Unused merchandise drawback allows importers to recover nearly all of the customs duties they paid when imported goods are re-exported or destroyed without being used in the United States. The statute defines “use” narrowly enough that testing, cleaning, repacking, and similar operations do not disqualify the goods. But when merchandise is deployed for its intended commercial purpose — installed at a customer site, sold to a consumer, put into production — it has been used, and a drawback claim that says otherwise is a false claim for payment from the United States.

Aluminum extrusions from China have been subject to antidumping and countervailing duty orders since 2011, with combined duty rates that can exceed 300 percent. In October 2023, the U.S. Aluminum Extruders Coalition filed new AD/CVD petitions covering fifteen additional countries, requesting duties as high as 256 percent. The combination of punishing duty rates, broad product scope, and widespread evasion has made aluminum extrusions one of the most litigated product categories in customs fraud—and one of the most promising for False Claims Act whistleblowers.

The United States imports more than $60 billion in medical devices annually, a figure that has grown rapidly as multinational device companies have shifted manufacturing operations to Ireland, Germany, Costa Rica, and other countries. Much of this trade is between related parties: a U.S. parent company importing from its own foreign subsidiary, or a foreign parent importing through its U.S. affiliate. That related-party structure, combined with the genuine complexity of classifying medical devices across multiple HTSUS headings and the obligation to declare the value of assists like engineering and tooling, creates a distinctive set of customs fraud risks.

Every duty drawback claim depends on proof that goods were actually exported from the United States. The claimant must certify the export and support it with shipping records, Internal Transaction Numbers from the Automated Export System, and other documentation. When those records are fabricated, inflated, or unverifiable — when the drawback claim says goods left the country that did not actually leave, or left in smaller quantities than reported — every resulting payment is a false claim under the False Claims Act.

GRI 2 is the classification rule most importers never think about — and the one most easily exploited by those who do. GRI 2(a) requires that incomplete or unassembled goods be classified as the finished article they will become. GRI 2(b) extends material-specific headings to cover mixtures and combinations. When importers deliberately misapply either rule — shipping finished goods as “parts,” or concealing a product’s true material composition — the result is a false statement on every customs entry, and the False Claims Act consequences can be substantial.

Foreign Trade Zones allow companies to import, store, and manufacture goods without paying customs duties until the goods enter U.S. commerce — and to pay no duties at all on goods that are re-exported. These are legitimate and valuable tools for U.S. manufacturers and distributors. But the same features that make FTZs attractive for lawful commerce make them attractive for fraud: removing merchandise from a zone without proper entry, manipulating the inverted tariff election to pay a lower rate than the law allows, and using zone-to-zone transfers to obscure the origin or classification of goods. Each of these generates a false statement on a customs entry, and each is actionable under the False Claims Act.

The duty drawback system allows importers to recover nearly all of the customs duties they paid when imported goods — or goods manufactured from them — are later exported or destroyed. Under the substitution drawback provisions of 19 U.S.C. § 1313(b), an importer can claim a refund even when the actual exported goods are not the same goods that were imported, provided they are commercially interchangeable. That flexibility is essential to the program’s function. It is also the source of its most significant fraud risk: when a company claims drawback on exports of domestic merchandise that is not, in fact, interchangeable with the imported goods that generated the duty, every drawback claim is a false claim for payment from the United States.

Every product imported into the United States must be classified under a mandatory set of rules called the General Rules of Interpretation. The first rule — classify according to the terms of the headings and any relative section or chapter notes — resolves the vast majority of classification questions. It is also the rule whose misapplication has produced more False Claims Act settlements than all the others combined.

Many U.S. companies pay foreign engineers, designers, and developers to create the specifications, drawings, and technical files that their overseas manufacturers need to produce imported goods. When that work is performed outside the United States and is necessary for production, its value must be added to the declared customs value of the finished goods — whether or not it appears on any invoice. Companies that quietly offshore their product development without adjusting their customs declarations may be underpaying duties on every shipment, and that underpayment is a False Claims Act violation.

The rules that govern how imported goods are classified — the General Rules of Interpretation — are legally binding and hierarchical. When an importer deliberately misapplies them to make a high-duty product disappear into a low-duty classification, the result is a false statement on every customs entry. GRI 3(b), which governs how “sets” of goods are classified, is particularly susceptible to this kind of manipulation, and the consequences under the False Claims Act may be significant.

Many U.S. companies believe that shipping their own materials or components to a Chinese manufacturer reduces what they owe in customs duties when the finished goods come back. Sometimes it does. More often, it does the opposite — and companies that fail to account for those materials in their import declarations are quietly underpaying duties on every shipment. That underpayment is a False Claims Act violation, and employees who know about it can be paid to report it.

Section 301 tariffs on steel and aluminum from China have been in place since 2018 — and since they rose to 25% in May 2019, some U.S. companies have been quietly trying to avoid them. Through our work on the Precision Cable Assemblies case and others, we have seen firsthand how those evasion schemes work. The evidence to expose them is often sitting right inside a company’s own financial records.

Whistleblowers from Malaysia, Vietnam, Thailand, Taiwan, or anywhere else outside the United States who have knowledge of a scheme in which Chinese-manufactured goods are being falsely labeled as products of your country to avoid U.S. customs duties may be eligible for a substantial financial reward under U.S. law.

If you've discovered that your employer — or a competitor — has been evading customs duties, your first instinct might be to pick up the phone and call a lawyer. Unless experienced in customs duty cases, FCA whistleblower attorneys may not spend enough time explaining how eligibility for a False Claims Act award may be impacted if the company in question has already made a Tariff Act self-disclosure, or is in the process of doing so.

The Buy American Act and the Trade Agreements Act impose country-of-origin requirements on federal procurement. When a government contractor certifies compliance with those requirements while selling products that do not qualify, every invoice submitted under the contract is a potential false claim. In a world where almost everything in a modern supply chain has some Chinese content somewhere, the gap between what companies certify and what they actually sell to the government is, in many cases, enormous.

Last month’s ruling in Learning Resources v. Trump struck down the president’s emergency tariff authority. But the tariff landscape that actually drives customs fraud enforcement—Section 301, Section 232, antidumping and countervailing duties—was untouched. Here is what changed, what did not, and what it means for whistleblowers.

Companies facing tariffs have it hard enough without competitors cheating on tariffs. If you’re aware of a competitor engaged in a customs fraud scheme, the False Claims Act can help enforce compliance, while also offering rewards.

Recent tariffs pursuant to the International Emergency Economic Powers Act are disrupting global trade, creating new opportunities and incentives for fraud.

Companies reliant on the de minimis tariff exception recently suspended for China and Hong Kong may be tempted to turn to fraud to avoid the sudden and significant tariff burden.