Auto Parts, Vehicles, and the False Claims Act: When Classification Determines Everything

In 2024, Ford Motor Company paid $365 million—one of the largest customs penalty settlements in history—for importing cargo vans from Turkey with sham rear seats to make them look like passenger vehicles. The difference between the two classifications: a 2.5 percent duty rate versus 25 percent. The Ford case is the most dramatic example of a problem that pervades the entire automotive sector. Vehicles and auto parts are classified under some of the most structurally complex headings in the Harmonized Tariff Schedule, with duty rates that can vary by a factor of ten depending on which side of a classification line a product falls. That complexity, combined with massive import volumes and aggressive Section 301 tariffs on Chinese-origin parts, creates fertile ground for customs fraud and False Claims Act liability.

A Tenfold Duty Spread

The automotive tariff structure is built on a distinction drawn in the 1960s that has never been fully rationalized. Passenger vehicles classified under heading 8703 of the HTSUS enter at a general duty rate of 2.5 percent. Commercial vehicles—trucks, vans, and vehicles for the transport of goods—classified under heading 8704 face a 25 percent duty rate. This tenfold spread is a legacy of the so-called “chicken tax,” a retaliatory tariff imposed during a 1963 trade dispute with Europe over frozen poultry. Sixty years later, the chicken tax continues to shape how vehicles are designed, manufactured, and imported.

Auto parts occupy their own classification thicket. Parts and accessories of motor vehicles are generally classified under heading 8708, with duty rates typically ranging from 0 to 4 percent depending on the specific part. But the classification of a component as a “part” of a vehicle versus a standalone article of another material can produce wildly different outcomes. A rubber gasket might be dutiable at 2.5 percent as an auto part under 8708 or at a different rate if classified as an article of rubber under Chapter 40. A steel bracket might be 8708 or it might be Chapter 73. An electronic control module might be 8708, or it might be an electronic integrated circuit under heading 8542. And when Section 301 tariffs layer an additional 25 percent on Chinese-origin goods in any of these categories, the classification choice becomes a classification incentive.

Ford Transit Connect: The $365 Million Sham Seat

The Ford case is the defining enforcement action in automotive classification fraud. Between 2009 and 2013, Ford imported approximately 162,833 Transit Connect cargo vans from Turkey. The government alleged that Ford installed temporary rear seats—seats that were never intended to carry passengers and were immediately removed after customs clearance—to make the vans appear to be passenger vehicles classifiable under heading 8703 at 2.5 percent, rather than cargo vehicles under 8704 at 25 percent.

The evidence of sham was extensive. The rear seats had no headrests, no lumbar support, and were covered in cheaper fabric than the front seats. There were no rear side airbags, no speakers, no handholds, no vents, and no carpet behind the front seats—just an exposed metal cargo floor. The rear doors were designed for cargo access. Immediately after clearing customs, every vehicle was taken to a warehouse on the marine terminal and stripped of its rear seats, returning the van to its factory-intended configuration as a two-seat cargo vehicle.

CBP initiated its investigation in 2013 and liquidated the vehicles at the 25 percent rate. Ford protested, lost at CBP, then sued in the Court of International Trade—and initially won. The CIT held that Ford’s practice constituted legitimate “tariff engineering.” But the Federal Circuit reversed, and the Supreme Court declined to hear Ford’s appeal. The $365 million settlement followed—roughly half in restitution of unpaid duties and half in penalties. CBP called it one of the largest customs penalty settlements in agency history.

The Ford case was brought under 19 U.S.C. § 1592 (the Tariff Act penalty statute) rather than the False Claims Act. But the underlying conduct—filing entry summaries that classified cargo vans as passenger vehicles—would equally support FCA liability. The DOJ has since made clear that it views the FCA as a “powerful tool” for customs enforcement, and the Ford settlement has been widely cited as a signal of the government’s willingness to pursue even the largest companies for classification fraud.

Centric Parts: The $8 Million Brake Pad Case

The auto parts side of the equation has its own FCA case law. In the Centric Parts case, a whistleblower reported that his former employer had conducted a long-running scheme to misclassify brake pads imported from Asia to avoid applicable tariffs. The case settled for $8 million. The whistleblower’s attorneys described it as a straightforward misclassification: the importer assigned HTS codes that produced lower duty rates than the codes that correctly described the merchandise.

Brake pads and brake linings are classified under heading 6813 (friction material) or heading 8708 (motor vehicle parts), depending on whether they are mounted or unmounted and on their specific composition. The duty rates differ, and the classification requires analysis of the product’s material composition, its stage of manufacture, and whether it has been sized or shaped for a specific vehicle application. An importer that systematically selects the lower-duty heading without performing this analysis—or that performs the analysis and ignores the result—generates false claims with every entry.

Section 301 and the Country-of-Origin Problem

Section 301 tariffs have added a second dimension of fraud risk to auto parts imports. Chinese-origin motor vehicle parts, including engines, transmissions, suspension components, brake systems, electrical parts, and body panels, face additional tariffs of up to 25 percent under the Section 301 trade action. These tariffs apply on top of the normal Chapter 87 duty rates.

The incentive structure is clear. A brake caliper manufactured in China and correctly declared as Chinese-origin faces the normal duty rate plus 25 percent under Section 301. The same caliper, shipped to Vietnam for repackaging and declared as Vietnamese-origin, avoids the Section 301 surcharge entirely. Whether the repackaging in Vietnam constitutes “substantial transformation” sufficient to change the country of origin is a fact-specific determination under customs law—and one that many importers resolve in their own favor without adequate analysis.

The aftermarket auto parts industry is particularly vulnerable. Thousands of small and mid-size distributors import brake pads, rotors, filters, belts, hoses, lighting assemblies, and body panels from Chinese factories. Many of these distributors lack in-house customs compliance expertise. They rely on freight forwarders and customs brokers to classify their merchandise, and they may not scrutinize whether the classifications and country-of-origin declarations on their entry summaries are accurate. When those declarations are wrong—and especially when they are wrong in a way that consistently favors the importer—the FCA’s scienter standard is satisfied by deliberate ignorance or reckless disregard.

Valuation Fraud and Undeclared Assists

The Ford settlement also encompassed valuation issues beyond the sham-seat classification. The government alleged that Ford undervalued its Transit Connect imports through errors in calculating deductions for non-dutiable charges, failing to declare engineering and tooling costs, and mishandling the valuation of components assembled abroad from U.S.-origin parts. The engineering and tooling cost issue is particularly significant for the broader auto parts industry.

When a U.S. importer provides designs, engineering specifications, tooling, molds, or dies to a foreign manufacturer—free of charge or at reduced cost—to enable the production of imported parts, those items are “assists” under 19 U.S.C. § 1401a(h) and must be added to the declared transaction value of the imported goods. In the auto parts sector, it is common for U.S. companies to provide CAD files, engineering drawings, prototype tooling, and production molds to contract manufacturers in China, Vietnam, or Mexico. If the cost of those assists is not added to the customs value, the declared value is understated, and the duties paid are correspondingly too low. Every understated entry is a potential false claim.

What Employees Should Watch For

The automotive supply chain is vast, and the opportunities for classification, valuation, and country-of-origin fraud are correspondingly wide. Employees at auto parts importers, OEM purchasing departments, aftermarket distributors, customs brokers, and freight forwarders may observe warning signs including:

Parts classified under headings that do not match the product’s actual function or material. A steel stamping classified under Chapter 73 (articles of steel) rather than heading 8708 (motor vehicle parts), or vice versa, to capture a lower duty rate or avoid Section 301 applicability.

Chinese-origin parts routed through Vietnam, Thailand, or Malaysia with minimal or no processing. If the parts arrive at the third-country facility already manufactured and leave with nothing more than new packaging or labels, the country-of-origin declaration is likely false.

Engineering drawings, tooling, or molds provided to overseas manufacturers without any corresponding assist declaration on the customs entry. If the U.S. company designed the part and sent the tooling overseas, the entry value should reflect that contribution.

Post-importation modifications that change the character of the product. The Ford case is the extreme example, but smaller-scale versions of the same practice—importing a product in one configuration to obtain a favorable classification, then modifying it immediately after clearance—may occur with auto parts as well.

The auto parts sector imports tens of billions of dollars in merchandise annually, with Chapter 87 alone accounting for one of the largest import categories in the HTSUS. The combination of complex classification rules, wide duty-rate spreads, Section 301 tariffs, and a fragmented industry with thousands of importers of varying compliance sophistication makes this a high-priority category for FCA enforcement. If you have information about potential customs fraud involving vehicles or auto parts, an experienced customs fraud and False Claims Act attorney can evaluate your information in a confidential consultation.