DOJ contended that HFRG made false statements on customs declarations to avoid paying anti-dumping duties on wooden bedroom furniture that HFRG imported from China between 2009 and 2014.
According to the DOJ, HFRG misclassified the imported furniture as “non-bedroom” on official import documents. Imports of China-made wooden bedroom furniture have been subject to anti-dumping duties since 2004; wooden non-bedroom furniture, which is how HFRG apparently classified its imported furniture, was not subject to any anti-dumping duties.
The difference between anti-dumping duties and no duties can be very significant. It certainly was in the HFRG case: at the time of the alleged misconduct, wooden bedroom furniture was subject to a 216 percent anti-dumping duty.
Competitor Used FCA Whistleblower Provision to Bring Claims
Interestingly, the case was initiated by a competitor of HFRG, University Loft Company (ULC), which made the allegations under the whistleblower provisions of the FCA. Under the FCA, a private party acting on behalf of the U.S. government can sue an entity that falsely claims federal funds or – as in this case – that improperly avoids paying funds to the government. The FCA also provides for the whistleblower to receive a share of any funds recovered. ULC will reportedly receive $75,000 from the settlement.
This is not the first time that ULC has used the FCA’s whistleblower mechanism to claim underpayment of customs duties. In 2015, ULC received $2.25 million of a $15 million settlement that the DOJ reached with a Texas-based furniture company, University Furnishings LP, that ULC claimed had knowingly misclassified imported furniture to avoid customs duties. ULC has used the FCA to both draw the government’s attention to competitors’ customs violations, and reap significant financial rewards in the process.
Harmonized Tariff Schedule Classifications Can be Challenging
It is not clear from the public reporting of the case whether HFRG intentionally misclassified its imports, was so careless about its classification of imports that its actions could have been deemed reckless (which is sufficient to meet the FCA’s knowledge standard), or simply settled to avoid the cost of continued litigation. We would simply note that, as anyone who has tried to navigate the U.S. Harmonized Tariff Schedule (HTS) can attest, it is often difficult to determine the correct HTS code of a product. At the very least, the settlement is a reminder of the critical importance of identifying the correct HTS code given that is the basis for the duties owed on an imported product.
DOJ Likely Will Continue to Target Customs Fraud
While anti-dumping duties are assessed by the Department of Commerce and collected by Customs, as this case makes clear, the DOJ can and will get involved in matters where a potential fraud has been committed against the United States. In fact, in announcing this resolution, the DOJ emphasized that customs laws are a key means by which to protect domestic companies and U.S. workers from unfair foreign competition.
The DOJ’s position is consistent with that of the Trump Administration, which continues to use and consider the use of anti-dumping and countervailing duty laws in an effort to fight what the administration perceives to be unfair trade. When those laws are evaded, the DOJ will be a vigorous enforcer – regardless of whether an issue is first raised by a whistleblowing competitor or uncovered by a government investigation.st.