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Two recent developments signal an increase of False Claims Act (“FCA”), 31 U.S.C. § 3729(a) et seq., risk to importers and manufacturers. On June 23, 2025, the Ninth Circuit upheld a verdict of over $24 million against Sigma Corporation (“Sigma”), an importer of welded outlets from China, for making false statements on customs forms to avoid paying antidumping duties. This decision issued a couple months after the United States intervened in a separate lawsuit against Barco Uniforms Inc. (“Barco”), a uniform company that allegedly schemed to withhold custom duties, primarily by undervaluing the apparel. Companies that import goods from other countries with knowledge of an underpayment or reckless disregard for the accuracy of their obligations put themselves at greater risk for FCA enforcement actions.

The FCA prohibits, among other things, the fraudulent retention of monies that a person or company is obligated to pay to the United States. The Department of Justice (“DOJ”) and qui tam relators (i.e., whistleblowers) have brought such allegations based on alleged avoidance of customs duties, tariffs, or similar “obligations” in a wide variety of contexts.

In Island Industries Inc. et. al. v. Sigma Corp. et. al., the government did not intervene, but relator Island Industries (“Island”), a competitor of Sigma, pursued an action alleging “that Sigma violated the FCA by making two types of false statements on customs forms to evade the antidumping duties that apply to welded outlets. Island alleged that Sigma (1) declared that the products it was importing were not subject to antidumping duties and (2) described the products as steel couplings even though it marketed them to customers as welded outlets.” No. 22-55063, 2025 WL 1730271, at *4 (9th Cir. June 23, 2025). Island presented evidence of both these allegations at the jury trial, leading the jury to return an $8 million verdict before trebling and penalties.

On appeal, Sigma argued that the case should have been brought in the Court of International Trade (“CIT”) and that it was entitled to judgment as a matter of law or a re-trial because Section 1952 of the Tariff Act (19 U.S.C. § 1952) provides the remedy for the government to recover custom duties that it alleges were fraudulently evaded and therefore displaces the FCA. But the Ninth Circuit rejected those arguments, finding that the case did not have to be initiated in the CIT, because that court has exclusive jurisdiction in cases brought by the United States to recover custom duties, but does not have exclusive jurisdiction in FCA cases brought by a private-party relator. Although the Tariff Act and the FCA overlap, they can coexist; the Tariff Act is not exclusive and the FCA can also cover antidumping duties, in which goods, like the welded outlets at issue here, were sold or “dumped” below their U.S. market value.

Significantly, the Ninth Circuit became the first federal appellate court to affirm a customs-based FCA trial verdict. This precedent-setting case will further encourage whistleblowers (who could be awarded up to thirty percent of damages in successful suits) to bring FCA complaints to the government alleging fraud in reporting correct import duties.

This decision comes only a couple months after the United States filed a complaint on April 11, 2025, pursuant to the FCA against Barco, intervening in a qui tam lawsuit originally filed nearly nine years earlier by the former director of product commercialization at Barco. The United States had previously informed the court on January 10, 2025, of its intention to partially intervene in the suit, and it opted to intervene to recover damages and civil penalties stemming from the alleged fraudulent undervaluation, fraudulent declaration, and underpayment of customs duties; false documentation created to support such underpayment; and conspiracy to do the same.

According to the complaint, Barco sells licensed uniforms to large businesses, including restaurant and fast-food chains and health care providers. The complaint also targets Kenny and David Chan, who supplied uniforms to Barco through their business entities in China. Purchases of commercial apparel imported from China have been subject to tariffs for decades. The complaint alleges that Barco and the Chans conspired to withhold custom duties on imported commercial apparel, primarily by undervaluing it. They allegedly used two sets of invoices for the same transactions—one set of real invoices reflecting the actual prices that Barco would pay the Chan companies for the garments, and one set of fake invoices used to support the artificially low values on forms submitted to U.S. Customs and Border Protection, leading to the fraudulently low calculations of the customs duties owed.

The United States is seeking to recover damages and civil penalties for the Defendants’ improper avoidance of their obligation to pay duties upon the merchandise entering the United States, known as a “reverse false claim”; the false records and statements submitted to the government material to the Defendants’ obligation to pay; the Defendants’ conspiracy to violate the FCA; and the Defendants’ unjust enrichment at the expense of the United States.

Looking Ahead: Increased Risk to Importers

Although the United States’ use of the FCA to recover underpaid or unpaid tariffs is not new, we expect it to be used even more as an enforcement tool given the scope of tariffs being enacted and the Trump Administration’s priorities. The Administration’s attention to larger tariffs and customs compliance will also increase FCA scrutiny on importing companies with significant financial obligations to the United States.

If you have any questions about this advisory, please contact Jolie Apicella at japicella@wiggin.com or Julie Edelstein at jedelstein@wiggin.com.